Although the North American cannabis industry has remained under pressure this month we are keeping a close eye on trading activity after the industry bounced well off its lows yesterday.
According to The Marijuana Index, during the course of this month the Canadian cannabis sector has significantly underperformed the United States cannabis sector. This is a significant change from November and we continue to closely monitor this trend.
Since the beginning of the month, the Canadian index and United States index have fallen15.2% and 9.6%, respectively. In November, the Canadian index moved approximately 20% higher while the United States index plunged more than 25%.
Weakness Creates Opportunity
Although a Canadian federal task force issued favorable recreational cannabis recommendations last week, stocks levered to this development have continued to move lower after the market initially responded favorably.
The United States cannabis industry has been under pressure since early November and this weakness has come despite favorable state-wide election results. We believe that a lot of this pressure has been the result of President-elect Donald Trump’s cabinet nominations and that much of this weakness is overdone.
Investors looking for a new growth opportunity should take advantage of the recent weakness within the North American cannabis industry and focus on companies that will see remarkable growth for years to come.
We want to recap some of the significant price movements as well as some of the companies that after this recent weakness represent attractive investment opportunities.
Licensed Organic Cannabis Producer Trading at a Discount
The increased selling pressure within the Canadian cannabis industry has created several attractive investment opportunities for growth investors and this weakness has made us increasingly more favorable on one company in particular.
OrganiGram Holdings (OGI.V) (OGRMF) is undoubtedly one of the best licensed producers of medical cannabis. Organigram has been able to differentiate itself from the competition through the following:
1) It is the only fully licensed producer that is east of Quebec with bilingual branding and services, 2) The company has been selling a certified organic product since October 2014, 3) It entered into a production and distribution agreements with The Green Solution and NectarBee as well as a licensing agreement with the Trailer Park Boys , 4) The company recently completed the acquisition of a property adjacent to its existing facility and announced a fully funded expansion that will increase its annual production capacity to 26,000 kilograms.
The difference between organically grown cannabis and synthetically grown cannabis is not merely due to the use of particular fertilizers and nutrients. Organic cannabis sells for a premium more on account of the longer grow process and smaller-on-average plant yields.
In order to be considered an organic grower, you need to have a certified facility, a certified property, a certified standard operating procedure (SOP), and to be considered certified organic each ingredient (from soil to fertilizers) must meet certification standards. All nutrients and pesticides used must be of natural origin. Some of the benefits include:
The growing process does not include any synthetic nutrients, pesticides, herbicides or additives
It promotes healthy growing through the use of beneficial organisms
The growing process is biodegradable and has no negative impact on the environment
Results in the plants having higher terpene levels
Although it is harder to grow organic cannabis, there is a reason why it sells for a premium and is typically sold out. Companies like Organigram that sell organic cannabis are usually sold out of their product and cannot seem to grow enough product as demand remains at very elevated levels.
Organigram will soon be able to meet some of the increased demand. The company’s fully funded expansion will increase its annual production capacity to 26,000 kilograms.
We continue to remain favorable on OrganiGram as it possesses several traits that make it an attractive investment. The company sells a premium organic product that continues to see revenue growth and margin expansion, it has established products lines that have strong brand recognition and it has significant expansion opportunities that can be self-funded on account of the company’s solid balance sheet.
Medicine Man Signs 20+ New Clients in 2016
One company we continue to remain favorable on is Medicine Man Technologies (MDCL). The company released an update late last week and Medicine Man said it will end the year with at least 23 new clients in eight states including clients in California, Oregon, Maryland, Pennsylvania, Arkansas, Colorado, Florida, and Puerto Rico.
Of the 23 new clients, 12 were signed during the fourth quarter and the company continues to increase its market share, improve its geographic diversity and expand its relationships and influence in the industry.
Medicine Man is pursuing strategic acquisitions that will allow it to offer additional products and services to clients as it continues to work toward completion of the acquisitions of Pono Publications and Success Nutrients.
We remain favorable on MDCL and view the company as a long-term investment opportunity for the following reasons: 1) Medicine Man is led by a management team with a proven track record, 2) The company continues to execute on its business initiatives and secure new clients around the country, 3) It has a strong parent company, and 4) We expect to see significant growth over the next 12-24 months.
Social Media Cannabis Business Announces Major Acquisition
The market has responded favorably to MassRoots’ (MSRT) acquisition of Whaxy and Cannabuild and the shares have rallied more than 7% since then.
We continue to remain favorable on MassRoots and believe that this acquisition will enable the company to improve and enhance its social media platform. Once the acquisition is completed, MassRoots will be able to offer a full suite of dispensary software solutions (online ordering, marketing and real-time inventory management) to cannabis businesses.
Whaxy’s platform seamlessly integrates with nearly every major point-of-sale system used by dispensaries and will readily connect to the MassRoots network allowing for live pricing, online ordering and product feedback. Since launching in May 2016, Whaxy’s menu management and online ordering platform for licensed cannabis businesses has processed over $5 million worth of business through 40,000 unique transactions.
This announcement came shortly after MassRoots reported that MJ Freeway’s API will power live menu pricing for its dispensary clients. MJ Freeway is one of the leading point-of-sale and compliance management platforms focused on the cannabis industry. This partnership will enable seamless communications between MJ Freeway’s thousands of dispensary clients and MassRoots’ community of cannabis consumers.
MassRoots is one of the largest and most active technology platforms for cannabis consumers, businesses and activists. This social network formed in April of 2013 as an online community for people who smoke cannabis but has since evolved into much more. We continue to remain favorable on MassRoots and view the company as an attractive ancillary investment opportunity.
Kush Bottles Bounces Off its Lows and We Remain Favorable
One cannabis stock that has bounced well off its monthly lows is Kush Bottles (KSHB) and we continue to remain favorable on the shares after they moved 3% lower yesterday.
KSHB has rallied more than 18% off its lows on December 14th and the shares are trading right below the $3 level. Although we view the shares as fairly valued at current levels, we consider KSHB to be one of the highest quality OTC cannabis stocks and view the company as a long-term investment.
Kush Bottles is trading right below the $3 price target issued by Cowen and Company in mid-September. The analyst assigned the shares a Buy rating and a $3 price target because of its unique exposure to the high growth emerging cannabis industry.
The company offers several child resistant and non-child resistant exit bag solutions, all of which are fully customizable, allowing Kush Bottles’ customers the opportunity to creatively market and brand themselves. We find this aspect of its offering to be extremely important as companies compete to become a recognized brand amongst consumers.
We are favorable on Kush Bottles due to the product it provides, its geographic diversity, its growth potential following positive state-wide election results, and its continued execution.
Important Investor Disclosures
Disclosure. Compensated Affiliate. This report was authored by and is property of StoneBridge Partners LLC. All information and data relied upon in drafting this report is publicly available. The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report. Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice. Any projections or other information generated by StoneBridge Partners LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment. This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation. The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals. It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction. Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks. The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission. Please contact a Financial Advisor for professional advice regarding any and all securities investments. This report is intended for informational purposes only. StoneBridge Partners LLC’s officers, directors, employees, affiliates, or subsidiaries may have positions in securities covered by StoneBridge Partners LLC. StoneBridge Partners LLC receives compensation from the company and/or has a position in the securities mentioned in this report
Authored by: Michael Berger
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | email@example.com