1) Jeff Sessions rescinds Cole Memorandum

Despite what many may think because of the recent legalization decisions by states like Colorado, Washington, and Nevada, marijuana is still illegal at the federal level in the United States. This past Thursday, US Attorney General Jeff Sessions rescinded memos from the Obama administration which essentially told federal prosecutors that they should stop using their resources to interfere with the legalization of marijuana at the state levels. Known as the Cole Memorandum, it is a major reason why legal marijuana and the companies that are involved in the production/distribution have been allowed to flourish over the past few years. Understandably, the market reacted negatively to the news in the early trading hours on Thursday with market leaders like Canopy Growth falling 15% and Aphria falling 17%. Surprisingly, most stocks in the sector that took a hit on Thursday were able to recover a large percentage of their losses by market close on Friday.

The ‘flash crash’ on Thursday morning was caused by investors’ initial reactions of fear. However by taking a closer look at Sessions’ decision, it is likely that it will cause an influx of investment into the Canadian cannabis sector from American investors who may now be uncomfortable with the current state of Legal cannabis in the United States. Personally, I don’t see this being a major negative catalyst for Canadian cannabis stocks in the long term.

2) Aurora-Cannimed Saga

Another week means another development in the Aurora-Cannimed takeover attempt. On Thursday, Aurora announced that they had acquired another 91,800 Cannimed shares, bringing their total to 657,800 shares (2.8% of total Cannimed outstanding shares). This week, CanniMed pleaded to shareholders not to sell their shares, explaining that Aurora’s all stock deal is detrimental to them. The explanation for this is that Aurora’s shares have potentially been artificially inflated since their takeover bid was announced.

It is common knowledge that positive news releases by a company tend to increase their share price. Below are the most recent press releases from the 3 biggest licensed producers; Aurora, Aphria and Canopy. Just this week, Aurora has came out with NINE press releases, compared to two from Canopy (neither of which relate to direct updates on business operations), and one from Aphria. While Aurora can dismiss the rise in their share price as being due to the exponential growth of the entire sector, Cannimed’s allegations stating that the share price is being artificially inflated should not be dismissed so easily.

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Is the Canadian cannabis sector in a bubble?

This is the number one question I have been receiving over the past few weeks. I absolutely believe that the sector as a whole is in a bubble, the hard part is determining which stage of the bubble we are in. Below is a graph of a typical economic bubble.

The exponential rise in share prices and subsequent changes to market caps have led me to believe that we are somewhere in between the middle and the end of the mania phase. As someone who has been following this sector for the past three years, there is no debating the fact that cannabis stocks have been receiving more media coverage and public interest than ever before. There is also no debating that many companies in the sector, especially small-mid cap companies are becoming extremely overvalued, even with speculation priced in. There is nothing wrong with getting into a bubble if you believe there is still money to be made and are cautious about when to get out.

At the end of the day, there are still billions of dollars to be made when legalization hits Canada. Some companies will thrive, some will survive, and some will go back to the micro penny stocks that they were three months ago. I would advise anyone who still wants to get into the sector to look at companies they see long term potential in, so that when/if the bubble bursts, all they need to exercise is patience.

Cheers to the New Year, I hope all of you stay in the green ! If you have any questions feel free to reach out HERE!