Capitalize On Cannabis Report – 04/08/17 – Alan Brochstein, CFA …

The new quarter began with softness in the domestic market but strength in Canada ahead of next week’s tabling of legalization legislation and on the heels of the launch of the sector’s first ETF, Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ), which is heavily focused on LPs. The early indication is that the ETF brought in retail investors.

Here are some of this week’s highlights for Focus List names:

  • ACBFF completed the acquisition of Quebec-based late-stage ACMPR applicant Peleton Pharmaceuticals
  • APHQF unveiled a U.S. strategy, investing in Liberty Health Sciences, which is buying Florida MMJ company Chestnut HIll Tree Farm.
  • CVSI filed its 10-K after the market had closed on 3/31, indicating a big operating loss as the company wrote down goodwill and inventory. The underlying financials were weak, as adjusted EBITDA fell from Q3 to -810K despite an increase in sales.
  • GBLX is one of 7 applicants to act as the LSU medical cannabis licensed operator.
  • GRWG announced an expansion into the home growers market and issued guidance for 2017 sales of $15mm
  • MSRT filed its 10-K after the market had closed on 3/31, indicating that sales declined from Q3 to just $147K and that the company had used an astounding $3.27mm to fund operations in Q4. Nevertheless, SoundView initiated coverage with a target price of $3.82.
  • TWMJF bought a late-stage ACMPR applicant in Saskatchewan, its first expansion into Western Canada.

The 420 Investor Cannabis Stock Index fell, decreasing 2.4% for the week to 76.47. The index lost 6.9% in March and is up 3.2% YTD after gaining 88.8% in 2016. The index, which currently includes 54 stocks, ended 2016 at 74.10.

420 Opportunity ended the week valued at $45,164, down 0.5%, and is up 0.6% YTD. In 2016, the model portfolio increased 293.4% compared to the 88.8% increase in the index. 420 Quality ended the week at $54,040 up 1.8%. This model portfolio was launched on March 2nd targeting long-term investors seeking to invest in leading cannabis stocks with minimal portfolio turnover and has gained 8.1% since inception

.Valuations have increased and remain cautionary, and fundamentals are questionable for most of the >450 companies in the sector. The market rallied on the cannabis legalization efforts as well as the legalization path in Canada, and it continues to attract a lot of interest from traders. It would be the wrong conclusion, in my view, to believe that the rally is sustainable for the vast majority of OTC cannabis stocks, so we could be in for a period of consolidation. The retention of the Republican Senate majority was a negative for the cannabis industry.

The big themes ahead are likely to be insight into the new President’s plans regarding the federal view on state-legal cannabis (especially in light of Jeff Sessions serving as Attorney General), hopeful extension of the Rohrabacher-Farr Amendment (which is set to sunset in April) to insulate state-legal cannabis businesses from DOJ intervention, better clarity from the federal government for banks and cannabis research (both part of the proposed CARERS Act and other proposed legislation), DEA pushback towards the CBD from industrial hemp industry, the inclusion of a broader range of extracts in Health Canada’s ACMPR program and its continued growth in patient enrollment, potential legalization in Canada (near-term introduction of legislation at Parliament), the rollout of MMJ in Germany and in Australia as well as continued advances in South America, progress with respect to the new legal cannabis implementations in CA, MA, ME, and NV and the new MMJ implementations in Arkansas, Florida, Hawaii, Illinois, Maryland, Minnesota, Montana, Nevada, North Dakota, Ohio, New York, Nevada, Massachusetts, Pennsylvania and Texas, the implementation of the new medical program in California and the possible legalizations via the legislatures in NM and RI.

The slide, which began in March of 2014, reversed out the entire gains from early 2014, with the market currently near the summer 2013 lows after the rally since mid-February. Most valuations remain high. Positively, we are seeing some new entrants into the publicly-traded sector of higher quality, and hopefully we see more in 2017, especially with the number of legal states doubling. Please remember that it remains the case that most of the penny stocks will not succeed. I expect that there will be just a few winners among the 450+ companies that are currently on our Broad List.

Here are some of the most interesting stories we published on New Cannabis Ventures this week:

Aphria to Invest $25mm in Liberty Health Sciences, Acquire Florida MMJ Company CHT Medical…/

Aurora Cannabis Buys Quebec Late-Stage ACMPR Applicant for $7mm​…/

BCC to Enter Massachusetts Cannabis Market with $5.1mm Acquisition​…/

Canopy Growth Acquires Late-Stage ACMPR Applicant rTrees in Saskatchewan…/

Grow Generation Projects $15mm Annual Sales, Enters Home Grower Market​…/

Horizons Medical Marijuana ETF to Debut April 5th…/

How Genomic Mapping and Stabilizing Cannabis Genetics Could Help Cultivators and Consumers…/

Invictus MD Builds Canadian LP Portfolio​…/

PI Financial Analyst Projects $4.6 Billion Canadian Cannabis Sales in 2019…/

Terra Tech Expects 2017 Sales of $38-40mm…/

Therapix Licenses Yissum’s Technology for Nasal Drug Delivery of Cannabinoids…/

Three Cannabis Companies Combine Crowdfunding with Traditional Capital Raises at

LAUNCH Festival…/

United Greeneries Harvests First Crop…/


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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: At New Cannabis Ventures, we work with several publicly-traded companies, including Aurora Cannabis, Canopy Growth, Emblem, GrowGeneration, Kush Bottles and Therapix Biosciences, providing each of them with Investor Dashboards. For more information:

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