How HIGH Can It Fly? Tilray And Cannabis ETF (MJ) Prepare To Rally 25% More To The Upside

Over the past few weeks, a unique opportunity continues to unfold in the Cannabis & Marijuana sector.  I highlighted this near the end of May 2021 with a research article showing how a multiple upside price wave setup may start to unfold after a recent momentum base/bottom setup across various cannabis/marijuana sector symbols.  The confluence of price patterns across a number of cannabis sector stocks suggests a bigger price trend may be about to setup.  My team and I believe this new momentum base/bottom may prompt a strong upside price trend throughout the end of 2021 and may prompt a continuation of this trend into 2022.

Today, I am revisiting these same charts/symbols to see how far things have progresses since our May 31, 2021 research post.  Let’s get started with the charts.

MJ Still Setup For A +14% Rally To Levels Near $24.50 (Or Higher)

This Weekly MJ chart shows the deep momentum base/bottom near $19.90 with moderate upside support above $20 to $21. Using a Fibonacci 100% Measured Move technique, we can identify upside targets near $22.40 and $24.50. Over the past two weeks, MJ actually reached the $22.40 target with recent highs.  Yet, price closed the week lower, near $21.59.

I am also seeing strong trading volume as this new upside price trend extends higher.  This increased volume is a good indication that the upside price trend is starting to build momentum as traders accumulate shares in anticipation of the bullish price rally phase.

My team and I still believe the upside potential in the Cannabis/Marijuana sector is relatively strong.  We believe the recent momentum base that setup across numerous Cannabis sector stocks is presenting a very clear  opportunity for traders to position trades for the pending multi-wave upside price trends.  After the first Fibonacci 100% Measured Move targets are reached, a brief pause in price should be expected, then another upside price trend should prompt an even higher price advance.  This next move will likely conform for the current rally attempt as another Fibonacci 100% Measured Move to the upside.

Tilray Inching Higher – Still Showing A Potential For A +35% Advance

Very similar to the MJ Weekly chart setup, this Weekly TLRY chart shows a fantastic momentum advance after a moderate price pullback from recent highs.  Although recent highs have touched our first Fibonacci target level, near $21.67, there is still ample opportunity for a move to the second target level near $26.70.

We are seeing strong accumulation in the recent trading volume indicated by the series of GREEN candles – suggesting the upside price trend is starting to build real momentum.  We believe the next move higher will target the $23 to $24 level – which will prompt a close above the first target level and setup TLRY on a stronger advance towards the second target level.

From the current price close, the second target level, near $26.70, represents a solid +35% opportunity for traders to profit from this initial wave higher.

GRYN Makes A Big Move – Still Showing Opportunities For Another +22% Advance

In our first research article about this unique setup in the Cannabis/Marijuana sector, we includes GRYN as a potential candidate for an explosive upside trend.  GRYN is not one of the most heavily traded symbols in this sector, yet we feel it is uniquely positioned because it has US FDA approval for its Hemp-based CBD growing and extraction processes.  This US FDA approval means GRYN can produce and sell into almost any medical, consumer, beverage, consumable or other industry as an FDA Approved supplier.

Recently, we saw a big upside in GRYN, rallying over 32% since we first published our May 31 research article.  The next move higher should target levels above $2.21 and setup a new range for the next Fibonacci 100% Measured Move higher.  If GRYN rallies to a high near $2.50 in this current trend, then the next Measured Move upside targets will be $2.79 to $3.45 if the $1.65 to $1.70 price level holds as support.  These approximate (estimated) upside targets represent another +60% to +98% rally phase for GRYN.

Overall, we believe the Cannabis/Marijuana/Alternative Medicine sector has moved away from the downside price trend that has dominated this sector over the past 2 to 3+ years.  Now, after the Reddit group targeted this sector late in 2020, we are seeing renewed focus by traders into this sector.  Once the momentum moves past moderate accumulation and into breakout trending, we may see another big explosive upside trend in a number of Cannabis sector stocks.

The one thing that could deflate this trend is if we start to see a broad US/Global market price correction. If something like a moderate 11% (or greater) US/Global market downtrend sets up, then we will likely see these Cannabis/Marijuana sector stocks attempt to move lower as well – attempting to reset/retest the recent momentum base levels.  This would present a very interesting opportunity for traders to get into positions as these base levels setup and as the accumulation starts to build again.

Want to know how our BAN strategy is ranking the Cannabis/Marijuana sector (and other sectors) for trading opportunities to identify the best opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Have a great Monday!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Ramping Sales of Medical Cannabis Critical for Long-Term Growth of Khiron, Says ATB Capital

ATB Capital said in its latest report that Khiron’s strategy of vertical integration supports sales growth at attractive margins and as medical cannabis revenue increases, they expect Khiron’s sales growth and gross margin expansion to be meaningful over the long term, supporting a constructive outlook.

Last week, the vertically integrated cannabis leader with core operations in Latin America and Europe recorded revenues of $2.8 million in Q1 2021, a 49% increase from the prior year and 13% increase from Q4 2020. The company said its medical cannabis sales reach 20% of revenues, contributing over 45% of gross profits.

“We reduce our revenue estimates due to depreciating domestic currency and impact of COVID-19 on CPG sales. However, we increased our gross margin estimates to factor the increasing medical cannabis sales. Our target price remains unchanged as lower revenue estimates are offset by higher margin estimates,” noted David M. Kideckel, PhD Analyst, Managing Director at ATB Capital.

“Maintain Speculative Buy with an Unchanged Price Target of $1.00: Our price target is based on our DCF projected through 2030e using a 17% discount rate and a 3% terminal growth rate, both unchanged. The terminal value accounts for 39% of our fair value estimate. Our rating reflects the regulatory uncertainty for cannabis use across LATAM.”

The U.S.-listed Khiron Life Sciences shares rose over 24% so far this year.

ATB Capital has performed a scenario analysis and gave revenue estimates for end-2021 of $11.8 million in the bear case scenario, $15.2 million under a base case scenario and $28.2 million in a bull case scenario.

Bear Case: We assume lower sales throughout 2021e due to the impact of the COVID-19 pandemic on Khiron’s medical cannabis and health services sales.

Base Case: We expect sales to ramp up in 2021e as Khiron increases sales from medical cannabis products in Colombia, with moderate impact from COVID-19. We assume Khiron starts generating meaningful medical cannabis sales from international markets (e.g. UK, Peru, Brazil) from H2/21e onwards. We also assume that Khiron’s revenue from the CPG segment may restart once COVID-19 eases in 2022e.

Bull Case: We assume COVID-19 will not materially impact Khiron’s sales, and that the Company will be able to rapidly ramp up medical cannabis sales in Colombia, export to European markets, and expand its clinic model across LATAM.

Cannabis is an emerging industry and is subject to regulatory headwinds. Although the industry is still emerging, legal cannabis has gone through multiple iterations. The business started as a flower-based market aimed at catering to the needs of stoners and thereafter, blossomed to a more retail-centric market that experimented with multiple edibles, beverages and concentrates.

Most recently, the cannabis industry has further widened its reach to target a broad base of the audience whose main aim is not to get intoxicated but rather to be cured of some form of the disease.

While over half of the population is in favor of new legalization, only a few states have thus far legalized cannabis for recreational use and the product remains illegal at the federal level. Much work and changes are still required to occur for this industry to realize its full potential.

Is The Cannabis Sector Mounting A Multi-Wave Rally After The Recent Bottom?

Just last week, many Cannabis symbols broke above a downward sloping price channel that suggests a new bullish price wave/phase is setting up.  It is very likely that this new bullish price phase may extend into a multi-wave price rally over the next 6+ months where some symbols may rally 30 to 60% or more.

Alternative Harvest ETF Breaks Downtrend – Targeting $24.50 (+30% From Recent Lows)

This Daily MJ chart highlights the type of upward price rotation we are seeing across many Cannabis stock symbols.  The extended downtrend from mid-February till the early May lows has now been broken with bullish price trending.  It is the opinion of my team and I that this rally may continue to extend higher in multiple advancing waves – eventually pushing the Cannabis sector price levels well above our initial target levels.

I am using a simple Fibonacci Extension (or Measured Move) technique to identify initial price targets, focusing on the initial recovery attempt from early to mid-March 2021 in most cases.  We believe this range represents an accurate attempt at a breakout price rally phase resulting from the current momentum base setup in mid-May.  If our research is correct, MJ may attempt to rally to $22.40 then $24.50 before stalling and attempting to briefly Flag sideways.  We may see a further wave of price advancement after this initial bullish price phase completes – indicating that this could be the start of a much bigger upside price trend.

TLRY May Rally Over 100% If This Rally Continues To Our Extended Targets

This Daily Tilray (TLRY) chart highlights a similar breakout/momentum base pattern.  Notice how TLRY consolidated in a very similar price range to MJ and extended the momentum base level, near $13.50 to $14.00, for almost 30 days before finally breaking above the YELLOW downward sloping price channel.  This extended downward/sideways price trend, lasting more than 70 days, suggests any potential upside price breakout may last at least 35 to 45 days before running into any substantial resistance (roughly 50% to 61% of the consolidation range).

Again, from a technical standpoint, I am using the Fibonacci Price Extension (Measured Move) technique to attempt to pinpoint potential upside price targets.  We believe the initial upside price targets in TLRY are $21.65 and $26.70.  Beyond these levels, we expect a moderate consolidation in price after these targets are reached that may set up a subsequent multi-wave price advance to levels beyond $30 to $35.  These upside targets represent a substantial +100% to +145% from recent lows.

GRYN May Be Going GREEN With A Big Rally Attempt

Lastly, a uniquely positioned Hemp production company with US FDA approval for their product, Green Hygienics Holdings (GRYN), is illustrated here on a Weekly chart basis.  We believe this chart exhibits a similar type of price pattern related to the recent bullish breakout within the Cannabis sector.  Additionally, the potential for a multi-wave bullish price rally using our Fibonacci Measured Move targeting system suggests GRYN may attempt to target $2.10 to $2.25 fairly quickly as this rally attempt continues.  This represents a +190% rally from recent lows and a +60% opportunity from current price levels.  Any subsequent multi-wave advancement may target levels near $2.90 to $3.40 – representing a +120% to 160% rally phase.

The strength and opportunities within this sector are the Consumer Cannabis Use and the Alternative Medical Use solutions.  As this sector continues to grow throughout the world, we are confident that some consolidation via acquisitions and broader market consolidations will take place, leaving the strongest and most adept players still standing.

Medical use will likely become the biggest component of this industry. This is where new uses and solutions may attempt to help solve perplexing issues and help to restore more active lifestyles for many people throughout the world.  PTSD, Bi-Polar and other debilitating issues are being treated with Cannabis, CBD, and other micro-dosing solutions that starting to show good results.

It is just a matter of time before this industry consolidates into bigger, powerhouse companies that address work towards solutions for both high-quality, FDA approved, consumer and medical use solutions.  This industry is still in its infancy in terms of long term growth potential.  Catching a smaller portion of this initial rally phase may lead to some great longer-term trades.

Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Jefferies Raises Altria’s Target Price by 46% to $58 and Upgrades to Buy

Jefferies raised their stock price forecast on Altria Group to $58 from $40 and upgraded their rating on the company, which engages in the manufacturing and sale of cigarettes in the United States, to “Buy”.

“With tobacco sentiment and value increasingly driven by RRP, we see near-term datapoints at Altria (MO) as favourable. Further, while optically MO’s metrics would appear to be increasingly challenged if the shift away from smokers accelerates, we think this misses significant underappreciated optionality in vapour and cannabis via M&A, especially if selling its ABI stake to fund this,” noted Owen Bennett, equity analyst at Jefferies.

“Increase to price target driven by: 1) Removing 40% probability non-approval of Juul PMTA 2) Sentiment support around RRP, cannabis and ESG by lowering our ERP (11% to 8%) and boosting our “Non-combustible” exit multiple to 24.6x vs 5.9x (implied TGR 4% vs -3%). Upgrade to Buy. Price Target implied EV/EBITDA still doesn’t look challenging relative to global (ex-tobacco) LC consumer.”

Altria Group is expected to report its first-quarter earnings on April 29, 2021 before the market open. According to Zacks Investment Research, the consensus EPS forecast for the quarter is $1.04. The reported EPS for the same quarter last year was $1.09.

Altria’s shares, which slumped about 18% in 2020, surged over 26% to $51.85 so far this year.

Eight analysts who offered stock ratings for Altria in the last three months forecast the average price in 12 months at $50.14 with a high forecast of $58.00 and a low forecast of $40.00.

The average price target represents a -3.30% decrease from the last price of $51.85. Of those eight equity analysts, four rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised the price target to $54 from $52. Piper Sandler raised their price target to $57 from $47 and gave the stock an “overweight” rating. Royal Bank of Canada reissued a “buy” rating on shares. Sanford C. Bernstein issued an “outperform” rating and a $53 price target on the stock.

Check out FX Empire’s earnings calendar

New York Reached A Deal to Legalize Adult-Use of Marijuana; Existing License Holder to Benefit

New York State lawmakers are on the brink to make the Empire State the fifteenth state to legalize adult-use cannabis, which will benefit the existing license holding companies.

Although the final drafting of the bill is underway, the proposal is expected to allow those aged 21 and over to grow their plants, and a 13% sales tax would be charged.

“We expanded our 2025 TAM from $31 bn to $40 bn to include adult-use revenues from New York (NY), with commercial sales commencing 1/1/2023. Given the high rates of disposable income in the state, and strong tourism historically, we believe that NY can become one of the largest cannabis markets in the U.S.,” noted Eric Assaraf, equity analyst at Cowen and Company.

“Currently, the industry operates under a limited license structure, with 10 license holders, including Green Thumb Industries, Curaleaf, Cresco Labs, Columbia Care, Acreage Holdings, MedMen, and Vireo. We would expect existing license holders to have a first-mover advantage given their existing approvals and cultivation infrastructure. Of note, to the extent legalization occurs one year after the legislation passes, that would present upside to our estimates, as we have modeled a 1/1/2023 start to adult-use sales in NY. Green Thumb Industries ($31.40) remains our Top Pick across our entire coverage universe; Maintain Outperform.”

Cannabis is an emerging industry and is subject to regulatory headwinds. Although the industry is still emerging, legal cannabis has gone through multiple iterations. The business started as a flower-based market aimed at catering to the needs of stoners and thereafter, blossomed to a more retail-centric market that experimented with multiple edibles, beverages and concentrates.

Most recently, the cannabis industry has further widened its reach to target a broad base of the audience whose main aim is not to get intoxicated but rather to be cured of some form of the diseases.

While over half of the population is in favour of new the legalization, only a few states have thus far legalized cannabis for recreational use and the product remains illegal at the federal level. Much work and changes are still required to occur for this industry to realize its full potential.

Trulieve Cannabis Tops Earnings Estimates; Stock Has Over 30% Upside Potential

Trulieve Cannabis Corp., a Canada-based seed-to-sale licensed medical cannabis company, reported a better-than-expected profit and revenue in the fourth quarter and exceeded guidance with another record quarter and third straight year of profitability.

The company, which engages in the cultivation, possession, sale, and distribution of medical cannabis, said its revenue in the ended December 31, 2020 rose 110% year-on-year to $168.4 million, beating the Wall Street consensus estimates of around $160 million. On a full-year basis, it reported revenues of $521.5 million, representing year-over-year growth of 106%.

Trulieve Cannabis posted net income of $3 million in the fourth quarter, or $0.38 per share, above the market expectations of $0.22 per share. The company forecasts 21021 revenues between $815 million to $850 million, and $355 million to $375 million in adjusted EBITDA.

The Canada-listed Trulieve Cannabis shares, which surged more than 160% in 2020, slumped over 5% to C$59.04 on Tuesday.

Analyst Comments

“Q4/20 results saw revenue and adj. EBITDA beat estimates. F2021 guidance was a firm beat on our expectations. Relative to consensus, revenue was in-line and adj. EBITDA was 4% below given a higher expected adj. EBITDA margin,” noted Graeme Kreindler, equity analyst at Eight Capital.

“Revenue of $168.4 MM grew 24% sequentially and was 6% ahead of our estimate and 4% ahead of consensus. Note that the quarter includes roughly a month and a half of contribution from the PurePenn and Solevo Wellness acquisitions, which closed on November 12, 2020. This was the tenth consecutive quarter that TRUL has beat consensus expectations for revenue. Adj. gross margin of 71% was in-line with our estimate and slightly below consensus at 73%. Adj. EBITDA of $78 MM was a beat on our estimate of $75 MM and consensus of $77 MM. This was the ninth consecutive quarter that TRUL has beat consensus expectations for adj. EBITDA.”

Trulieve Cannabis Stock Price Forecast

Six analysts who offered stock ratings for Trulieve Cannabis in the last three months forecast the average price in 12 months of C$75.83 with a high forecast of C$106.99 and a low forecast of C$52.00.

The average price target represents a 28.93% increase from the last price of C$58.81. All of those six analysts rated “Buy”, according to Tipranks.

Eight Capital gave a target price of C$95.50 and gave a “Buy” rating on the cannabis company’s stock.

“Our target price is based on 24x 2022E EBITDA of $392 MM. TRUL currently trades at 15.9x F2022E EBITDA vs. peers at 17.6x. The stock is +6% over the past month vs. peers at -7%,” Eight Capital’s Kreindler added.

Several other analysts have also updated their stock outlook. ATB Capital Markets raised the target price to C$78 from C$73. BTIG initiated with a buy rating and C$102 target price. Alliance Global Partners lifted the price target to C$66 from C$50. Canaccord Genuity upped the target price to C$75 from C$60.

Check out FX Empire’s earnings calendar

Tobacco Giant BAT Takes Big Leap Into Cannabis Market After Buying 20% in Organigram

British American Tobacco (BAT), a multinational tobacco company, said on Thursday that it will acquire about 20% equity investment in leading Canadian cannabis licensed producer Organigram for nearly 126 million pounds as it eyes to expand into the rapidly growing marijuana industry.

Following this announcement, the U.S. listed Organigram’s shares, which slumped about 47% last year, surged about 40% to $4.04 on Thursday.

After this deal, the tobacco giant would gain access to cutting-edge R&D technologies, product innovation, and cannabis expertise, complementing BAT’s extensive plant-based expertise and development capabilities.

Organigram has a proven track record of consumer-led innovation and developing high-quality adult-use recreational and medical cannabis products, which are legally available in Canada.  By leveraging Organigram’s first-hand experience, BAT will deepen its understanding of this rapidly expanding and evolving area, the company said.

The investment was priced at C$3.79 per share which was based on the five-day volume-weighted average price of Organigram Holdings Inc.’s shares on the Toronto Stock Exchange ending March 9, 2021 and represents a discount to the closing price of C$3.94 on March 9, 2021.

The FTSE-100 behemoth British American Tobacco (BAT) shares, which slumped about 17% in 2020, gained nearly 6% in the last two weeks. The stock price was up slightly on Thursday.

Analyst Comments

“We view this move as a strong positive. One, cannabis overall provides a natural fit for tobacco and a big incremental growth opportunity. Two, the price paid looks reasonable in the context of similar deals, the company and the current environment. Three, it comes before the possible entry of OGI (and possibly BAT) into the world’s biggest market, the U.S.,” said Owen Bennett, equity analyst at Jefferies.

“The U.S. is the world’s biggest cannabis market by far. For THC, retail sales in 2020 were c$17 billion vs global of c$20 billion and are expected to approach close to $50 billion in 2026. For CBD, the US market could hit over $16 billion by 2025 on our estimates. For THC, to date, Canadian operators have not been able to enter the US. This looks like it could change very soon. Assuming OGI can gain a foothold in the US there could be a sizeable upside to its market cap. In addition to possible appreciation in associate value and associate income, the release says that BAT can also commercialize any products themselves (although how this would impact its FTSE listing if it did this beyond CBD, so THC, we are not sure).”

British American Tobacco Stock Price Forecast

Eleven analysts who offered stock ratings for British American Tobacco in the last three months forecast the average price in 12 months of 3,492p with a high forecast of 4,000p and a low forecast of 2,792p.

The average price target represents a 32.78% increase from the last price of 2,630p. Of those eleven analysts, ten rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of GBX 3,130 with a high of GBX 5,100 under a bull scenario and GBX 1,500 under the worst-case scenario. The firm gave an “Overweight” rating on the multi-national tobacco company’s stock.

“We see BAT’s user base continuing to grow globally, particularly in the US, which could offset the increase in risk from a flavor ban on its portfolio. Our rating reflects strong near-term earnings visibility in an uncertain environment. We estimate a 5.5% EPS CAGR over 2020-25e. We forecast ~£5 billion in NGP revenues by 2025 (in line with BAT’s £5 billion ambition by 2025).

“We think BAT should be trading near the bottom end of our 8-12x P/E range in the current environment. We see upside risk to earnings near term (2020-21) due to cost savings and FX (US exposure 51% of profits).”

Several other analysts have also updated their stock outlook. JPMorgan set a GBX 3,500 target price on British American Tobacco and gave a buy rating on the stock. The Goldman Sachs Group set a GBX 3,900 price objective and gave the company a buy rating. Credit Suisse Group set a GBX 3,920 price target and gave the company a buy rating.

Moreover, Deutsche Bank set a GBX 4,000 target price and gave the stock a buy rating. UBS Group restated a buy rating and issued a GBX 3,600 target price. Royal Bank of Canada set a GBX 3,200 target price and gave the stock a buy rating.

Curaleaf Holdings to Report Relatively Strong Q4 in Terms of Revenue Growth: ROTH

Curaleaf Holdings is expected to post Q4 revenues of $239.5 million leading to EBITDA of $55 million as the market cap/revenue leader in U.S. cannabis industry is coming off a strong third quarter which showed the potential of the consolidated business the Massachusetts-based company has built through licensing wins and aggressive mergers and acquisitions, according to analysts at ROTH Capital Partners.

The leading U.S. provider of consumer products in cannabis will report its financial and operating results for the fourth quarter and fiscal year ended December 31, 2020 after market close on March 9, 2021.

Roth Capital Partners forecasts EPS loss of 2 cents in the fourth quarter, worse compared to a cent loss in the third quarter. For the full-year 2021, Newport Beach, California-based privately held investment banking company forecasts EPS of 14 cents on revenue of $1.25 billion, up 96.8%.

“We believe the results will indicate the direction for the rest of the industry and are expecting a relatively strong quarter in terms of revenue growth, with integration still weighing on profits. Additionally, we are adjusting our estimates to reflect ‘As Reported’ revenue to align our estimates with consensus and company guidance. Maintain Buy,” said Scott Fortune, equity analyst at ROTH Capital Partners.

“We believe 2021 will be the transformational year for CURA with revenue estimates above $1.2 billion and full integration of all its acquisitions provides the true leverage/scale of its footprint. We are expecting a conservative guidance for the 2021 year without factoring in new legalized states or acquisitions being layered on. We believe CURA will continue to lead the industry through its 100+ store footprint and sizable distribution network.”

Curaleaf Holdings Stock Price Forecast

The U.S.-listed Curaleaf Holdings shares, which surged about 90% in 2020 and added another 23% so far this year, closed nearly 2% lower at $14.75 on Friday.

Six analysts who offered stock ratings for Curaleaf Holdings in the last three months forecast the average price in 12 months of $20.34 with a high forecast of $25.41 and a low forecast of $15.76. The average price target represents a 37.90% increase from the last price of $14.75. All of those six analysts rated “Buy”, according to Tipranks.

Curaleaf had its price objective hoisted by Stifel Nicolaus to $32.25 from $23. The firm currently has a buy rating on the stock. Roth Capital lifted their price target to $20 from $14 and gave the stock a buy rating. Craig Hallum began coverage and issued a buy rating and a $19 price target.

Several other analysts have also updated their stock outlook. Needham & Company LLC raised their price target to $18.50 from $14 and gave the stock a buy rating. Canaccord Genuity boosted their price objective to $29.00 and gave the company a buy rating. Cantor Fitzgerald raised their target price to $23.50 from $20 and gave the stock an overweight rating.

“Our $20 price target is derived using a 22x multiple on our 2022 EV/EBITDA estimate of $632.6 billion, discounted back 15%. Our target price deserves a premium to the MSO peers due to its leading national scale. We set valuation using a multiple we thought appropriate for the growth rate while discounting for risks,” ROTH Capital Partners’ Fortune added.

Check out FX Empire’s earnings calendar

Jazz Pharma Inks Biggest-Ever Acquisition Deal in Cannabis Space with GW Pharma

Ireland-based biopharmaceutical company Jazz Pharmaceuticals announced the biggest acquisition in the cannabis space to date after it agreed to buy the global leader in developing cannabinoid-based medicines, GW Pharmaceuticals for $7.2 billion last week.

Following this announcement, GW Pharmaceuticals shares, which rose over 10% in 2020, jumped 49% to a record high of $217.5 on Wednesday. On the other hand, Jazz Pharmaceuticals shares seen its biggest intraday volatility since August 2015.

According to the agreement, Jazz to acquire GW for $220.00 per American Depositary Share (ADS), in the form of $200.00 in cash and $20.00 in Jazz ordinary shares, for a total consideration of $7.2 billion, or $6.7 billion net of GW cash. The deal is expected to close in the second quarter of 2021.

“Cannabis has the potential to cause significant disruption to the traditional medical market, and as more Pharma companies get involved, such as Jazz, we expect to see continued innovation and product development,” said Owen Bennett, equity analyst at Jefferies.

“Second, it raises the possibility of more M&A, with other big Pharma bidding for cannabis companies. Here we would be careful assuming most cannabis players could be subject to an offer.”

GW Pharma‘s Epidiolex, the first plant-derived cannabinoid medicine ever approved by the U.S. Food and Drug Administration, registered sales of over $500 million for the U.K.-based company in 2020. Market experts forecasts sales to hit $1 billion over the coming months, Reuters reported.

GW Pharma Stock Price Forecast

Ten analysts who offered stock ratings for GW Pharma in the last three months forecast the average price in 12 months at $216.71 with a high forecast of $234.00 and a low forecast of $183.00.

The average price target represents a 1.00% increase from the last price of $214.57. From those 10 analysts, three rated “Buy”, seven rated “Hold”, and none rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $220 with a high of $320 under a bull scenario and $75 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the biopharmaceutical company’s stock.

GW is the market leader in the medical application of cannabis-related interventions, with Sativex approved in the EU and Epidiolex approved by the FDA in the U.S. and transferred to Schedule V by the DEA,” said David Lebowitz, equity analyst at Morgan Stanley.

“In June of 2018, the Food & Drug Administration approved Epidiolex (cannabidiol) [CBD] oral solution for the treatment of seizures for two rare and severe forms of epilepsy: Lennox-Gastaut syndrome and Dravet syndrome. Positive PhIII data could lead to tuberous sclerosis complex (TSC) being added to the label in 2020. We believe Epidiolex would be widely used for the treatment of refractory epilepsies (both on-label and off-label).”

2021 May Be A Good Year For The Cannabis/Marijuana Sector

Great progress in terms of legalization was made for the Cannabis/Marijuana sector in 2020.  The 2020 elections resulted in a number of US states engaging in new Cannabis friendly policies and laws being approved by voters. This suggests a new rally in the Cannabis sector may be setting up in 2021 and beyond for traders. Our BAN – Best Asset Now – trading strategy is always looking out for the next sector to make a trade, and the Cannabis sector is certainly one we are keeping our eyes on!

Weekly MJ Price Flag Setup

My research and I team believe the recent longer-term bottom in the MJ ETF, the Alternative Harvest ETF, suggests a broad bottom is setting up in the Cannabis/Marijuana sector.  If this bottom in the Cannabis sector continues to profit support for the entire sector, then we may see price appreciation across many individual Cannabis stocks over the next 12+ months.  Additionally, this price appreciation may prompt quite a bit of consolidation across the entire Cannabis/Marijuana sector.

The global use and demand for CBD & THC related products may continue to expand as medical and personal use expands across the US and into other nations.  We are still near the infancy of understanding the true medicinal benefits of this all-natural product.  A new upward price trend in this sector may prompt a global expansion/consolidation event where the Cannabis/Marijuana industry attempts to restructure into true global power companies.

Our research team is focused on the possibility that an early 2021 price decline in this sector may setup a broad sector bullish trend near March/April 2021 (or earlier).  We believe the process of this longer-term bottom setup will still require another attempt to consolidate near the MAGENTA support channel before a more substantial breakout will take place.  The current bottom setup is very similar to a Bullish Price Flag setup and we believe the next price low may be an area where real opportunity exists for a final bottom in price.

Monthly MJ Bottom Setup

The following Monthly MJ chart highlights the same bottom setup on a longer-term chart basis.  Pay very close attention to how much volume has poured into this sector in October and November 2020.  It is very likely that a new price low, below $11.90~$12.00, will setup within 4 to 8+ weeks that will represent the final downside price move before the Price Flag pattern attempts an upside breakout.  We expect to see stronger volume surge into this final bottom as traders load up before the breakout move begins.

As we’ve been suggesting for a number of months, the broader, longer-term market cycles and trends suggest the next 3 to 5+ years are going to be very dynamic for various market sectors.  Our research team believes the US and global markets have just recently started a broad depreciation phase which may last another 5 to 7+ years.  Typically, within these phases, commodities and other sectors rotate in and out of favor as capital is forced to seek out undervalued and potentially explosive sector trends.

This bottom setup in MJ may prompt a number of individual Cannabis and CBD suppliers, processors, end-user manufacturers, and technology providers to engage in a series of acquisition and consolidation steps over the next few years if this sector becomes hot fairly quickly.  Rising prices and expectations may prompt this industry into a consolidation and technology/distribution expansion over the next 4 to 5+ years.  Very similar to the DOT COM/Technology bubbles recently, when a sector gets hot, it tends to prompt quite a bit of investment and activity surrounding the growth and consolidation of industrial components and technology.

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For a look at all of today’s economic events, check out our economic calendar.

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Chief Market Strategist
www.TheTechnicalTraders.com

 

Beer Maker Constellation Brands’ Fiscal Q3 Earnings To Be Solid; Shares To Rally Further In 2021

New York-based Fortune 500 international beverage alcohol company Constellation Brands is expected to report a profit of $2.40 in fiscal third quarter, up from $2.14 per share seen in the same quarter a year ago, which would indicate a positive year-over-year growth rate of more than 12%.

The leading beverage alcohol company will report its financial results for its fiscal third quarter ended November 30, 2020, on Thursday, January 7, 2021, before the open of the U.S. markets.

“We believe the focus of Constellation Brands’ FQ3 EPS will be on accelerating and above consensus beer depletions to +8.3% y-o-y in FQ3 (vs. 5% in F1H21) with improving beer out-of-stocks, as well as a beer shipment recovery after the under-shipment in F1H21. We also expect an update on beer depletion trends in December, with solid U.S. scanner data trends but likely weakening on-premise trends with more on-premise restrictions, particularly in California (about a quarter of Constellation Brands’ volumes),” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Additionally, we believe investors will focus on beer margins, which we believe could surprise to the upside in FQ3 (we are 20 bps above consensus on beer margins and 2.3% above consensus on beer profit) and in F2H21, with Constellation Brands full year FY21 guidance of flat beer margins implying -160 bps of y-o-y margin declines in H2, with our estimates above guidance at -20 bps y-o-y.”

It is worth noting that Constellation Brands said on Friday that the U.S. Federal Trade Commission approved the sale of the company’s lower-price wine and spirits portfolio to E. & J. Gallo Winery. The deal is slated to close the week of January 4, 2021.

Constellation Brands shares closed 0.35% higher at $218.21 on Wednesday; the stock is up about 15% so far in 2020.

Analyst Comments

“We expect investor focus with FQ3 EPS will likely be on beer depletion growth and the forward outlook, as well as beer margins, both of which we expect to be solid, and any early tone on the FY22 outlook. Our FQ3 EPS estimate is $2.41 (including Canopy equity income losses), or $2.60 excluding Canopy. We believe the $2.38 consensus estimate is not fully comparable given the inconsistency in consensus estimates on the inclusion of Canopy losses. We expect the market to be most focused on beer depletion trends and beer margins, and more importantly the outlook for FQ4 and any tone on FY22,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We forecast +14.4% y-o-y corporate Constellation Brands (STZ) organic sales growth in FQ3 on a +1.7% prior-year comparison driven by +22.1% organic topline growth in beer, due to an assumed a shipment catch-up in FQ3 (MSe of ~1,150 bps), after shipments were below depletions by ~1,750 bps in F1H21 due to production limitations at STZ’s Mexican production plants given government-mandated COVID-19 restrictions.”

Constellation Brands Stock Price Forecast

Fourteen analysts who offered stock ratings for Constellation Brands Sciences in the last three months forecast the average price in 12 months at $224.29 with a high forecast of $250.00 and a low forecast of $154.00. The average price target represents a 2.79% increase from the last price of $218.21. From those 14 equity analysts, ten rated “Buy”, three rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $240 with a high of $280 under a bull scenario and $138 under the worst-case scenario. The firm currently has an “Overweight” rating on the beverage alcohol company’s stock.

“Our $240 PT is based on $228/shr for core Constellation Brands (ex-Canopy) based on ~21.5x FY22e EPS plus ~$12/shr for Constellation Brands’ (STZ) Canopy investment (33% discount to market value). Our 21.5x target multiple is slightly below STZ’s ~22x last 3-year NTM P/E average,” Morgan Stanley’s Mohsenian added.

Several other analysts have also recently commented on the stock. Constellation Brands had its price target increased by stock analysts at JP Morgan to $248 from $218. The firm currently has an “overweight” rating on the stock. UBS Group increased their price objective to $238 from $220 and gave the company a “buy” rating. Citigroup increased their price objective to $209 from $200 and gave the company a “neutral” rating in October.

We think it is good to buy at the current level and target $250 as 100-day Moving Average, and 100-200-day MACD Oscillator signals a strong buying opportunity.

Upside and Downside Risks

Risks to Upside: Improving beer category growth trends, STZ beer market share upside, greater innovation incrementality (eg Corona Hard Seltzer), beer margin upside, FX, commodities, and upside from STZ’s Canopy stake – highlighted by Morgan Stanley.

Risks to Downside: Decelerating category growth trends, weaker STZ market share, competitive entries in beer, Canopy stock price downside, capital allocation risk, COVID-19 impact, and consumer trade-down in beer.

Check out FX Empire’s earnings calendar

Avicanna Launches into Adult-use Cannabis; Revenue Growth to be 5-10x Greater

Toronto-based biopharmaceutical cannabis company Avicanna announced its advanced cannabinoid formulations will be available through retail channels in early next year in Canada for the first time in its history, sending its shares as high as 30% on Wednesday.

Expansion to retail sales to provide consumers with low barrier access to the same industry-leading formulary of medical cannabis products. It has become evident that many consumers who seek cannabis for medical purposes are not going through medical channels, with nearly 44% purchasing from legal storefronts (adult-use).

“With broadened consumer exposure, and, specifically, low barriers to access (i.e., no medical cannabis registrations/”prescriptions” required), we expect Avicanna’s (AVCN) revenue to grow materially from 1Q21 onward, with first sales into provincial distributors commencing in January 2021,” said Rahul Sarugaser and Michael W. Freeman, equity analysts at Raymond James.

“Given Avicanna’s (AVCN) strong uptake among physicians, and, interestingly, older medical cannabis patients (47% of buyers in 51-75 age-range, and 55% women), the medical cannabis market’s size relative to adult-use, compounded by the adult-use market’s much larger (and rapidly expanding), we anticipate potential revenue derived from adult-use sales to be 5-10x greater than those derived from AVCN’s medical cannabis sales through Shoppers.”

According to the 2020 Canadian Cannabis Survey, 76% of medical cannabis users do not have a medical document – such as a prescription – from a healthcare professional.

The ease of access to store-fronts and systemic barriers to connecting with a health care professional who may provide a medical document have continued to impact medical user numbers year over year, which have remained largely the same around 350,000 active registered medical users in Canada since 2018.

“The existing stigma around medical cannabis and the barriers to obtain a medical document make it particularly challenging for some patients to access medical cannabis through the appropriate channels with the support of a health care practitioner,” said Aras Azadian, Avicanna’s Chief Executive Officer.

“We believe that by expanding the RHO Phyto portfolio into retail sales channels we will provide consumers with easier and low barrier access to standardized medical products they seek. For a biopharmaceutical company like Avicanna, this expansion of our medical products into retail channels is in many ways similar to accessing over-the-counter medical products.”

According to Tipranks, based on analysts offering 12-month price targets for Avicanna in the last three months forecast the average price at C$2.49 with a high of C$2.50 and a low of C$2.50. The average price target represents a 164.93% increase from the last price of C$0.94.

The biopharmaceutical cannabis company shares closed 17.02% higher at C$1.1 after surging as high as 30% to C$1.21 intraday on Wednesday. However, the stock is down over 50% so far this year.

“Avicanna’s (AVCN) entry into the $3.2 billion run-rate Canadian adult-use cannabis market comes after the successful launch of its RHO Phyto products through Shoppers, where the company saw >100%month-over-month sales growth in all product categories,” Sarugaser and Freeman added.

“According to our channel checks, AVCN’s brands made up Shoppers’ top-selling products during the last several months. AVCN remains committed to its medical cannabis patients and will maintain its exclusive, preferred supply relationship with Shoppers Drug Mart, which is slowly but surely building out a powerful nationwide medical cannabis platform.”

Aphria, Tilray Will Merge to Become World’s Biggest Cannabis Giant

One of the world’s largest cannabis companies, Aphria will merge its operations with its business rival Tilray Inc, creating the biggest giant in the fast-growing cannabis sector, according to Bloomberg news.

This deal will create a new company with an equity value of about C$4.8 billion ($3.8 billion), according to a statement and interviews with the Tilray and Aphria chief executive officers. The new company will trade under Tilray’s ticker on the Nasdaq, and Aphria shareholders will own 62% of Tilray’s stock under the terms of the transaction, reported by Bloomberg.

“We see a strong strategic rationale for the company, as the combined company (rumoured to keep the Tilray name with Aphria CEO Irwin Simon at the helm) would have nearly 20% share of the Canadian THC market and could rationalize production facilities. As such, although the estimated $100 million of cost synergies represents a relatively high 11% of combined costs and overhead expenses, we think it could be achievable. This is further bolstered by Tilray’s relatively bloated cost structure,” said Kristoffer Inton, director at Morningstar.

“Details are all based in news reports, so they warrant some caution that official terms could be different. The rumoured terms would have Aphria owning 60% of the combined company. Based on our fair value estimates, Aphria shareholders should control closer to 70%, signalling that Tilray shareholders are getting better economics. Even based on pre-rumour share prices, Aphria shareholders should control at least 65%,” Inton added.

Tilray’s shares surged over 20% to $9.65 in pre-market trading on Wednesday. However, the stock is down over 50% so far this year. Aphria soared over 7% to $8.73.

“I realized that Aphria needed to expand out of Canada, and merging with Tilray was a great answer because it’s a U.S.-domiciled business with great international assets,” said Aphria Chief Executive Officer Irwin Simon, who will be chairman and CEO of the combined group told Bloomberg.

Investment in Emerging Cannabis Industry

Cannabis is an emerging industry and is subject to regulatory headwinds. Although the industry is still emerging, legal cannabis has gone through multiple iterations. The business started as a flower-based market aimed at catering to the needs of stoners and thereafter, blossomed to a more retail-centric market that experimented with multiple edibles, beverages and concentrates.

Most recently, the cannabis industry has further widened its reach to target a broad base of the audience whose main aim is not to get intoxicated but rather to be cured of some form of the diseases.

While over half of the population is in favour of new the legalization, only a few states have thus far legalized cannabis for recreational use and the product remains illegal at the federal level.

Why Pension Funds Invest in Cannabis?

Pension funds are getting exposure to Canadian cannabis producers

In 2018, the AP7 Swedish fund bought the shares of Canopy Growth (WEED CN) and Aurora (ACB CN) for about 63 million Swedish crowns (~ $7 million). The main reason is that these stocks were included in the MSCI All Country World Index (ACWI). This does not happen only in Sweden. Last year cannabis producers were acquired by Canadian and US pension funds, in particular, Canada’s Public Sector Pension Investment Board (PSP) and the California Public Employees Retirement System (CalPERS).

It is quite gratifying to note that pension funds are diversifying their portfolios by the producers of “Herb”. I believe this suggests that more and more investment managers in the world (even conservative ones like pension funds) come to believe in the idea of “Cannabis”. I think that, apart from the inclusion in MSCI ACWI, the legalization of cannabis in Canada also played a significant role.

Many companies continue to expand into export markets, in particular, European markets. Canopy Growth recently announced that they had completed the purchase of Cafina, a certified Spanish manufacturer. In my opinion, this asset will allow the company to strengthen positions in the EU. After all, Canopy already has facilities in Denmark and Germany.

Key market players continue to increase their production capacity

In particular, Aurora recently announced that they had expanded the product growing areas from 1.3 million to 1.62 million square feet (+25%). Theoretically, this will increase the company’s annual productivity to 230 thousand kg, making Aurora one of the leaders of the industry along with Canopy Growth.

It has been reported recently that CannTrust (TRST CN) also had similar progress. The company made an announcement on the purchase of large areas for the cultivation of cannabis. The company has acquired 81 acres of land (about 33 hectares) and plans to purchase a total of about 200 acres (81 hectares), which would allow increasing the production capacities to 300 thousand kg per year.

The sector continues to grow and develop. An important factor is that most companies are already listed at the New York Stock Exchange. The recent pullback, in my opinion, has more to do with technical factors rather than fundamental ones.

Besides, the market’s expectations were probably over-inflated. This factor clearly illustrates the fall of CannTrust, which is explained by the fact that the Net loss was below the consensus. The company will report on the first quarter of 2019 on May 15. I am looking forward to it.

From early 2019 to about mid-March, single stocks showed quite impressive growth, in particular, CannTrust and Organigram doubled their market cap; Canopy Growth and Aurora grew by 70%, and Aleafa by 60%… It was followed by a completely natural correction. I have to repeat that the correction was more of a technical rather than fundamental nature.

Although it is impossible to predict everything, I believe that the downtrend will hardly last long. I still believe that this sector has great growth potential. CannTrust, Organigram, Canopy Growth, and Aurora are still my favorites. Small manufacturers like Aleafia and Wayland, which may be pulled up with the sector.

The article was written by Evgeny Kogan, Ph.D., investment banker, the author of the telegram-channel Bitkogan.

Green is the New Black

Given the impressive growth of its market – worldwide spending on Cannabis reached 9.5 billion USD in 2017 and is expected to grow to 32 billion USD by 2022 – it is no wonder why so many traders have been flocking into Cannabis Stocks and Indices over the last year. While this market offers tremendous opportunities for sensible traders, it is important to understand both the drivers of this growth, as well as the different ways to access a balanced exposure to this trading niche.

The 4 factors driving cannabis’ market growth

Aside from the inherent hype that surrounds the Cannabis industry, there are four key factors that many experts agree are fuelling the recently-experienced growth. These are: Technology, Product Diversity, International Expansion and Displacement of Black Markets.

Factor 1: Technology

The industry’s long-term sustainability lies primarily behind medical products. From production companies applying engineering to maximize the strength of certain components, to biotechnology companies increasing investments in research and trials and becoming more experienced, the conditions are set for a growth in the number of medical applications of Cannabis. Cannabinoids have been proven to have a very positive impact in the treatment of a wide range of ailments. Researchers are exploring its potential to tackle such enduring problems as epilepsy, Parkinson’s disease, anxiety, depression and even breast cancer.

Factor 2: Product Diversity

Cannabis is a rich source of CBD or Cannabidiol, a non-psychoactive compound exhibiting a myriad of health and medicinal benefits without inducing the feeling of being “high” or any addictive behaviours. As this component can be used in the production of many medical and non-medical products, growers have been engineering a large variety of strains, to optimize certain components and increase its applicability across industries and products.

Factor 3: International Expansion

Today, Cannabis recreational consumption and, most importantly, production has been legalized in several countries. This can be evidenced by the fact that large companies like Aurora Cannabis, Tilray and Canopy Growth are now active in many countries. This regulatory wave is expected to continue, with countries like Luxembourg already announcing liberalisation of the Cannabis market over the upcoming years.

Factor 4: Displacement of Black Markets

As more jurisdictions loosen their regulations and some cases legalize its recreational usage, experts concur that a significant chunk of the black market revenues will be absorbed by large corporations, like those present in the main Cannabis Stock Indexes.

High returns vs high volatility

A wide media coverage, as well as a large number of mergers and acquisitions in the sector – expected to continue due to consolidation and the entry of new companies in the market – have translated into a high volatility for some stocks during recent years.

When comparing the Cannabis Stock Index against the USA 500, it is evident that higher returns have come at the expense of higher volatility, something which traders need to keep in mind.

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Canadian Pot Firms – The Triggers for Future Growth

I am still convinced that the cannabis industry is nothing less than a new economy rather than just another bubble. What is equally important, it is a very actively growing economy that looks for ways for rapid expansion.

Let us recall that after the official legalization in Canada in October, the stocks of ‘plant growers’ sank. “Buy the rumor, sell the fact” came into play. The depth of correction was quite strong, which, I have to confess, was a surprise for me.

Interestingly, January was marked by return to growth, and some people managed to partially (some even completely) recover from October. Today I would like to focus on a few points concerning individual names and the field on the whole.

What are the triggers for the future growth of companies in the field?

Increased risk appetite. It feels like the ‘green’ stocks bounced back after the correction that took place in early February. Recently, stock prices have grown at a decent pace, which, in my opinion, was due to several reasons. First, the general market, on the whole, is in a positive mood. Secondly, investors’ risk appetite is likely to increase against this background.

Growth in the sales of therapeutic ‘plants’ in Canada. Many believe that the first results of the sales are disappointing. Excuse me, gentlemen, only a few months have passed since the legalization and if anybody was waiting for fantastic sales right away, that was a mistake. I wrote about these overstated expectations, as well as the risks of this field back in May. I assume that we will observe a real sales’ growth in Canada in the 1st-2nd quarters of 2019.

Development of export destinations. Many companies expand into international markets. CannTrust, Canopy and others supply the medical ‘plant’ to Europe and Australia. The growth of cultivation capacity will lead to a growth in export flows. Moreover, we should keep in mind that the cost of the product in Europe is significantly higher than in Canada.

Cooperation with related fields. According to some estimates, due to legalization, the companies that produce ‘appetite supporting products’ will be able to attract some of the alcohol producers’ clients. I have to note that alcohol producers are aware of the danger of losing some part of their consumers and are down to taking certain actions. For example, the company Constellation Brand has increased its stake in Canopy Growth to 40%. I do not exclude that the transaction activity of M&A in this field may grow further, which implies that larger players will swallow up the smaller ones. The goal of the larger ones is obvious: they plan to scale up their business. I do not exclude that the activity of large funds may grow and they will probably want to increase their stake in the market leaders of this dynamically growing sector. In this regard, medium-sized companies ($ 1.0 – 1.5 billion) will be in the spotlight. There is also a possibility that two average performers will merge with a view to confronting leading players. In addition, sensing a competitor in the market of sedative agents, alcohol producers and pharmaceutical companies may also be active in this field.

NYSE listing. A lot of Canadian cannabis producers are musing about and planning to be listed in New York, which would be quite favorable for their stocks. With all due respect for Canada, there is more liquidity and a “higher quality” of investors in the United States.

Possible legalization in the United States. There is much talk about the possible full-scale legalization of the plant in the United States. The healing ‘plant’ is currently legalized in a dozen states, but it is likely to spread to the entire country in the coming years. By that time, Canadian cannabis producers will spring up like mushrooms, increase production and be ready to expand. I suppose that any speculation on the legalization in the United States will become a serious trigger for the Canadian sector.

In anticipation of reports

Several companies, in particular, Aleafia (ALEF, March 4), HEXO (HEXO, March 13) and CannTrust (TRST, March 29) are expected to publish financial reports in March. Organirgam (OGI) and Canopy Growth (WEED) have already published reports. In general, the results were received quite favorably in the market. I do not exclude that the situation may repeat itself in one form or another in March.

The ‘green meadows’ are going to be quite interesting in the near future. The field continues to grow. At the same time, the stocks of ‘plant growers’ are still quite volatile, and there is a possibility of dips, possibly strong ones. Such dips allow me to plan for a cheaper buyback.

Summary

I keep a positive view on the sector. Use temporary dips in stocks to increase and average your position. No fanaticism, please.

I expect a significant improvement in companies’ financial indicators and an increase in stock prices and continue to hold stocks of companies such as TRST, ALEF, HEXO, OGI and EMC in expectation of significant mergers.

The article was written by Evgeny Kogan, Ph.D., investment banker, the author of the telegram-channel Bitkogan.

Please let us know what you think in the comments below.

5 Things You Need to Know About the Cannabis Industry

Though global demand for cannabis has existed for decades (and arguably even millennia), it was not until recently that the international cannabis market began to become completely legitimized. Ongoing legislative efforts and ballot initiatives in the United States and elsewhere around the world have transformed the industry from a black market operation to one that offers investors incredible opportunities to openly increase their wealth.

Normally, when a “new” market is created, industry producers need to wait a significant amount of time before there exists a sufficient level of demand for their product. The cannabis industry, however, has demonstrated itself to be much different. Because high levels of demand already existed all around the world, industry producers quickly recognized that if anything was lagging behind, it was the availability of the global supply.

Clearly, the cannabis industry is uniquely positioned upon a frontier of tremendous opportunity. In this article, we will discuss the most important things for you to know about the industry as a whole and—whether you plan to ever consume cannabis or not—we will also discuss the many unique opportunities for you to earn a significant return on your investment from cannabis trading.

1. The Difference Between Hemp and Marijuana

Before you consider investing in the cannabis industry, it is important to recognize that the term “cannabis” can actually be used to describe a broad range of different products. Though many of the terms in the industry are often wrongfully used interchangeably, both hemp and marijuana are distinctively different manifestations of the more-inclusive cannabis plant.

The primary difference between hemp and marijuana is that, contrary to hemp, marijuana typically contains relatively high levels of tetrahydrocannabinol (THC). THC is the primary component of the cannabis plant that causes users to feel “high” and, consequently, the way in which these products are regulated and managed are significantly different. In the United States, in order for a cannabis product to be labeled as hemp, it must have a THC content of less than 0.3%. Hemp still typically has some active ingredients—usually referred to as cannabinoids—such as CBD, CBN, and others, but these ingredients do not affect users nearly the same way as THC does.

Generally speaking, governments around the world are much less hesitant to allow the growing of hemp than they are to allow the cultivation of marijuana. Hemp can also be used for an incredibly wide variety of industrial purposes including paper, fibers, fuel, animal feed, and many others. This is especially beneficial because, contrary to marijuana, industrial hemp is actually quite easy to grow. Still, because both products are derived from the same cannabis family of plants, there are still some unresolved complications involved in the legalization process.

2. Dramatic Legal Changes around the World

As cannabis use began to enter the mainstream American public in the early 1900s, various groups—including tobacco, paper, and alcohol lobbyists—began to advocate its prohibition. By 1937, the Marihuana Tax Act began to place federal controls on the plant and, by 1970, the Controlled Substances Act outlawed cannabis altogether.

However, despite the fact that the Federal Government of the United States still considers cannabis to be a “schedule I” substance that is more heavily restricted than opiates and certain amphetamines, multiple states across the nation have effectively begun to allow its use. The first “pro” cannabis piece of legislation was California’s Proposition 215, which was successfully passed in 1996.

In 2012, Colorado and Washington were the first states to legalize cannabis for personal use. Furthermore, as of 2018, a majority of states allow the use of cannabis for medical purposes and several more states (AK, OR, CA, NV, MA, ME, VT, DC) have also decided to permit recreational use as well. Currently, only four states (KS, NE, SD, ID) do not allow at least the use of non-psychoactive cannabis.

Though—despite opposition from the federal government—the United States has effectively positioned itself as one of the leading forces with regards to recreational cannabis legalization, there have been significant efforts made elsewhere around the world as well. Uruguay, South Africa, and Georgia are the first three countries to allow full recreational consumption within their borders. Spain, Italy, and the Netherlands are believed to be on the verge of achieving total legalization as well.

Other countries around the world have begun to decriminalize recreational use, allow for medicinal use, or effectively stop enforcing their laws altogether. Furthermore, one of the most notable efforts that have been made is that, as of October 17th, 2018, Canada will allow the recreational use of cannabis across the entire country. Considering the close relationship that exists between the United States and Canada, Canada’s legalization may inadvertently accelerate the pro-cannabis movement in the United States as a result.

3. The Economic Impact of the Cannabis Industry

Though these figures are often difficult to generate, recent research conducted by Grand View Research suggests that the marijuana market is estimated to be worth more than $146.4 billion by the year 2025. When compared to IMF figures from 2017, this means that the marijuana industry alone would be the 59th largest economy in the world.

Clearly, the marijuana industry has the potential to have a major impact on the global economy and to influence a wide variety of different industries.

  • “Cannabis Tourism” is expected to rapidly grow.
  • Medical marijuana—which some claim can help treat chronic pain, cancer, various mental health disorders, and other conditions—will likely begin competing with traditional healthcare and effectively drive down costs.
  • Marijuana cafes, marijuana clubs, and other recreational venues will likely begin to emerge in Canada, the United States, and elsewhere.
  • Once cannabis is fully legal in the United States and Canada, this will likely lead to an increase in international trade (especially in light of the new trade deal).
  • The marijuana industry is also believed to have already created more than 200,000 jobs—many of these employees enjoy more than a 15% pay raise each year
  • Furthermore, in the United States, hemp—the distinctively non-psychoactive derivative of the cannabis plant—has also begun to enjoy bipartisan support from pro-business and pro-agriculture Republicans and generally pro-cannabis Democrats. The Hemp Farming Act of 2018 intends to remove hemp (cannabis with less than 0.3% THC content) from the list of federally controlled substances, support hemp farmers and researchers with various grants, and also allow hemp farmers to have clearer access to the national banking system.

Even though this act has not yet passed, the hemp industry has already begun to flourish in states such as Colorado and elsewhere and has already surpassed $1 billion in domestic value. Once hemp is fully legalized across the United States, it can be expected to perpetually compete with paper mills, animal feed producers, center wellness treatments centers, and various other industries.

4. The Cannabis Industry is “Going Public”

There is no doubt that the general movement toward the legalization of cannabis has already begun to disrupt a wide variety of different industries. What remains unclear is whether these industries—particularly those involved in the medical community—will continue to resist this seemingly inevitable growth or if they will embrace it and find a way to position themselves as industry innovators.

Until such a decision has effectively been made, it remains clear that cannabis producers will continue to occupy a significant portion of the agricultural start-up market. As is the case with many new businesses, the typical large-scale cannabis operations begin with funding from a few angel investors and then seeks additional private funds once they have been able to demonstrate a potential for growth. However, even though there still remains some legal uncertainty regarding the cannabis market, several cannabis producers have already begun the process of issuing IPOs and going public.

Here are some of the top performing cannabis stocks over the course of the past year (2018):

  • Tilray (NASDAQ: TLRY): grew from $25.60 on August 9th to $214.06 on September 19th
  • POTN (OTCMKTS: POTN): grew from $0.19 on January 12th to $0.85 on January 26th
  • Aurora (OTCMKTS: ACBFF): grew from $4.09 on August 14th to $11.36 on October 15th
  • Canopy (NYSE: CGC): grew from $24.62 on August 14th to $54.89 on October 15th
  • Cronos (NASDAQ: CRON): grew from $5.65 on August 14th to $13.75 on September 20th

Clearly, the fact that some of these stocks have demonstrated a potential to more than double their value in a matter of weeks (or even days) will continue to attract initially skeptical investors to cannabis trading. The period between mid-August and early October 2018—occurring near the time many outdoor growers were harvesting their crop—was particularly lucrative for the industry as a whole.

However, despite this potential for growth, it is important to recognize that the cannabis industry is exceptionally volatile. For example, the company India Globalization Capital (IGC) experienced more than 1,000% growth between September 14th and October 2nd, but then lost 70% of that rapid growth over the next three days. Though those who held the stock before this period of volatility are indeed still wealthier because of these movements, anyone who entered the market when IGC stock happened to be at its zenith, may be questioning their initial decision.

Source: Statista
Source: Statista

5. Reasons for Continued Growth

Despite the high levels of volatility that the cannabis industry has clearly begun to demonstrate, one thing continues to remain undeniably clear: even when using conservative projections, the cannabis industry as a whole is still significantly increased in value over time. As capital is gradually shifted from black-market operations to legal, publicly traded firms, the question is no longer whether the industry has what it takes to succeed, but who will ultimately be the most successful.

There are plenty of reasons for outside observers to believe that the cannabis industry will continue its steady rate of growth.

  • As the cost of cancer treatments and other medical treatments continue to rise, patients who find relief in the consumption of cannabis will have a significant impact on global demand.
  • Changing attitudes, legislation, and the opening of markets will help make it possible for major cannabis firms to access a wider audience.
  • Operating on an economy of scale—which is typically made much easier when done through legal avenues—will allow the cost of cannabis to decrease, which will increase accessibility without any damages to profit margins.
  • Increased competition will help spur innovation, drive down production costs, and increase the general quality of cannabis producers around the world.

For better or for worse, the days of full cannabis legalization are undeniably on the horizon. This industry presents the capacity to both complement and disrupts a variety of other industries, meaning that its economic impact is something that no investor can justifiably ignore. Between the bipartisan movement towards legalizing hemp, Canada’s dramatic push to become a world leader in cannabis production, countless initiatives occurring across the states, and various other legalization efforts occurring elsewhere in the world, the industry is clearly prepared to establish itself as a permanent economic fixture.

Conclusion

The cannabis industry—which consists of both hemp and marijuana—is volatile because, as we have seen with other industries (think about the “.com” era), all new industries are positioned upon a frontier of initial uncertainty. However, despite the fact that this level of volatility is likely to continue on into the perpetual future, it remains clear that the value the cannabis industry can offer the world is indeed authentic. The future of cannabis is exciting and will likely witness increased competition, innovation, and consolidation of the world’s top firms. Though investing in the industry is something that can certainly not be done without risk, the almost universally recognizable potential for growth that exists there has uniquely attracted the attention of investors all around the globe.