Cannabis Weekly Round-Up: Ontario Lottery Winners Gain LP Support

During the past trading week (February 11 to 15), the much anticipated independent review looking into potential wrongdoings in dealmaking from Aphria (NYSE:APHA,TSX:APHA) was released.

The latest financial statements from two leading Canadian cannabis licensed producers (LPs) and a new development in the roll-out of the Ontario marijuana retail market also made headlines this week.

Here’s a closer look at what some of the biggest news was during last week’s trading period.

Ontario retail market sees potential entry of LP-backed cannabis firms

Marijuana retailers Choom (CSE:CHOO,OTCQB:CHOOF), Inner Spirit Holdings (CSE:ISH) in partnership with LP Newstrike Brands (TSXV:HIP) and High Tide (CSE:HITI) have established deals with winners of the Ontario retail lottery, awarding 25 licenses for legal shops in the province.

“It was no secret that deals were being tabled in the week that our retail operators had to complete their retail operator license application,” Brenna Boonstra, director of quality and regulatory consulting Cannabis Compliance told the Investing News Network (INN).

These deals call into question the role of these companies alongside the winners of the lottery. Per rules from the Alcohol and Gaming Commission of Ontario winning licensed are not allowed to change control.

While the companies indicate no such change is taking place, the backing from LPs also raises questions due to Ontario’s decision to block all producers from participating in the retail market outside of one facility license.

Canadian LP Aurora Cannabis (NYSE:ACB,TSX:ACB) holds investment interests in High Tide and Choom, while Newstrike is an LP itself working with Inner Spirit.

Aphria tries to clear the air, executive team set to depart

An independent review into the purchases of assets in the Latin American market from Aphria found no wrongdoing of the company’s purchases, following a targeted short seller attack in December, 2018.

The short sellers, Quintessential Capital Management and Hindenburg Research, challenged the value of assets acquired in Argentina, Colombia and Jamaica, but according to the special committee of independent directors created by Aphria the acquisitions were deemed “to be within an acceptable range as compared to similar acquisitions by competitors.”

The special committee did indicate some opportunities for Aphria to improve including better disclosure for working deals.

“Based on further information available to the Special Committee, it appears that certain of the non-independent directors of the Company had conflicting interests in the Acquisition that were not fully disclosed to the Board,” the announcement from Aphria indicated.

Aphria co-founders Vic Neufeld and Cole Cacciavillani will leave the company officially on March 1. Neufeld, acting as CEO of the company as well, cited medical complications as one of the reasons for his departure. The company has also announced John Cervini, director of the company, will also step down.

Market updates

During the week, both Canopy Growth (NYSE:CGC,TSX:WEED) and Aurora Cannabis issued financial results for their respective latest quarters.

First was Aurora Cannabis, which on Monday (February 11) posted losses of C$238 during its fiscal 2019 Q2. The producer also secured revenues of C$54.2 million thanks to its medical and recreational operations in Canada and abroad.

“Going forward, Aurora intends to continue prioritizing medical patients in Canada and globally where margins continue to exceed those achieved on the wholesale consumer market,” the company indicated to shareholders.

Charles Taerk, president and CEO of Faircourt Asset Management and Doug Waterson, chief financial officer and portfolio manager with Faircourt, told INN Aurora’s increasing operating expenses are alarming as the company continues to expand internationally.

“While we understand that international expansion requires investment, we are concerned that operations will not be able to absorb the expenses in a time period that meets investor interest,” Taerk and Waterson said.

$ACB holders have to ask themselves a fundamental Q post ER. What is the thesis you are investing in-the invstmnt portfolio(which is volatile), or their CDN ops? They were 20% of mkt and still lost $$ + the pre-roll issue from last wk shows ops-wise they still have work to do.

— Merida Capital Partners (@MeridaCap) February 12, 2019

Then on Thursday (February 15) it was Canopy’s turn to issue its results. The producer shipping over 10,000 kilograms of cannabis products, compared to Aurora’s reported 7,000 kilograms.

Canopy also posted a significant loss of $157.2 million from its operations for the quarter. The producer reported revenues of $97.7 million for the three-month period that ended on December 31.

Auld-use sales racked in C$71.6 million for Canopy and its shareholders took in an increase in net gains of C$67.6 million or 22 cents per share for the quarter.

“We believe this strategy will develop a significant and sustained return on invested capital over the long-term,” said Bruce Linton, co-CEO of Canopy Growth.

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.

Editorial Disclosure: Inner Spirit Holdings and High Tide are clients of the Investing News Network. This article is not paid-for content.

** This article is updated each week. Please scroll to the top for the most recent information**

Cannabis Weekly Round-Up: Cannabis Product Sales Rise in December

By Bryan Mc Govern, January 18, 2018

During the past trading week (January 28 to February 1), a portfolio manager projected no new marijuana specific funds would become available in the public space.

An update on the cannabis retail market and its current “slow-down” period also made headlines throughout the week, while new data on legal cannabis from Health Canada was shared this week.

Here’s a closer look at what some of the biggest news was during last week’s trading period.

Nawan Butt, portfolio manager with Purpose Investment, told the Investing News Network (INN) from his perspective he doesn’t expect to see more cannabis-centric investment funds created until US federal legalization.

“There’s really no more flow of money into the space right now, everyone seems to have just paused,” he said. Purpose investments manages its own marijuana fund available publicly. “I don’t think there’s enough demand, just right now,” the portfolio manager said.

Butt added the legalization of marijuana in the US will serve as the next catalyst to provide a rush of investment and the potential creation of new funds.

INN also talked with a few executives of the industry on some of the recent trends and forecast expected in the space.

Jesse McConnell, CEO of Rubicon Organics (CSE:ROMJ), explained why high-end dried flower will always retain a space in the market, despite the shift from new consumers. He said his company wants to target “volume consumers” who have made a cannabis a part of their life.

According to Niel Marotta, president and CEO of Indiva (TSXV:NDVA), marijuana investors are raising the complexity of their conversations with investments. Marotta said questions now range from precise consumer information, international aspirations and the participation in the upcoming edible market in Canada.

Despite this the executive still believes a majority of investors are chasing “size and big balance sheets” in the cannabis public scene.

Marco Iannuzzi, chief corporate social responsibility officer with Zenabis Global (TSXV:ZENA), told INN the recently listed licensed producer is expecting a lot more consolidation than predicted so far.

Retail market in a moment of pause and cosmetics brand launching soon

The Canadian retail market experienced a botched launch following legalization in Canada last October. However, the play has gained attention from the investor market. Now, experts are seeing a period of slower pace for the market.

Jennifer Lee, partner and cannabis lead at Deloitte, told INN the retail market needs some time to settle.

Trevor Fencott, CEO of Fire & Flower, a retailer looking to launch publicly on the TSX Venture Exchange (TSXV), told INN the rollout of a national retail strategy was going to take longer than expected.

“What we realized pretty quickly is that retail in general is a scale game,” Fencott said. “In order to have the requisite purchasing power and the ability to drive white label products at higher margins, you’re going to need a share number of stores.”

Brandi Leifso, founder and CEO of Evio Beauty Group, said her company’s cosmetic brand infused with cannabis sativa seed oil in partnership with Aurora Cannabis (NYSE:ACB,TSX:ACB) will launch to the market in April.

The line will consist of three products: a revitalizing serum, a rejuvenating mask and a set of cleaning wipes. All of these are set to be sold online only at launch. However, Leifso said at the end of the year the company expects to announce a retail selling strategy.

Updates from Canadian market

The Canadian government released its latest update on the sales of marijuana during the month of December on Tuesday (January 29).

The data from Health Canada shows dried cannabis sales rose to 7,252 kilograms in December, representing a four percent increase from November. Total sales of cannabis oil for recreational and medical use topped 7,127 litres in December.

The agency also noted finished inventory of dried cannabis product, “any cannabis held in stock by a cultivator, processor, distributor, or retailer that is packaged, labelled, and ready for sale,” reached 19,085 kilograms in the month of December.

According to a report from Bloomberg the marijuana edible market may take longer to reach consumers even following legalization in Canada.

“It’s a complex area with a greater risk, because of the way in which it’s consumed,” Bill Blair, Minister of the Cannabis Act, said. “We said we’re going to take the time to do it right.”

Blair confirmed even though the Canadian government has indicated October 17, 2019 will be the deadline to legalize edibles and other infused products, the actual sales of these products could take extra time.

During a talk at the Cantech Investment Conference in Toronto Bruce Linton, CEO Canopy Growth (NYSE:CGC,TSX:WEED), said he isn’t expecting a “uniform federal application of access to THC voted on and passed in the US” per Yahoo Finance Canada.

As Canopy has revealed its intention to participate in the hemp market in New York, the company’s executive doesn’t see a clean legalization decision from the US for cannabis.

A new report from The Globe and Mail indicates Canada and US based enforcers of securities law are looking into the practices from short sellers in various markets including against marijuana firms.

“The US Securities and Exchange Commission has been meeting with companies that allege they have been victimized by abusive short-selling, say sources familiar with the meetings who spoke to The Globe and Mail,” the report 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.

Editorial Disclosure: Indiva is a client of the Investing News Network. This article is not paid-for content.