MJBizCon 2018: Major Takeaways and Spaces to Watch

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Beyond the Bong
This is individual research and does not constitute investment advice.

I’ve said it plenty of times over the past year, and I’ll say it once again: No industry is changing as rapidly as cannabis. And few are as exciting.

It isn’t often we get to experience an entirely new industry being born.

Last week, I was at the Marijuana Business Conference & Expo in Las Vegas, Nevada. And we saw the full scope of innovation, growth and excitement on display. There were more than 1,000 exhibitors and more than 27,000 attendees.

In today’s Beyond the Bong, I’ll share three big takeaways from the conference. But don’t worry, there’ll be plenty more in the weeks to come, including some excellent and informative CannaBiz Now! interviews.

It’s hard to take something as expansive as MJBizCon and boil it down to a few brief takeaways. But here we go…

Bipartisan Moves Took Center Stage

Every mention of former Attorney General Jeff Sessions’ resignation earned a cheer from the crowd.

Though no topic garnered more excitement than a recently announced aisle-crossing bill.

I’m talking about the bipartisan STATES Act (short for Strengthening the Tenth Amendment Through Entrusting States), introduced by Rep. David Joyce, R-Ohio, Rep. Earl Blumenauer, D-Ore., Sen. Elizabeth Warren, D-Mass., and Sen. Cory Gardner, R-Colo.

This is a game-changing piece of legislation for cannabis. And it goes beyond the current Joyce Amendment, which serves as a Band-Aid to protect the legal marijuana industry from the federal government.

Essentially, as Joyce described it at the conference, the STATES Act is not federal legalization but rather federal decriminalization. And with Democrats soon to be in control of the House, this proposed bill will be on firmer ground in 2019.

It prevents the controversial and devastating Section 280E of the U.S. tax code from being applied to the industry. At the moment, 280E is working exactly as intended – stripping all profits from a particular business. But Cannabis Trade Federation CEO Neal Levine believes it is being unfairly levied against marijuana businesses.

Small Thinking on a Big Boom

Another hot topic at the conference was infused beverages and edibles.

This is something we’ve covered several times over the years… like hereand here.

But the biggest thing I learned from industry insiders was that the current expectations for this sector are way too small.

Right now, projections for the infused beverage space are $600 million per year by 2022, capturing roughly 20% of the edibles market by then.

According to my discussions with several CEOs of infused beverage companies, that projection is way off. They believe sales will be much larger than that. And not hundreds of millions of dollars bigger – tens of billions of dollars bigger.

In an upcoming episode of CannaBiz Now!, one executive will explain in detail exactly how that’s possible. He’ll also outline the sales trends his company is enjoying.

Some Infused Beverage Companies to Watch

  • HEXO Corp. (OTC: HYYDF): Has a joint partnership with Molson Coors (NYSE: TAP)
  • CannTrust (OTC: CNTTF): Has formulas for a wide range of infused beverages; also sells Brewbudz in the U.S. and has announced plans to uplist to the New York Stock Exchange
  • Canopy Growth Corp. (NYSE: CGC): Has a multibillion-dollar investment from Constellation Brands (NYSE: STZ); pretty much the “green chip” of the industry
  • Youngevity International (Nasdaq: YGYI): A lifestyle brand combining beauty products, coffee and cannabis

Record Raises, IPOs and the Return of RTOs

Just a few years ago, cannabis companies trying to raise capital had a hard time attracting investors. But not anymore.

We’ve already seen massive raises from…

  • Curaleaf (OTC: LDVTF): $400 million
  • Acreage (OTC: ACRZF): $119 million
  • MedMen Enterprises (OTC: MMNFF): $110 million
  • Privateer: $100 million
  • Cresco: $100 million.

Plus, the number of capital raises in 2018 has increased nearly 62% year over year…

That’s an increase from 254 in 2017 to 411 this year.

So there’s clearly plenty of investor enthusiasm.

Meanwhile, the number of companies going public is increasing. U.S. companies looking for a home on a major exchange are increasingly heading north…

Finally, there’s the very popular route that cannabis companies like Acreage and MTech Acquisition Corp. (Nasdaq: MTEC) have used – the reverse takeover (RTO).

Pot stocks looking for public market access are reigniting a boom in RTOs.

Recent U.S. Cannabis IPOs on Canadian Stock Exchanges

  • Harvest Health & Recreation (CSE: HARV; OTC: HTHHF): U.S. multistate operator headquartered in Arizona
  • MJardin Group (CSE: MJAR; OTC: MJARF): Colorado-based facility operator
  • Dixie Brands (CSE: DIXI): Colorado-based multistate operator
  • Green Growth Brands (CSE: GGB): U.S. multistate operator

Making the Grade

There were a lot of cannabis earnings last week. And they all moved the market. Canopy Growth Corp., Cronos Group (Nasdaq: CRON) and Tilray (Nasdaq: TLRY) all failed to meet investor expectations.

And this weighed on the entire sector. (No surprise there.)

Today, I’m going to look at another company that recently reported earnings.

Terra Tech (OTC: TRTC)

Terra Tech isn’t just a cannabis company. That’s the first thing to know.

The company has three main brands – IVXX, Edible Garden and Blum.

IVXX offers dried flower, concentrates and pre-rolls. That’s everything we want for the legal market in California.

Edible Garden sells 4-inch potted herbs at grocery stores. And by “herbs,” I mean actual herbs – basil, sage, rosemary and thyme.

Blum operates six total dispensaries in California and Nevada.

Terra Tech also announced it’s merging with Golden Leaf.

I’ve covered mergers and acquisitions (M&A) in the cannabis industry in these pages. I’m certain M&A is just starting to gain speed… which many might find hard to believe with the amount that’s already taken place.

In the third quarter, Terra Tech fell nearly 30% year over year to $7.1 million. That’s due to lower output from its IVXX facility, which is being relocated and upgraded. This is expected to be finished in the fourth quarter though.

At the same time, its net loss grew to $13.7 million… so that’s something to watch.

It’s also feeling the pinch from higher excise taxes in California.

Falling revenue and increasing losses isn’t a great setup. Though most young companies are going to operate at a loss because their spending needs to grow.

I’m not worried though. The third quarter loss seems relatively in line with the second quarter’s.

The company has also partnered with Valiente Group to produce IVXX cannabis-infused beverages. In Canada, the edibles and infused beverage market is projected to be twice that of the adult-use market. But as I covered above, this space is quickly becoming crowded.

CannaBiz Now!

With Thanksgiving this Thursday, CannaBiz Now! will hit your inboxes on Wednesday. In this week’s episode, I visit with Dr. Jordan Tishler, president of the Association of Cannabis Specialists and founder of Inhale MD. He’s a Harvard Medical School graduate and one of the leaders in the medical marijuana field.

We discuss how he entered the medical cannabis field and what he sees as its future in the U.S.

As always, if there’s a company you want me to cover or look at, leave the ticker symbol in the comments section. I’ll try to cover as many as I can.

That’s it for today. It’s a short trading week, so enjoy the holiday and feast on all the good news for the cannabis sector!

Good investing,

Matthew