The Morning Blunt

Volume 3| Issue 12

November 12, 2018

“I want to put a ding in the universe. “ –Steve Jobs

Stock Market

Four of Canada’s largest cannabis firms, Canopy Growth (NYSE: CGC), Tilray (NASDAQ: TLRY), Aurora Cannabis (NYSE: ACB), and Cronos Group (NASDAQ: CRON), are releasing earnings reports this week, and though it’s too soon to review post-legalization number, executive commentary will begin separating the winners from the losers. Take a look at what you can learn from this week’s reports.

According to Motley Fool’s Dan Caplinger, cannabis stocks may see a huge catalyst for further growth this week when some of the biggest cannabis firms issue their latest earnings reports. Among the top reports to be issued are Canopy Growth (NYSE: CGC), Tilray (NASDAQ: TLRY), Aurora Cannabis (NYSE: ACB), and Cronos Group (NASDAQ: CRON).

Friday Cannabis stocks were lower across the board as investors locked in some of the week’s gains. The sector experienced political gains with three states approving cannabis measures and Jeff Sessions issuing his resignation. Canopy Growth (NYSE: CGC) was down 5.4%, Tilray (NASDAQ: TLRY) was down 2.8%, Aphria Inc (NYSE: APHA) fell 3%. Take a look how other cannabis stocks fared Friday.

PotNetwork partner Grizzle and CB1 have complied a list of publicly listed US cannabis firms. The guide lists the company’s business, investment thesis, and valuation metrics where available.

Vertically integrated cannabis firm Terra Tech Corp. announced its third quarter financial results for the period that ended Sept. 30, 2018. Terra Tech showed a 33% decline in cannabis sales during Q3. Take a look for a deeper analysis of Terra Tech’s financial report.

Motely Fool’s Cory Renauer notes that with cannabis producers driving the cost of cannabis down by chasing each other to the bottom, two ancillary cannabis stocks, KushCo Holdings Inc. (NASDAQOTH: KSHB) and Innovative Industrial Properties Inc. (NYSE: IIPR), are likely to thrive in the consumer-friendly environment.

Thursday Brink’s Co. (NYSE: BCO), known for armored trucks, may have defaulted into a derivative pot play after reaching a multi-year agreement with Canopy Growth Corp. (NYSE: CGC) to provide secure logistics and cash management services, including international shipments of cannabis for Canopy Growth.

Motley Fool’s Joey Frenette discusses October’s selloff after Canadian legalization, noting that 2019 might be a rollercoaster for investors. Frenette warns investors that more big booms and busts are to be expected, especially after the first results post-legalization are released. Warren Buffet’s strategy to be ‘greedy when others are fearful, and fearful when others are greedy’ has been a principal to employ when investing in the pot market.

iAnthus Capital Holdings Inc.’s (OTCMKTS: ITHUF) CEO Hadley Ford discusses the company’s strategy and his take on the cannabis industry. When discussing recent acquisitions such as the company’s purchase of MPX Bioceutical Corp, Ford points out the wave of consolidation coming for the cannabis sector, noting iAnthus’ biggest competitors come from mergers and acquisitions.

To lower costs, increase quality control, and maximize revenues, Next Green Wave Holdings Inc. (CSE: NGW) is building a vertically integrated cannabis firm. Next Green Wave will focus on cultivating, processing, distributing, and manufacturing genetics, flower, extracts, and concentrates. The company also intends to open retail locations to distribute its branded and white-label products throughout California.

Global News

Last Friday Thailand’s National Legislative Assembly submitted proposed amendments to the Health Ministry that would allow licensed possession, cultivation, and distribution of both marijuana and kratom under regulated conditions. The amendments must be reviewed by the ministry and the cabinet, who will return it to legislation for a version of the bill to be voted on. The process may be completed before the end of the year.

With the global cannabis industry expected to be worth over $194B in seven years, cannabis firms are jockeying to lock-in lucrative cannabis patents for the industry’s next phase of development: intellectual property.

Over the next two years one of the world’s largest cannabis firms, Canopy Growth Corp., announced its intention to invest $115M to expand production capacity in the EU, according to Pierre Debs, managing director Canopy’s Spectrum Cannabis Europe division.

US News

Motely Fool’s Sean Williams discusses the recent Gallup survey that found 66% of Americans support legalizing cannabis, that a whopping 52% of Republicans now support legalization, and 59% of older Americans support legalization. However, this data is likely to go ignored due to Republican attitudes about marijuana. Further, section 280E of the tax code prevents cannabis operators from claiming tax deductions, leaving their businesses prone to a tax rate up to 90%. Legalizing the substance would essentially cost the US government money in the form of tax revenues lost, giving the government little incentive to legalize any time soon.

The Boston Globe’s Dan Adams reports the significant impact removing Texas Republican Pete Sessions from the House’s Rules Committee will have on the cannabis industry. His replacement on the committee, Jim McGovern, will not actively block amendments for marijuana reform.

Five companies have submitted bids to become Maine’s consulting adviser as the state launches into the adult-use cannabis industry. Friday the Department of Administrative and Financial Services announced that Barclay Damon, BOTEC Analysis, Guardian Labs, Freedman & Kiosk, and Zoned Properties Inc. have applied for the consulting contract. None of the firms who applied are based in Maine.

Illinois marijuana advocates rejoiced Tuesday when J.B. Pritzker was elected governor, however the path to recreational cannabis is uncertain as other state lawmakers are required to support the legislation and have warned Pritzker not to rush a bill through. Illinois Republicans and southern lawmakers represent the majority who oppose recreational marijuana, while Democrats view legalization as a form of tax revenue.

176 Oregon cannabis businesses owe over $15.7M in overdue taxes to the Oregon Department of Revenue. One of the problems that has arisen this past year is Oregon’s oversupply issue that has driven prices, reducing profit margins, leading to some businesses to be late paying their taxes. Oregon Department of Revenue says the top 10 businesses with outstanding balances owe more than $600K each.

Michigan just passed one of the lowest tax rates on cannabis in the country. Cannabis businesses will only shoulder a 10% excise tax and a 6% sales tax. Michigan’s is employing low taxation because states with high tax rates face difficulties combating the black market. Take a look at the what Proposal 18-1 will mean for the state.

The Cannabis Control Commission gave authorization to two testing facilities to commence operations, marking the countdown to recreational sales in Massachusetts. Recreational cannabis sales may begin in Northampton Massachusetts no later than Thanksgiving according to Norton Arbalaez, the director of government affairs for New England Treatment Access.

Set for sales to commence next month, Iowa’s medical cannabis market is one of the strictest in the country, with less than half a dozen ailments qualifying patients to seek care. With only two cultivators and five distribution licenses issued, less than 500 people have obtained cannabis registration cards.

Utah voted for medicinal cannabis on November 6th, joining nearly two-thirds of states who have a medical cannabis program. States who have already legalized medical marijuana can shine some light on what Utahans can expect from the approval of Proposition 2. While Utah accepted a strict compromise bill, Minnesota’s marijuana reform may resemble Utah’s future cannabis policy.

The Washington State Liquor and Cannabis Board is tightening the regulations surrounding pesticides used in the cannabis industry. According to John Kingsbury of Patients United, Washington continues to have a pervasive contamination problem that needs to be addressed. Washington plans to initiate a certified organic program for the cannabis industry in early 2019 with Colorado and California expected to follow.

According to a study conducted by the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois, marijuana legalization would benefit Illinois taxpayers and the state economy. The study concluded that based on the size of Illinois, tens of thousands of jobs would be created and hundreds of millions of dollars in tax revenues would be generated.

With an overwhelming 59% majority, voters in Turner Oregon passed a measure to ban new medical and recreational cannabis operations, leaving only one retailer, Home Grown Remedies, the sole outfit in town.

Trap Door Brewing is the first brewers in Washington to use cannabis derived terpenes in their latest beer, the Mighty HighPA. In order to market the beer, Trap Door had to meet with state officials to provide testing results proving no CBD or THC was present in the brew.

California News

Too many regulations and associated licensing fees could be pricing cannabis operators out of the market and the high bar may be a deterrent for others to enter the cannabis industry. A state cannabis license can cost anywhere from $500 to $120K annually, not including taxes or product testing. Bureau of Cannabis Control’s director Lori Ajax discusses the difficulties of creating new regulations for a brand new, federally illegal industry.

California’s Bureau of Cannabis Control has issued a draft of permanent rules for the cannabis industry, one of which would ban cannabis businesses from contracting with unlicensed cannabis businesses. These regulations, in short, would put an end to the white-labeling workaround. They may also have huge implications on third-party delivery companies.

Marijuana Business Daily’s John Schroyer delves into California’s licensing quagmire where hundreds of businesses are awaiting to apply for temporary cannabis business licensing. Application are due before Dec. 1st. Schroyer also discusses the rise in intellectual property lawsuits in California as the industry grows.

Alternate Health Corp. (CSE: AHG) (OTCQB: AHGIF) announced that it has signed a binding letter of intent with Agnicourt Ventures LLC to secure funding in the amount of $20M. This agreement will be structured as debt finance and limited stock purchase agreement. The company will use this infusion to expand into California cannabis operations.

Canada News

Shoppers Drug Mart is presenting education sessions on the benefits of cannabis and how doctors should prescribe the drug to their patients. The company aims to dispense medical cannabis through its pharmacies. However, there is some concern that medical information shouldn’t be offered by a drug store chain who stands to profit from cannabis prescriptions.

The SQDC, responsible for recreational cannabis sales in Quebec, announced they will not open additional stores until Quebec’s government revisits cannabis legislation. SQDC is seeking an age of consumption change to 21, designated smoking areas, and they are asking the Coalition Avenir Quebec to increase the distance cannabis retail outlets have to keep from schools.

Science

MMJ International Holdings announced that it has filed for an application with the FDA for “Orphan Drug Designation” for a medication used in the treatment of Huntington’s disease. The company has developed two CBD derived drugs, MMJ-001 and MMJ-002, which researchers believe will be beneficial in treating Huntington’s disease and multiple sclerosis. Human clinical studies are expected to begin in early 2019.

Thursday the University of Mississippi Medical Center announced that trials had begun to study the effects of CBD on children with severe epilepsy. The trial is the first university-based clinical trial of cannabis extract to meet federal standards, approved by the Food and Drug Administration, the Internal Review Board, and the Drug Enforcement Administration.

Valerie Wolf, a professor of neurology at the stroke unit of Strasbourg University Hospital in France, suspects a relationship between heavy cannabis use and stroke. Wolf warns doctors who are prescribing cannabis to be aware of its associated risks and possible interactions with other medications. Researchers hypothesize that cannabis can cause severe constriction, or spasm, of the cerebral arteries, leading to lack of blood flow to the brain, known as an ischemic stroke.

Vitalis Extraction builds cannabis extraction equipment for the future, by going above and beyond the requirements of the cannabis industry. Much of the equipment from overseas is no longer accepted, as state legislators and fire departments require stricter certifications. Vitalis assumes that cannabis regulations will only become more strict, therefore the company builds equipment around what is likely to be required in the future.

Other News

Though it’s not impossible to secure intellectual property rights on cannabis related inventions there are several complexities to consider such as conflicting federal, state, and trademarking laws. With only 60 active cannabis patents, to qualify for patentability the invention must be new, useful, and non-obvious.

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