Congress Passes Farm Bill, Ends Hemp Prohibition

Matthew Carr By Matthew Carr
Chief Trends Strategist

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

The 2018 U.S. Farm Bill cleared the Senate and House last week.

For most investors, this was yawn-worthy. The majority of the country wasn’t paying attention.

But in reality, it’s potentially one of the most transformative pieces of legislation for the U.S. cannabis industry.

It legalized hemp production across all 50 states, ending five decades of prohibition.

The passage is expected to spark a new agricultural boom.

And of course, the companies that stand to benefit from this windfall are hemp-based cannabidiol (CBD) producers.

Currently, the hemp-based CBD market is between $600 million and $700 million. But that’s projected to explode to as much as $2 billion in the next 18 to 24 months.

The global hemp-derived CBD market is projected to surge nearly fortyfold to $21 billion by 2022.

That’s a wildly optimistic projection, with CBD derived from hemp invading almost every product category… which I believe will eventually happen.

This victory went largely unnoticed by everyday investors. That gives us the perfect opportunity to get ahead of the herd.

Top Publicly Traded CBD Producers:

  • No. 1: Charlotte’s Web (OTC: CWBHF)
  • No. 2: CV Sciences (OTC: CVSI)
  • No. 3: Medical Marijuana (OTC: MJNA)
  • No. 5: Elixinol Global (OTC: ELLXF)
  • No. 20: Isodiol (OTC: ISOLF)

But investors should also note that Village Farms International (OTC: VFFIF), the largest greenhouse operator in North America, is about to throw its weight around.

The company plans to “aggressively pursue CBD and hemp opportunities” in the U.S.

To start, it has a high-tech 5.7-million-square-foot facility in West Texas – an area perfect for growing hemp – that it could convert.

Village Farms is expecting significant demand for indoor and outdoor hemp-growing facilities.

This would be my No. 1 “hemp pick-and-shovel” play to keep an eye on.

As a bonus, the list of the top hemp-producing states shows the industry isn’t clustered in one region…

Top Hemp-Producing States:

  • Colorado (50% of U.S. hemp)
  • Kentucky
  • Oregon
  • North Dakota
  • Minnesota

Medical Legalization Next?!

There’s another news item that can’t get lost in the shuffle… U.S. federal legalization of cannabis.

I believe this will happen in some form or another in the next couple of years.

The 2018 Farm Bill is a great step forward. But it’s a baby step.

States are forging their own paths in the recreational and medicinal markets.

But there has to be a federal move to make the market and rules less fragmented.

Back in October, recently defeated Rep. Dana Rohrabacher said he believed marijuana legalization would happen very soon… maybe even as soon as the spring of 2019.

According to him, the White House is currently in favor of changing the federal level designation for medical marijuana. And Rohrabacher stated that if not by the spring, something would be accomplished in the next legislative session at the latest.

That means another major victory could be in store in the coming months!

Making It Rain!

It’s that time of the year… earnings season.

And we saw more pot stocks tout another round of strong financials last week.

But the question isn’t whether they’re good – we’re going to see growth. This is a new industry, so our starting point is low.

It’s more a matter of whether it’s “good enough.”

Here, it was a mixed bag.

Since their peak on October 16, shares of OrganiGram Holdings (OTC: OGRMF) have been eviscerated, falling 44%…

But we’re finally seeing a turnaround.

The company reported fiscal year 2018 net sales increased 131% to $12.4 million. Gross margins surged from a loss of $3.3 million in 2017 to a gain of $52.4 million. And the number of registered patients leapt 112% to 15,740.

Very strong numbers.

Though the best thing for investors to realize may be that OrganiGram’s fiscal year ended on August 31. So these strong earnings didn’t include any Canadian adult-use sales.

For its first quarter 2019, the company is forecasting sales to exceed those of its full-year 2018. That’s more than $12.4 million – for those of you keeping score.

For fiscal year 2019, OrganiGram is projecting revenue to skyrocket 738% to $120 million.

All in all, shares surged more than 4% on Friday on the report.

Investors weren’t as kind to Level Brands (NYSE: LEVB) on its fourth quarter report.

The company reported total net sales increased 88% to $8.4 million. And its net loss improved from $1.738 million in 2017 to $412,075.

Shares were gutted more than 14% on the news.

Even the passage of the farm bill did little to boost shares of the hemp-based CBD producer.

Finally, Cresco Labs (OTC: CRLBF) reported third quarter revenue increased 335% to $12.2 million. That also marked a sequential increase of 55%.

Through the first nine months of 2019, the U.S. cannabis vertical saw revenue explode 248% to $25.1 million.

Cresco is currently operating in seven states, with an eye on expanding to two more.

Shares just began trading this month. So delivering a great earnings report out of the gate is key for any newly public company.

Despite the fact that the broader markets were trying to hold on to gains last week with a slotted spoon, Cresco shares notched a solid double-digit gain.

Buy the Blood or Dodge the Knife?

Baron Rothschild famously said, “The time to buy is when there’s blood in the streets.”

Well, there’s blood everywhere.

Investors are drowning in it.

The broader markets are leaking like a sieve, unable to support a gain for a single session, let alone a whole week.

Meanwhile, the cannabis sector is seemingly suffering from a severed artery.

The North American Marijuana Index is down 35% since October 15…

For the brave, this could be a moment of unbridled opportunity… or at the very least, an opportunity to take a chance at lows.

Though there’s another market adage: “Don’t try to catch a falling knife.”

But despite the despair, history was made last week… and that’s one more feather in cannabis’s cap!

As always, if there’s a company you want me to cover here, leave the ticker symbol in the comments section.

Good investing,

Matthew