During a prediction panel at the Arcview Investor Forum in Las Vegas last Tuesday (November 13), Canadian Securities Exchange (CSE) leading executive said the cannabis play has evolved for investors across the board.

Dubbed the “Bold Market Predictions” talk moderated by Neal Gilmer, research analyst with Haywood Securities, the panel offered investors a peek inside what the experts are eyeing for trends moving forward in the space.


The panel, in addition to Richard Carleton, CEO of the CSE, featured Michael Hayford, CEO of Lighthouse Strategies, Stephen Lenn, a partner with Greenspoon Marder and Brian Schinderle, a managing partner with Solidum Capital Advisors.

 

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International markets overview

When discussing the international markets, the panel highlighted how big an element this play is and how there is still not a lot known regarding the actual size of the international market for existing companies.

Lenn explained he is focussed on answering the question of how exactly will companies export brands internationally.

“How do we build something very successful, gain consumer adoption and then look to globalize that opportunity?”

Carlton added he is keeping a close eye on Israel and its development in the cannabis space and, in particular, with the research advancements for the plant.

The executive added Israeli-based cannabis research companies are coming for public listings on the CSE over the next three or four months.

When asked about the potential continued growth of the Canadian market, Carleton reemphasized the pipeline of companies coming to the CSE to raise capital is “jam-packed.”

“It’s abundantly clear that the investor appetite has moved from people with cultivation licenses and ambitious programs to build greenhouse capacity… to companies that are investing in portfolios of intellectual property,” Carleton said.

Making a prediction of his own, Gilmer told the audience he expects to continue to see the growth of the CBD market in 2019.

The analyst explained a lot of the current growth for this market is due to anecdotal references and recommendations.

He expects there to be a drive up on the CBD market once research shows the benefits of the compound and perhaps some celebrity endorsements appear.

 

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Potential for TMX Group to ease regulations when it comes to US investing

Carleton was asked about the regulatory stance that differs his exchange to the TMX Group operated ones.

The executive said it would take a full descheduling of marijuana under the Controlled Substance Act (CSA) in the US for the TSX and TSXV to open listings to US-focussed companies.

However, Carleton explained some companies are starting to exploit how to access the US market in ways that don’t affect listings in the TMX Group exchanges.

In a weekly column to investors Alan Brochstein, cannabis analyst with 420 Investor, explained how large licensed producers such as Canopy Growth (NYSE:CGC,TSX:WEED) and Aurora Cannabis (NYSE:ACB,TSX:ACB) have entered the US space.

“The ability of the largest LPs to effectively enter the US market bodes well not only for their future but also likely improves the availability of capital to the American cannabis industry,” Brochstein wrote.

On the issue of whether or not the US government will remove cannabis from the illegal list and fully open the doors to the industry the way Canada has done so, Schinderle told the investor audience he doesn’t expect a change in scheduling for the next two years.

Schinderle said he expects a change of administration to cause the rescheduling.

Marijuana, despite its illegal status on a federal level, has been legalized by several states in the US for medical or even recreational use.

In June, Sens. Elizabeth Warren (D-MA) and Cory Gardner (R-CO) introduced a new legislation dubbed “states rights” which would remove the cannabis ban at the state level.

 

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Schinderle said this legislation would fix the current banking issue for existing cannabis-related businesses and would potentially allow the entry into the scene from US broker dealers and US private equity.

“They are sitting on so much money that they don’t know what to do with and it’s killing them that they can’t run in here and get involved,” he said.

During his panel at the MJBizCon show in Las Vegas last Wednesday (November 14), Kevin Murphy, CEO of Acreage Holdings, a soon to be public US multi-state operator, said his company is pushing hard for the passing of this legislation.

Untapped areas of the cannabis market

When asked about what areas of the sector they felt had the best chance to be the next big opportunity Hayford, Carleton and Schinderle agreed the possibility to manipulate compounds of the plant in a lab is exciting.

“I think that’s very interesting if we can figure out how to turn off certain cannabinoids… and have a plant create 10 times that number of cannabinoids,” Hayford said.

Carleton added he has heard pitches from companies claiming to create cannabinoids in a petri dish inside a lab which later got acquired by name-brand players.

“Somebody thinks there’s something there,” he said.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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