This is a copy of the July 15th edition of our weekly Newsletter, which we have been publishing since October, 2015.
The Canadian Cannabis LP Index managed by New Cannabis Ventures has retreated to its lowest close of the year, a level not seen since mid-December, and is now down over 19% in 2018. To keep things in perspective, the index has still rallied substantially over the past year despite the recent correction:
Looking deeper into the sector, there has been a vast difference in the performance by stage of maturity. We break the LPs into three tiers, with Tier 1 representing the largest LPs in terms of sales, Tier 2 representing the remaining LPs that are permitted to sell and Tier 3 representing those LPs that can cultivate but not yet sell.
Here is how the three tiers have performed year-to-date:
- Tier 1: +10.2%
- Tier 2: -19.3%
- Tier 3: -24.3%
We have heard from several readers seeking an explanation about the luke-warm reaction to the news last month that Canada will be officially legalizing cannabis in October, so we thought we would share our thoughts.
One of the most difficult lessons for investors is figuring out what’s priced in, and it’s important to remember that legalization was widely expected. Another factor may be the slight delay, as the October 17th date was 45-60 days further out than most had expected. Weighing beyond this “sell the news” factor, though, are several dynamics, including supply of shares and a proliferation of new LPs.
In recent weeks, the market has absorbed several large offerings, including $100 million from CannTrust, $17 million from Emerald Health and $52 million from Newstrike in May and $259 million from Aphria and $600 million from Canopy Growth (convertible notes) in June. Heavy selling early in the year also weighed on the market.
Also, since April, the universe of publicly-traded LPs has expanded from 32 to 40, with the recent additions of 48North, Eve & Co, FSD Pharma, GTEC Holdings, James E. Wagner Cultivation, Pure Global Cannabis, Sproutly and The Green Organic Dutchman. Tilray, which will be a “Tier 1” stock, should debut mid-week on the NASDAQ. There is likely more ahead too.
Finally, we believe the market may be beginning to factor in concerns about a less-than-robust rollout of retail cannabis this Fall due to constrained inventories and few stores open in key provinces like Quebec and Ontario.
Cova’s cannabis compliant retail software is helping to solve some of the biggest challenges in the cannabis industry. To learn more, visit the company’s page on New Cannabis Ventures and click the green Get More Info button.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
- Guest Post: 5 States Expected to Legalize Cannabis by 2020
- Aurora Cannabis Acquires CannaRoyalty Pre-Roll Technology License for $7 Million
- British Columbia Names 31 Initial Cannabis Suppliers
- Exclusive: Canadian Medical Cannabis Patient Growth Slows
- Exclusive: Here Are Four Cannabis Companies Actively Hiring New Team Members
- Hiku Brands to Join Canopy Growth and Abandons WeedMD Acquisition
- Kush Bottles Q3 Revenue Grows 173% to $12.9 Million
- New CEO Highlights TGOD’s Opportunities
- Newly Public Green Thumb Industries Raises C$80.3 Million Selling Shares at C$11.00
- Supreme Cannabis Doubles Production Capacity to 10 Million Grams with Health Canada Approval
- Tilray NASDAQ IPO Values Company Near $1.5 Billion
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Alan & Joel