Pot Pops on New Leadership and Partnerships

Matthew Carr By Matthew Carr
Chief Trends Strategist

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

Venture capitalist Peter Thiel said, “Never invest in a tech CEO that wears a suit.”

I wouldn’t necessarily take that to heart. But Thiel and CEOs are at the heart of today’s issue.

In the cannabis industry, the “cowboy CEO” – or pseudo-cowboy – is commonplace.

Aurora Cannabis (NYSE: ACB) CEO Terry Booth wears a T-shirt and sports coat. And I’ve heard him use colorful language while speaking to crowds.

I also can’t imagine Canopy Growth Corp. (NYSE: CGC) CEO Bruce Linton without his black T-shirt and tweed sports coat.

But as the industry evolves and expands its presence internationally, we’re seeing leadership changes at some of the top cannabis companies…

Another C-Suite Exit

Over the past six months, shares of Canadian licensed producer Aphria (NYSE: APHA) have seen highs and lows…

Aphria became one of the first cannabis stocks to trade on a major U.S. exchange when it moved to the New York Stock Exchange in May.

Shares soared to new highs in September as the Canadian recreational market was getting ready to go live. Then they careened to new lows when a short seller accused Aphria of being a scam.

They were brought back from the dead when Green Growth Brands (CSE: GGB) announced a $20.6 billion hostile takeover bid for Aphria.

On Friday, the company wasn’t done making headlines.

Aphria reported that fiscal year 2019 second quarter revenue surged 63% to CA$21.7 million. The company also announced its annual harvest for the year was expected to reach 255,000 kilograms.

That said, its cost per gram increased from CA$1.30 in the first quarter to CA$1.76 in the second. And its all-in cost for goods sold grew 42% from CA$1.83 to CA$2.60. This drove down gross margins from 67.7% to 46.9%.

But what grabbed the most attention was that CEO Vic Neufeld and co-founder Cole Cacciavillani announced they would be stepping down.

“Vic and I have worked tirelessly for decades, building great businesses, but now in our 60s, it is time for both of us to step back,” stated Cacciavillani.

This is a good move. It allows Aphria to bring in new leadership to take the reins of global expansion.

Other companies have been doing the same…

Recently, Emerald Health Therapeutics (OTC: EMHTF) replaced CEO Chris Wagner. Last year, cannabis app Leafly replaced its CEO as well. And even Constellation Brands (NYSE: STZ) CEO Rob Sands will be replaced on March 1 by Bill Newlands.

Sands will replace his brother as executive chairman so he can focus on Canopy Growth Corp. (NYSE: CGC) and the multibillion-dollar investment Constellation made in the company.

New Shoes and CBD?

Some investors might scoff at the idea of how big the cannabidiol (CBD) market could be.

But in a hat tip to the possibilities, discount footwear retailer DSW (NYSE: DSW) announced a deal with Green Growth Brands to sell beauty products laced with CBD.

In 96 of its 500 U.S. locations, DSW is offering Seventh Sense body lotion, foot cream (obviously) and muscle balms. And these stores are in states where adult-use is legal.

So far, the results are exceeding everyone’s expectations. In the first 10 weeks, 74% of the products on shelves sold.

If it seems like Green Growth Brands has been making headlines left and right lately… it has.

Topicals, like those produced by the company, make up 19% of the hemp-derived CBD market.

Four CBD Storylines to Watch

  • Invictus MD (OTC: IVITF): Announced a partnership with Cannamerica Brands (OTC: CNNXF) for hemp biomass acquisition for large-scale extraction.
  • The Alkaline Water Company (Nasdaq: WTER): Alkaline88 products are already sold in more than 47,000 Walmart, Safeway, Kroger and CVS stores. It’s releasing new CBD-infused beverages.
  • Canopy Growth Corp. (NYSE: CGC): The company’s hemp division can harvest 190 million square feet. It expects to yield approximately 7,000 kilograms of hemp-derived CBD annually.
  • Tilray (Nasdaq: TLRY): Recently announced a research partnership with Anheuser-Busch InBev (NYSE: BUD) to make CBD and THC nonalcoholic beverages.

HODL

If you’re a crypto trader or investor, you’re more than familiar with “HODL” – hold on for dear life.

It’s a strategy to ignore the noise and stomach-turning drops and to hold on for the long run.

Well, shares of Tilray skyrocketed on Friday after Privateer Holdings, which is backed by Peter Thiel, basically said the same thing about the company.

Privateer is the largest stakeholder in the Canadian cannabis company, owning roughly 76% of outstanding shares.

Which is a lot.

But the fund’s managing partner, Michael Blue, stated, “We do not have plans to register, sell or distribute the shares Privateer holds in Tilray during the first half of 2019.”

That was the only signal investors needed. They drove Tilray shares up more than 23% during Friday’s session to a peak of $103.68. That’s the highest level they’ve been at in more than a month…

Tilray shares finished Friday’s session up 19.4%.

Of course, HODL has paid off well for Privateer. Its original $40 million stake in Tilray is now worth approximately $7 billion.

More Pot Stock Pops

  • Isodiol International (OTC: ISOLF): Shares spiked 23% as the company announced it was re-examining its stock commitments in an attempt to curb dilution.
  • The Green Organic Dutchman (OTC: TGOD): Shares jumped 10.76%.
  • Ravenquest Biomed (OTC: RVVQF): Shares leapt 8.47%.
  • TerrAscend Corp. (OTC: TRSSF): Shares gained 5.35%.

Risk appetite is back!

Not only have the broader equity markets found new life in 2019, but pot stocks are blazing higher.

And last week capped off another strong run for cannabis. In fact, since its December 24 low, the North American Marijuana Index has gained 36%.

We’ll be looking for that hot streak to continue! There’s a lot in store for the sector in the year ahead!

Good investing,

Matthew