A guide to pot stocks: What you need to know to invest in cannabis companies

By Max A. Cherney
Source: marketwatch.com

Unknowns abound in the new industry, but these six things are important to know about every cannabis company


MarketWatch photo illustration/iStockphoto

The following article is part of a package of stories that MarketWatch is publishing to mark the start of full legalization of cannabis for adult use in Canada on Wednesday.

Stocks of marijuana businesses have been on a rampage in anticipation of billions of dollars’ worth of sales and other opportunities as Canada this Wednesday becomes the first G-7 nation to legalize cannabis.

Like any hot and relatively new sector, the cannabis industry can be confusing, with high potential for scams, as the Securities and Exchange Commission has warned, so investors need to know the basics. To start with, there are a handful of large companies that actually touch the marijuana plant — an important distinction — and there are metrics that are unique to the industry that can help investors understand the underlying business.

There are six large public cannabis companies that demand attention: Aphria Inc. APHQF, +4.78% APH, +4.13% , Aurora Cannabis Inc. ACBFF, +11.03%ACB, +9.92% , Cronos Group Inc. CRON, +19.07% CRON, +18.46% , Canopy Growth Corp. CGC, +14.24% WEED, +13.64% , GW Pharmaceuticals PLCGWPH, -0.06% and Tilray Inc. TLRY, +11.69% TLRY, +11.69% . Five are Canadian and trade on the Toronto Stock Exchange and on U.S. exchanges or on the over-the-counter market, while one is U.K.-based.

All produce thousands of kilograms of weed each quarter, which is critical, as there are dozens of smaller businesses both public and private that have yet to bring products to market. Some of those are expected to die, and some are expected to thrive.

As Canadian legalization approaches, MarketWatch is profiling each of these six companies, touching on the metrics discussed below, to give investors a clearer picture of their businesses:

Aphria profile: Coming later this week.

Aurora profile: Coming later this week.

Cronos profile: Coming later this week.

Canopy profile: Canopy Growth is the cannabis business’s $4 billion gorilla

GW profile: Coming later this week.

Tilray profile: Vancouver Island–based Tilray has global ambitions

We are also rounding up others that could grow to challenge these companies, and some that will offer products or services connected to marijuana that don’t involve selling weed-based products.

As with any business, the top and bottom lines are critical measures of success for cannabis companies. Of the largest five producers in Canada by market capitalization (GW Pharmaceuticals is based in the U.K.), all have made medical sales, but some are not yet profitable. With recreational pot looming, Canadian companies are making big bets to capture the estimated one billion Canadian dollars — or US$771 million — in sales that will occur through the end of the year. But they can’t stay unprofitable forever.

Beyond profit and sales, there are five other criteria that investors should watch closely when evaluating companies in the industry.

What business are they in?

Eventually, some cannabis companies will probably specialize in either medical or recreational marijuana. At the moment, for pot producers large and small in Canada, they are all medical-cannabis businesses — or not making sales at all.

There is a sophisticated, existing system to produce and distribute medical pot throughout the country and for export. What remains to be seen after Oct. 17 is which companies will be able to succeed in the recreational market. There is no guarantee that any will become the Coca-Cola of pot, and some may remain more successful at selling medical cannabis.

Not all of the companies interested in making money from marijuana, in fact, are looking at the recreational market, and some, such as GW Pharmaceuticals, are shaping up to be something that’s more akin to a drug company than a recreational-cannabis producer.

How much cannabis are they growing and at what cost?

Every major Canadian producer breaks down in its quarterly financial statements how much pot it has actually grown and how much pot it has sold. These are critical numbers because they demonstrate that the company can grow and sell the once-illegal product.

As in the cases of most businesses, it’s important for investors to be able to determine the cost of a product versus how much it’s being sold for. There is no standard way to do so. Canadian regulators are not happy with the current level of disclosure related to per-gram costs, among other reporting issues. In a notice sent Oct. 10, the Canadian Securities Administrators said the current method that many pot producers use to calculate per-gram costs was not clear and companies need to offer more detail.

Several pot businesses use the cost-per-gram metric, but it’s not a perfect number, and it’s not always clear which inputs are included. Some companies don’t disclose the metric at all; at least one breaks it down further to “cash cost” per gram. If a company does include per-gram prices, investors should compare changes from quarter to quarter, but, since it’s not a standard number, it’s important to tread carefully when comparing companies.

For all cannabis companies, one of the most significant inputs is energy, since cannabis is an energy-intensive product that requires as much sunlight as a vineyard. Low growing costs also correlate closely with the bottom line. In a CIBC research note earlier this year, analysts were assuming a roughly 60% gross margin and assuming producers can capture about C$3.60 per gram in revenue from government buyers.

How much cannabis can companies grow?

While some major cannabis producers are already profitable businesses, the introduction of recreational cannabis is expected to shift demand from the black market into the hands of legal businesses. With CIBC predicting C$6.5 billion in retail sales by 2020, companies are likely going to be able to sell much more pot than they are currently producing, so the question is how much they are planning to produce in the future.

Most large producers disclose their square footage under cultivation, as well as how much they are licensed by the Canadian government to produce. Investors should look at how much new capacity they are building, so they can figure out at what point the company will have to use capital to expand.

What supply agreements do they have?

This is where the money is, at least for now. Cannabis companies have been signing agreements to supply marijuana, both in Canada and beyond.

Licensed weed producers are regulated by Health Canada, the federal ministry that grants the certification to grow cannabis. Canadian legislation has left the provinces to determine how pot will be distributed, however, similar to how the country handles alcohol sales.

While each province has set up the rules for cannabis sales slightly differently, the agreements the various provincial entities have struck with weed producers are critical. The information provinces offer is helpful but incomplete. They have announced supply agreements but few details about actual purchases. Some provinces and companies have released the maximum amount of cannabis under the agreement the province will buy, but there is no guarantee that number will be reached. All the provinces list the suppliers on their websites, though for international deals securities filings with SEDAR, Canada’s version of the U.S. Securities and Exchange Commission’s EDGAR regulatory filing system, is the best bet.

What neither companies nor the government know at the moment is what people around Canada will actually buy, which products will be successful, or which brands will attract consumers. While every producer will make money from the first round of sales to various provincial authorities, in the long run nobody knows who will succeed.

Beyond domestic sales in Canada, there are an increasing number of opportunities to export cannabis or set up shop inside countries that have legalized medical marijuana. Most major Canadian companies have some overseas interests, whether they be supply agreements or growing facilities, especially in large, sophisticated medical markets such as Germany’s. Deals with international pharmaceutical companies for distribution are also worth noting.

What intellectual property do they own?

Canada’s medical-marijuana system has existed for years, but adult recreational use has spurred something of an arms race to develop and patent new ways of growing, refining and processing the plant. Some companies disclose their number of patents, and some don’t, but companies with intellectual property that other companies will want to license should see a boost in their valuations.

The key, as in other sectors, is that investors should look for companies that develop a technology that is best-in-class or fundamental to the future of the cannabis sector, one that competitors will have to pay to use.

Hemp Underwear

By: Britt & Daniel
Source: www.ilovebad.com

I got hijacked

by my sidetracks

LAX airport to allow marijuana in carry-ons

By Lilit Marcus
Source: cnn.com

Los Angeles International Airport, better known as LAX, has announced that it will permit travelers to bring small amounts of legal marijuana through security in their carry-on bags.

But wait: That doesn't mean you can toke up at the airport.

Pot is legal in several US states, but not on the federal level, so you still need to study up before packing your bags on your way out of LA.

In 2016, California passed Proposition 64, aka the Adult Use of Marijuana Act. The passing of this proposition means that as of of January 1, 2018, it is legal in California "for individuals 21 years of age or older to possess up to 28.5 grams of marijuana and 8 grams of concentrated marijuana for personal consumption."

LAX is honoring the same regulations in the airport, allowing travelers over the age of 21 to enter the airport and pass through security with the permitted amounts of marijuana.

"The Los Angeles Airport Police Department will allow passengers to travel through LAX with up to 28.5 grams of marijuana and 8 grams of concentrated marijuana," reads a statement on LAX's official website, which was posted in September 2018.

That said, whether you can get busted for traveling throughout the US with pot depends on where you're going. If you're traveling between two states where the substance is legal, such as California and Vermont, you should be all right upon landing.

But if your flight is going from LAX to a place where marijuana isn't legal, it depends on the laws in the state or country where you arrive. You are still subject to local laws wherever you might be going, even if you carry a valid weed prescription for the place where you live.

Planes themselves are also subject to federal law, which means you could still face fines or detention for carrying pot, even if Los Angeles police decline to prosecute -- at minimum, you don't want to miss your flight by getting held up.

Pot or no pot, there are some advantages to flying through LAX: You might spot a Kardashian or a Real Housewife in baggage claim.

We Should Be Pouring Time And Money Into Hemp, Period.

By Janet Burns
Source: forbes.com



A ladybug crawls on the leaf of a hemp plant grown for medical research purposes at the Royal Agricultural Station Pang Da in Samoeng, Chiang Mai province, Thailand, on Friday, July 6, 2018. (Credit: Taylor Weidman/Bloomberg)

For centuries, North Americans have utilized hemp in their homes, diets, and health regimens. For decades, we've also turned to imported products to meet much of our growing need.

And now, after years of major change for US agriculture and industry, real investment in this versatile crop stands to significantly elevate our economy and quality of life for generations to come.

The idea of upping hemp production is already common ground politically. As farmers have faced water shortages, unstable markets, and punishing seasonal conditions, communities around the country have pressured lawmakers to help them restore US agriculture with more profitable, sustainable plants.

Hemp has long been seen to fit that bill. Best known for its use in textiles, it offers wide-ranging applications that countless sectors are keen to get in on.

For example, hemp seeds in whole or processed form contain an impressive amount of protein, nutrients, and essential fatty acids, among other things — offering an efficient way to boost nutrition in human and animal diets — while hempseed oil has increasingly become a preferred ingredient in common food, beauty, and health products.

Its sturdy fibers have also been put to growing use in high-quality plastics and auto paneling, durable building materials, and other common industrial commodities. And when it comes to environmental impact, hemp is not only a low-fuss crop capable of flourishing in US farmland; it can also clean uptainted water and soil, bully weeds away, and be converted into biodiesel.

Unlike other Cannabis sativa varieties and hybrids, which are mostly grown for their chemically potent flowers (or 'buds'), hemp is also legally distinguished from marijuana in the US as containing less than 0.3% of the cannabinoid chemical THC — considered to be the most intoxicating, psychoactive component in cannabis plants, as well as a treatment option for certain serious illnesses.

So while hemp crops can be used to extract the non-intoxicating chemical cannabidiol, or CBD, which has a demonstrated and growing list of compelling health uses, they can't get anyone high.

In short, it's no wonder that hemp has been described as an industrial 'miracle plant.'

For Rocc Johnson, owner and operator of New Orleans' Uptown Hemp, the plant has become both his calling in life and a way to revitalize the economy in his home state.

"I'm so excited and humbled to be part of the [cannabis] industry that's coming to Louisiana," he commented by phone. "For me, it's not about money at all; it's about a better way of life, and helping people get the knowledge to help other people."

Johnson said he got the idea to get involved in marijuana and hemp from his uncle, a member of Louisiana's National Guard, and from his mother, who died from cancer in 2011 after "never smoking or drinking in her life."

Prior to 2005's Hurricane Katrina, which caused widespread destruction and fatalities across New Orleans, Johnson had moved to California, and spent years there soaking up knowledge and culture around cannabis plants and the industry. After witnessing the pain and nausea his mother experienced during her treatment, Johnson decided to help bring the medicinal and economic value of cannabis back to his hometown, starting with hemp.

Stickers and other products are displayed on the counter at Uptown Hemp in New Orleans, Louisiana. (Courtesy Rocc Johnson)CREDIT: ROCC JOHNSON

Today he sells numerous hemp-made items, from shoes to shirts, as well as a range of hemp-based health and medicinal products. After some productive networking at recent cannabis conventions, he's also in talks with Julian Marley to distribute his products around the country, and hopes to help bring a full-scale hemp festival — codename Hemp Hop — to New Orleans next year.

Down the line, Johnson also plans to create an onsite grow-space in the large two-story building where he's set up shop. In addition to getting deep satisfaction from the relief that customers say his CBD products provide, Johnson remains enthralled with "the fun side" of hemp production: namely, planting a seed and letting it grow. "It's just like in life," he added. "I can't say enough about the process, about the feeling of actually producing something."

The arguments for hemp's advantages are mostly long-standing (aside from ongoing discoveries about cannabinoids, new applications in nanotechnology and industrial oils, and so on). But our current opportunities to advance hemp's status as a crop — as well as a transformed cultural climate for cannabis generally — certainly qualify as 'groundbreaking' conditions.

One way that proponents have sought to steer US agriculture toward hemp is through the next federal 'Farm Bill,' an omnibus package of food and agriculture policy that lawmakers can renew every five years.

Since 2013, Senate Majority Leader Mitch McConnell (R-KY), Sen. Ron Wyden (D-OR), Rep. Earl Blumenaur (D-OR), and other members of Congress have been gathering support to bolster hemp production through this process; they also helped to pass a 2014 version of the package, currently in effect, with new allowances for agricultural hemp pilot programs.

Like most major bills, the latest Farm Bill has not been free of controversy. At present, legislators have seemingly missed their Sept. 30 deadline to approve the package, which has stirred numerous arguments in Congress over its core principles, funding levels, and a proposed work requirement for low-income recipients of food assistance.

Under the Senate-approved version of the bill, hemp and derivatives, hemp extracts, and cannabinoids derived from hemp "would be treated as agricultural commodities and removed from the purview of the Controlled Substances Act and the Drug Enforcement Administration," according to CannaLawBlog. 

The more recently House-approved version, which introduced the well-publicized provision affecting up to two million Supplemental Nutrition Assistance Program (SNAP) recipients, doesn't take such steps to remove federal barriers around hemp. It also stipulates that anyone with a felony drug conviction would be barred indefinitely from participating in federal or state hemp programs.

Attendees explore the 2018 international Balkannabis Expo in Athens, Greece on June 1, 2018. (Credit: by Giorgos Georgiou/NurPhoto via Getty Images)

According to many industry members, the latter provision — which would become permanent law, requiring change at the federal level to get rid of —would also exclude key populations from contributing to and benefiting from an enriched industry.

Cannabis entrepreneur and organizer Bonita "Bo" Money called the idea of blocking members of the previous illegal industry from joining the new, legal one "ridiculous" — much like hemp's continued Schedule I drug status, she said.

Money, who founded the National Diversity and Inclusion Cannabis Alliance (NDICA) and left a Hollywood career to promote equity in cannabis businesses, explained that the programs she helps run in California and Wisconsin take the opposite stance on prior experience.

"Here in Los Angeles, we make sure that applicants to our equity program have had a cannabis conviction, or come from zip codes affected by the war on drugs." Money said. "For [lawmakers] to ban people with experience working in hemp from doing so again is ridiculous."

In Wisconsin, she and her team are in the process of setting up the only social equity, Black-owned hemp farm in the state, where they hope to create more jobs for black farmers, and plan to primarily hire military veterans and ex-offenders under the US' long drug war — in other words, people with the need and/or skills for this new career.

As in Los Angeles' equity program, the group will offer participants mentorship, job placement, and help with starting businesses in Wisconsin's hemp industry, where close to 220 hemp licenses have already been issued under the current Farm Bill; they also plan to provide on-site housing for participants struggling with homelessness, which often impacts veterans and those recently released from prison.

"By not allowing ex-offenders to work, and not giving support and licenses to black farmers and small businesses, [officials] are trying to keep people of color out of a billion-dollar industry that they payed the price for."

Rather than keeping people out of the industry, Money thinks regulators should focus on helping farmers sell their products: for example, by connecting them with the "biomass brokers" who deal in the fibers, stalks, and seed matter produced by industrial hemp. "What I'm finding is that a lot of farmers in Wisconsin don't know what to do with their products," she said. "We tried to get a list of licensed farmers to help connect them with brokers, but the state wouldn't release that list."

In the mean time, Money said, the hemp industry is continuing to grow under current legal conditions, though a Wisconsin rule prohibiting hemp extracts had been requiring her to export hemp from the state for extraction. Still, business is good, she said. "We have investors approaching us all the time, wanting to be a part of what we're doing."

Cannabis entrepreneur and activist Bonita "Bo" Money poses with plants in a field of hemp. (Courtesy Bonita Money)CREDIT: BONITA MONEY

Hemp activist and entrepreneur Joy Beckerman, who has spent decades building the US hemp movement, and assists many of the world's leading hemp advocacy and industry groups, said it's still likely that Congress will pass a pro-hemp version of the Farm Bill in the coming months — hopefully without added blows to communities that have been hurt most by nearly a century of cannabis prohibition.

“As data have proven over and over again, the war on drugs has dramatically, disproportionately impacted minorities and people of color, and [bans on ex-offenders] would continue that discrimination,” Beckerman commented by phone.

She also believes that the Senate's Farm Bill would alleviate confusion caused by the US Drug Enforcement Agency (DEA)'s issuance of conflicting “guidance” to state and federal agencies, which leaves them "scratching their heads," and often "bullies them into making decisions that directly contradict the legislative intent and spirit of the last version of the Farm Bill," Beckerman said.

"This version of the Farm Bill deliberately amends six different Acts and broadens the definition of ‘hemp’ to fully and finally remove all ambiguities and make way for hemp as agricultural commodity in the United States of America, with crop insurance and all,” Beckerman explained.

To illustrate how hemp programs can wither without proper support, she pointed to California, where regulators continue struggling to keep up with rules and infrastructure for the more potent (and popular) marijuana industry, from lab tests to license approvals; the state's hemp operators, meanwhile, are still waiting for their official license application to come out.

Dean Norton, Director of Horticulture at the former George Washington estate Mount Vernon, stands in a field of hemp, the estate's newest crop, on July 26, 2018 in Alexandria, VA. (Credit: Katherine Frey/The Washington Post via Getty Images)KATHERINE FREY/THE WASHINGTON POST VIA GETTY IMAGES

Even though Congress didn’t pass such a bill in time to move on from the 2014 version yet, Beckerman said, farmers and leaders can continue under the permanent protections of the current agricultural pilot program pathway to learn how and where to invest their time and resources in the industry, rather than dive in without a strategy in place.

“Folks at the various state Departments of Agriculture are so excited to bring in hemp – excited to introduce any crop, really, and especially to reintroduce this extraordinarily versatile one,” Beckerman said. “But they’re not experts; they’re learning like anybody else. So getting in there, looking at proposed legislation and rules to make sure [proposals] actually make sense for the crop – on an agronomic level, on a regulatory level – and monitoring changes to that legislation, regulation, or industry, is common sense.” She went on,

"The repeal of prohibition of marijuana, the repeal of prohibition of industrial hemp, has never been done in the US before. And right now it’s about the chopping of the wood, the carrying of the water, and engaging in the process, and bringing it all the way home. The work is just beginning."

Beckerman also urged supporters of hemp (and of its danker cousin) to be more vigilant than ever about federal and state-level law and policy moves going forward. “Special interests and residual hysteria will continue to try to get in there, to stomp on the little guy, and on consumer rights and safety, and to over-regulate, so it’s more important than ever that we organize and engage,” she said.

"Farmers are suffering around the country; the soil is suffering."

All told, a strong American hemp industry could provide billions of dollars in renewable revenues and hundreds of thousands of jobs, especially in regions that have been devastated by damaging and/or departed industries and under-invested social resources, Beckerman said.

Money pointed out that hemp is already poised to outshine recreational and medical cannabis production, and that CBD products (which hemp can provide) are currently outselling THC products at a rate of 10:1.

"Moving forward, hemp will be even bigger than cannabis," she said. "[Lawmakers] need to look at the history: when George Washington was president, people were required to grow hemp. If they didn't, he'd throw them in jail."

She continued, "Hemp affects so many industries — its uses are never-ending — and I think the government is afraid of that."

" Hemp could change the world, not just the US. It will change communities, it will change the way we treat medically. It will improve our lifestyle, completely."

"Everyone deserves the opportunity to create generational wealth for their families," Money added, "and to have that quality of life."