Friends,



What a difference a week makes. Just ahead of legalization, 6 Canadian licensed producers posted all-time highs, including Aurora Cannabis, CannTrust,Canopy Growth, HEXO Corp, Organigram and TerrAscend, though the broad market didn't follow through and failed to clear its early 2018 highs. A week later on this past Tuesday, 10 different LPs posted 2018 lows. Last week's action was decidedly negative for the Canadian LPs and broad market. The New Cannabis Ventures Canadian Cannabis LP Index retreated 13.9% and is down 25.8% since the recent peak on October 15th, while the Global Cannabis Stock Index slipped 17.8% during the week and is down 26.3% since the 15th.



On August 14th, both the Global Cannabis Stock Index and the Canadian Cannabis LP Index had posted 2018 lows, but the announcement of the C$5 billion Constellation investment into Canopy Growth sparked the market. Even with the recent decline, the market remains well ahead of those 2018 lows as well as the 2017 lows set exactly a year ago in late October. Compared to the close from October 27, 2017, the Global Cannabis Stock Index has advanced 55.7%, while the Canadian Cannabis LP Index is up 99.5%.



The markets have enjoyed a substantial run-up from mid-August that is likely due to enthusiasm over Canada legalizing, which looks to have been a "sell-the-news" event, but also speculation that companies like Diageo and Coca-Cola could enter the space. A sliver lining to the correction over the past two weeks is that it certainly allows out-of-industry buyers to pursue acquisitions or investments without the appearance of top-ticking. We found it interesting that Constellation timed both of its announcements about its investments into Canopy Growth at periods of consolidation in prices rather than when prices were rallying.



Given how poorly Constellation has performed over the past year since announcing the initial investment, we expect that cross-industry buyers may give valuation at least some thought: