In this market update we revisit our concerns from the March COVID episode and the January Mass Extinction Event episode. We cover feeling bullish on cannabis (and why) as well as understanding why weed stocks are so hot (and if it makes any sense).

In this week's episode we are excited about acceleration of future legalization of cannabis in the US and we discuss trading and investing strategies for cannabis stocks.

1) Biden - Sanders Task Force Plan

- How real is this? How does it play into the coming Democratic National Convention?

- Social Justice reform, Police reform and change all accelerate cannabis legalization

- DNC provides an opportunity for democrats to discuss ending the war on drugs 

CAUTION - legalization hype is building quickly but actual legalization takes years to pass and implement

2) Investment Strategies for Legalization Hype

Many different ways to play this with various risk/reward - which makes the most sense?

a) "The Big 4" - GTI, Trulieve, Cresco & Curaleaf - obvious candidates as retail comes in

b) Ancillary & US-Listed Companies - IIPR, Greenlane & GrowGen

c) Tertiary Plays - Canadian LPs, Foreign Companies, Low Cost Countries

Remember: Hype is not rational - capital will flow regardless of valuations

US Legalization hype will make Canadian hype look like "a drop in the bucket"

3) Institutional Capital Flowing into US Cannabis

- How will it play out?

- When should investors get in? When to get out?

- What are the best risk/reward strategies?

This episode we explore: Is Cannabis investing or Gambling?

Whats the difference?

Why does it matter?

Examining your own behavior and changing it

We're finally back in the studio! This week we look forward at the various ways the US could legalize cannabis

1) Why You Should Care about US Legalization

- US is the crown jewel of the international market

- Over $12B USD in state-legal sales in 2019 (vs $1.2B CAD for Canada)

- Huge capital available once NASDAQ & NYSE listings are available

- US has higher prices, limited licenses and far less government regulation for cannabis

2)  How will US Legalization Go Down?

- Likely to be a phased approached as opposed to one big legalization

Several possibilities for how it can be done:

a) Decriminalization

b) De-scheduling or Re-scheduling (may come under FDA regulation)

c) SAFE Act - access to banking and lending

d) STATES Act - allows state law to be compliant with federal law

e) Full Legalization - federally mandates legalization across entire country

3) What is the Biden Plan? Will it actually happen?

- Biden Plan is a marketing document designed to excite the base

- We need to see Biden mention the plan or champion it before believing it

- Biden Plan involves medical legalization + STATES Act

4) How Will Legalization Change the Industry?

- Effect on industry will depend on the type of legalization

- SAFE vs STATES vs Full Federal Legalization

- Being on US Exchanges will be the biggest catalyst

5) Will cannabis be allowed to cross state lines?

6) How to Invest around Legalization

Market Update: COVID risk is growing rapidly but Cannabis is looking good

- Broader market remains buoyed by Fed Support but valuations are stretched

- COVID is accelerating across US and is a massive threat with exponential growth

- Lack of political will to close down economy again; somehow wearing a mask has become a political issue

- Relation to cannabis: do you look at the stats or listen to the pundits?

Cannabis

- Has performed very well in pandemic; strong sales; essential status

- Cannabis is perfect for a COVID / isolated world

- Long term: accelerates opportunity for legalization and reforms

- RISK: stimulus still flowing, things can slide backwards (Ontario pulling back delivery and curbside)

o Nevada can be soft ;  But updates from AYR Q2 are encouraging

o Many lower quality companies on the edge

- Diving deeper into AYR Strategies (CSE: AYR)

- Sentiment: Investors are upset and can easily dump despite good results (eg. LHS)

- Separation of winners and losers but many retail investors don’t really care (gamble vs investing)

In this episode we dive into Medipharm Lab's Q1 2020 results which greatly disappointed the market

- What's going on  with LABS? Why did it have such a drop off in revenue?

- How does it compare to Valens?

- Examining their recent $37M financing (good and bad)

- How the slow 2.0 rollout is hurting the extraction industry

- Why 2019 was such a good year for LABS - will it recover?

- How will the extraction landscape look in the next 1-3 years?

In this episode we discuss strategies for taking advantage of the current bull market the Fed has created

- The realization that the Fed will actively try to prevent the market from falling to prevent fear from dominating the market (as shown on Mon)

- The market is likely to remain distorted which creates opportunities for investors

- How do we play this bull market while being cautious about the disconnect between prices and fundamentals?

- Debating investing in legacy business like Airlines and Theatres

STRATEGY

- PATIENCE! Keep your powder dry as it takes time for the market to re-adjust

- Thinking of investing like private placements with the ability to hold for 1-3 years if prices tanks

- Buying top tier companies like Green Thumb (GTI) with the understanding it may take a while to grow into the value

- Deploying cash selectively in overlooked names with good risk/reward

- How? Looking for small cap cannabis companies which have good fundamentals but have lagged in share price

- Liberty Health (LHS) as an example

- Comparing Canada to the US

LOOKOUT

- Don't chase high prices on low volume

- Emotional investors are back! Watch out for them

In this episode we talk about the unbridled optimism in the general equity markets and how that flows into cannabis. 

- SPY is 7-10% HIGHER than it was 1 year ago

- Market effectively pricing in V shaped recovery

- Does this make sense? Should investors be buying?

- The importance of a margin of safety in investing

- How cannabis has been buoyed by the broader markets

- The "Big 4" MSO: GTI, TRUL, Curaleaf & Cresco

- Potential risks being overlooked by the market

In this episode we delve into understanding the disconnect between real life and the stock market.

Why is the S&P above 3,000 when the economy is frozen? Why are cannabis stocks on an absolute tear? Does this make any sense?

What can we learn from this disconnect and how does it influence our investing philosophy?

Two Key Principles:

1. Anything can happen in markets

2. Nobody knows what will happen next

After a strong week for cannabis stocks we delve into the reasons for optimism for cannabis investors.

1. Strong Results Prove out the Investment Thesis

     a. GTI posting 25% EBITDA on $100M USD of revenue

     b. TRUL likely to post 50%+ EBITDA on similar revenue

2. New Markets set to Open

     a. NJ (9M) and AZ (7M) both on the 2020 ballot 

     b. NJ could cause domino effect with PA (13M), NY (20M)

3. COVID-19 Proving Sales are “sticky”

     a. Cannabis being recession proof / resistant; defensive sector

4. Canada Getting Better

     a. 2.0 rollout and Ontario retail expansion

     b. ACB and Canopy improving (not out of the woods yet)

5. Wildcard – SAFE Act & Legalization / Election Talk

     a. Possibility to get SAFE through senate with COVID bill

     b. Potential election talk related to cannabis legalization