Cannabis Industry: Where to Look in 2019

Matthew Carr By Matthew Carr
Chief Trends Strategist

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

We hope you had a terrific holiday and celebrated the new year with friends and family. We did!

But we’re ready to get back to work after the holiday break. And there’s a lot happening in the cannabis space…

Just In Time for New Year’s

Thailand legalized medical marijuana on Christmas Day!

The government’s National Legislative Assembly approved legislation with a unanimous parliamentary vote of 166-0.

As Somchai Sawangkarn, chairman of the draft committee, said, “This is a New Year’s gift from the National Legislative Assembly to the government and the Thai people.”

Now, recreational use is still very much illegal in the country. And trafficking narcotics is punishable by death. The same is true in neighboring Singapore, Indonesia and Malaysia. Anyone caught with more than 10 kilograms faces charges of possession with intent to illegally distribute.

The rule of thumb in Southeast Asia is… just don’t. The region is known for having the harshest punishments in the world.

Countries That Could Legalize Marijuana Next

  • Malaysia (medical)
  • Jamaica (recreational)
  • Colombia (recreational)
  • Spain (recreational – currently decriminalized)
  • United States (medical at federal level)

December Drop Crushes Pot Stocks

December wasn’t a joyous month for the markets.

No amount of holiday cheer could lift the major indexes.

The Dow Jones Industrial Average fell almost 9% in the month alone, suffering its worst December since 1931. The S&P 500 had nine sessions when it moved 1% or more. For comparison, in 2017, it had just eight such moves all year.

When all was said and done, the markets posted their worst annual performance in a decade.

The Dow ended the year down 5.6%, as the S&P slipped more than 6% and the Nasdaq lost 4%.

Let’s not kid ourselves… it was tough sledding in the final quarter for investors.

But for more speculative sectors – like cannabis – the December drop was much worse.

In fact, the North American Marijuana Index tumbled more than 15% in the month…

On top of that, there were four companies that lost nearly half their value in December alone.

Terra Tech (OTC: TRTC) was butchered by fraud allegations at its Nevada operations. The company denies claims that it made false statements in its 10-K or was not properly audited. It also vigorously denies claims of stock manipulation.

But as we saw with Aphria (NYSE: APHA) and the short attack last month, shares of Terra Tech were destroyed, losing more than 50% and falling from $1.16 to $0.56.

Terra Tech wasn’t the only pot stock to get thumped during December’s doomsday. Invictus MD Strategies (OTC: IVITF), Namaste Technologies (OTC: NXTTF) and Weed Inc. (OTC: BUDZ) all tumbled more than 40% in the month.

Not to mention each of those companies ended 2018 down between 60% and 90%.

But as the saying goes, every cloud has a silver lining.

First, the 15% decline for the North American Marijuana Index in December wasn’t as large as the 22% drop it suffered in October.

In addition, the index is up double digits so far in January.

And there were some winners in December…

Stocks That Moved Opposite the Market

  • Cronos Group (Nasdaq: CRON) gained 12.3%, largely on the Altria (NYSE: MO) stake jump.
  • Cannabis Strategic Ventures (OTC: NUGS) gained 7.95%, though shares fell 41.6% in November.

Another Vape Company Snatched Up

Mergers and acquisitions (M&A) activity is heating up once again!

When share prices are at lows and competition is getting tougher, M&A is poised to explode. Not that it hasn’t already been robust.

In December, shares of Cronos soared on the news that tobacco giant Altria ponied up for a 45% stake. We recently covered this in Beyond the Bong.

Days later, Altria went out and bought a 35% stake in e-cigarette maker Juul.

And last month, Canopy Growth Corp. (NYSE: CGC) acquired the German vaporizer company Storz & Bickel.

Vaporizer and vape pen companies have emerged as takeover targets recently.

And newly listed TILT Holdings (OTC: SVVTF) just gobbled up Jupiter Research for $210 million. Jupiter produces power supplies and cartridges for the cannabis oil market. It’s partnered with more than 700 brands across the U.S., Canada, the European Union and Israel.

In 2018, Jupiter’s revenue was roughly $77 million. And it already has $28 million in orders booked for the first quarter.

It seems like we’re in an era of vape M&A.

Vaporizer and E-Cig Companies to Watch

  • mCig (OTC: MCIG): a super-tiny company.
  • Turning Point Brands (NYSE: TPB): larger than a lot of cannabis companies, it just took a 19.99% stake in cannabidiol producer Canadian American Standard Hemp.

For a lot of investors, 2018 was a year to forget.

The carnage was widespread, from bitcoin and cryptocurrencies to crude and a host of other commodities and equities.

It was a big year for cannabis. In fact, it was chock-full of milestones, beginning with California – the sixth-largest economy in the world – launching recreational sales.

Then Canada became the first G-7 country to legalize cannabis nationally.

And on Election Day, pot scored three more victories at the state level in the U.S.

Not to mention one of legalization’s biggest obstacles was removed with the resignation of former Attorney General Jeff Sessions.

Despite all those historic moments, the North American Marijuana Index exited 2018 down more than 32%.

But 2019 is a new year – a time of new beginnings and new opportunities for the cannabis industry. And we’re looking to profit as shares spark to life after 2018’s doldrums.

Good investing,

Matthew