Beyond the Bong

Cannabis Reform in D.C. Inches Along

I’ve spent nearly two decades covering commodities and Wall Street. There are always ebbs and flows.

For instance, some gold bugs are cheering now as the precious metal has finally sprung back to life.

But cannabis is unique.

It’s part agricultural commodity… part consumer discretionary component as an intoxicant… part healthcare component as a medical treatment. Not to mention it has industrial uses.

There’s nothing comparable in the market today that has so many intertwining elements pushing and pulling at it.

That means it’s susceptible to major mood swings. And we just had another week of whopper moves.

Pot stocks largely spent last week moving in one direction. Unfortunately, that direction was down

Chart - The North American Marijuana Index

First, the Senate Committee on Banking, Housing and Urban Affairs held its hearing on the Secure and Fair Enforcement (SAFE) Banking Act.

As a precursor to the hearing, cannabis shares dropped.

The bipartisan legislation was introduced in Congress in March. But the Senate hearing last Tuesday was somewhat of a dud… Only one Republican from the Banking Committee, Chairman Mike Crapo, attended.

And Crapo is from Idaho – one of the only states that has instituted no cannabis reform. He’s also an old-school opponent of pot.

So that event shed some light on the uphill battle Mary Jane faces in the Senate.

Next, Sen. Kamala Harris introduced the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act last week. This would decriminalize pot at the federal level. It joins the SAFE Banking Act, the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act and the Marijuana Freedom and Opportunity Act in Congress – all with the hope of winning some kind of reform this legislative session.

Then pot stocks felt the pressure again after the Food and Drug Administration fired off a warning to Curaleaf Holdings (OTC: CURLF) about its CBD products.

The agency wrote that the multistate operator is “illegally selling unapproved products containing cannabidiol (CBD) online with unsubstantiated claims that the products treat cancer, Alzheimer’s disease, opioid withdrawal, pain and pet anxiety, among other conditions or diseases.”

The stern language sent a shiver down Curaleaf’s shares, triggering an 8% fall. And the effect rippled through the rest of the cannabis world as fears grew that any other company could be next.

But Curaleaf worked quickly to address and correct the issues on its website.

Of course, what week wouldn’t be complete without more bad news seeping out from CannTrust Holdings (NYSE: CTST)? Reports emerged that executives were well aware of the recently reported unlicensed growing activity.

This was one more bomb that sent marijuana stocks even lower.

But the bleeding was stemmed on Friday after CannTrust announced Thursday night that CEO Peter Aceto was fired and President Eric Paul was forced to resign.

Didn’t need a crystal ball to see that one coming…

After the news, pot stocks popped higher in celebration. Though it’s tough to tell if CannTrust is out of the woods yet… or if there’s still one more shoe to drop.

The High Five

Below are this week’s High Five, where – each Monday – I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.

With earnings on the horizon, not much has changed from last week’s High Five.

1) Aphria (NYSE: APHA) will report fourth quarter earnings after market close on August 1. Expectations are for revenue to increase 1,070% to CA$107.5 million. And we’re looking for losses to decrease to CA$0.05 per share.

With the sell-off last week, Aphria plowed through the support we’d seen recently.

2) SOL Global Investments (OTC: SOLCF) will release its fiscal year 2019 results today after the closing bell. It’ll also release the company’s net asset value at that time to provide clarity on what it believes is substantial upside.

SOL Global will also provide an update on its strategic partnerships.

The conference call about the results won’t be until August 7.

3) Cronos Group (Nasdaq: CRON) is in a holding pattern similar to Aphria. The Canadian producer will report second quarter earnings on August 8.

Expectations are for revenue to increase 118% to CA$5.67 million. But its per-share loss is expected to expand to CA$0.02.

4) Dixie Brands (OTC: DXBRF) skyrocketed after the company announced it made a breakthrough on THC water solubility.

The company is going to showcase this in the fourth quarter with a line of flavored and unflavored additives called FUSE. And this is all to take advantage of the cannabis-infused beverage market. Already in California and Colorado, infused beverage sales were up 23% during the first five months of the year.

5) Auxly Cannabis (OTC: CBWTF) shares received a jolt late last week after it was unveiled that tobacco giant Imperial Brands will invest $123 million for a 19.9% stake in the cannabis company.

The infusion of cash will allow Auxly to expand, as well as obtain rights to Imperial’s vaping technology worldwide. Not to mention, it will be the tobacco company’s exclusive partner on all future cannabis products.

This also marks the second major investment from tobacco in a pot stock, following Altria’s (NYSE: MO) 45% stake in Cronos.

As always, we want to compare the performance of our High Five with the benchmark Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF).

And we see the picture is mixed…

Chart - The High Five

Auxly is way out in front of the index over the past month, gaining nearly 19%.

Cronos is also outperforming the marijuana ETF over the last several weeks.

And we can see the announcement from Dixie Brands was an abrupt reversal of fortunes. Meanwhile, Aphria and SOL Global continue to lag the sector.

It’s grizzly in the cannabis market right now (pun intended). The North American Marijuana Index is down 28% since its peak at the end of March. And it has fallen more than 10% over the past month after a barrage of negative news has gut-punched pot stocks.

We’re in bear market territory. And now we’re looking for some good news to fuel a bounce.

But remember, cannabis is an extremely special investment. It’s very hard to find something comparable in the market today.

And that means as we forge ahead, the road is going to be bumpy.

If you have a pot stock in mind that you’d like me to discuss here, leave a comment below.

Here’s to high returns,

Matthew