• Ted Ohashi

BROCHSTEIN: Cannabis stocks to finish 2018 on a high note

In New Cannabis Ventures, Alan Brochstein explains why he thinks the cannabis stocks will finish 2018 on a strong note. Brochstein sees several factors that make him more optimistic on top of a pre-existing rosy outlook. For example, the recent successful Initial Public Offering of Tilray, the pending massive investment by Constellation Brands into Canopy Growth and the rampant rumors of other cross-industry and cross-border. In addition, the latest quarterly financial filing season showed the rapid pace of public company revenue generation. There are now 25 companies generating quarterly sales in excess of US$2.5 million and seven public companies generating more than US$10 million a quarter in sales.

Brochstein goes on to say that the cannabis sector has attracted momentum traders and while many are debating valuations, there is little doubt that the fundamentals are strong and the potential for very large markets to develop is quite easy to grasp. He cites Hadley Ford, the Chief Executive Officer of iAnthus who sees the U.S. market as a trillion dollar opportunity.

In Canada there is the upcoming 10/17 legalization of consumer cannabis in a major country. Brochstein sees other TSX-listed licensed producers list in the U.S. and the potential for investors to focus on Canadian ancillary plays as well as retailers. Another interesting development is that CBD from hemp will finally be legal in Canada. It seems wise to explore who might benefit from this development. Finally, says it appears the TSX-listed LPs have figured out how to pursue the U.S. market without risking their listings through the use of options on assets in the U.S. We are paying attention to developments like the spin-out by Aurora Cannabis of Australis Capital, for example. CEO Vic Neufeld made it clear Aphria intends to be in the U.S.

Brochstein concludes: “Finally, we aren't so sure Diageo will be buying an LP, instead perhaps partnering as Molson did, but there is no doubt that many companies are trying to get their cannabis strategy locked down now. We think by the end of the year the Canadian LPs may have the first Big Pharma investment or acquisition, but perhaps we need odds on that bet!” Read the full report (here).

We agree with this general sentiment. Our target date was post-Labour Day but it was impossible to anticipate the Constitution/Canopy transaction that triggered the rebound a few weeks early.

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