Beyond the Bong

Colorado Cannabis Blazes Higher as the New Year Rolls In

The holiday season is here.

Christmas is in the air as shoppers race out to get last-minute gifts.

Last year, cannabis sales popped during the “holidaze.” Meaning plenty of Americans and Canadians were smoking trees on Christmas.

This year, despite the lumps of coal investors got from cannabis shares in recent months, there are reasons to be merry in the new year.

Wagons East!

In the restaurant world, it’s called a “soft opening.”

It’s a limited unveiling of what’s on the menu.

Canada’s Cannabis 2.0 kickoff last week can be viewed in the same light.

Which is why I warned investors… don’t expect it to be a savior overnight.

Newfoundland and Labrador – the country’s easternmost province – was the only province to have any products for sale. Manitoba could see products this week.

Meanwhile, Quebec won’t launch sales until New Year’s Day. Ontario will begin selling derivatives in early January.

Alberta won’t stock shelves of infused products until mid-January. And Nova Scotia is expected to have a small number of items in stores this week. But it won’t take online orders until January 6.

Some companies, like Auxly Cannabis (OTC: CBWTF), were ready to roll out of the gates. Though, the products of many other companies are expected to steadily make their way to shelves in the coming weeks and months… if there’s a place for them to go.

Rocky Mountain High

Colorado cannabis is blazing higher!

For the fifth consecutive quarter, the average market rates (AMR) for retail marijuana has risen.

And the recent moves haven’t been small.

The average price per pound for bud is projected to rise 32% from final three months of 2019 to $1,316 for first quarter of 2020…

Chart - Average Price per Pound in Colorado

Now, the Colorado Department of Revenue set prices based on transaction data. And the AMR is what the state uses for its 15% excise tax.

The upside is this is the first time the AMR price has topped $1,000 since April 2018.

Though, the October 2019 price was a horseshoe (or a hand grenade) throw away at $999.

But more importantly, the wholesale price of Centennial State bud has surged 68.5% in 2019! And for the first quarter of 2020, prices will be at their highest level since January 2017.

The $1 Billion Bear!

Pot stocks were pummeled this year.

But the BetaPro Marijuana Companies Inverse ETF (TSX: HMJI) enjoyed a tremendous year.

Chart - BetaPro Marijuana Reverse ETF

I mentioned this inverse ETF’s launch back in June. It’s up 95% since then.

But using an inverse ETF wasn’t the only winning strategy for cannabis in 2019. Short sellers also won big.

They increased their exposure to the sector by 35% in 2019. Obviously, most of that was concentrated to the 20 companies that trade on major exchanges.

But their mark-to-market gains topped $993 million year to date. And that’s after the massive $132 million crunch short sellers have taken over the past month.

Unfortunately, we haven’t really enjoyed any short squeezes. Though, any extended rally could quickly change that.

And the bright side is that cannabis stocks are now some of the most expensive to short. The average borrow fee is 31%.

So the bears could be pricing themselves out of the picture.

The High Five

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

Now, because of the holiday and the Cannabis 2.0 rollout, Canadian producers take center stage this week.

1) Aurora Cannabis (NYSE: ACB) became the first major Canadian cannabis company to begin selling edibles and vape pens for medical use last week.

As I noted, it seems that in 2020, companies will have to choose between the medical or recreational side of the business. And this appears to be a move by Aurora to position itself to sell these products to the medical markets in Denmark and Germany.

2) Canopy Growth Corp. (NYSE: CGC) has stated its Cannabis 2.0 products won’t be available until January.

The first rollout will be cannabis chocolate products from Tokyo Smoke and Tweed, as well as its own Distilled Cannabis beverages. These will hit shelves early in the month.

Canopy will then launch vape pens and cartridges in late January.

3) Cronos Group (Nasdaq: CRON) is focusing on vape pens. Not shocking considering the $1.8 billion stake Altria (NYSE: MO) has taken in the cannabis producer.

To prevent rust and the threat of heavy metal leakage, the company has designed its vapes with stainless steel instead of brass. And it built its own customized heating element and battery technology.

4) Tilray (Nasdaq: TLRY) and its Fluent Beverage joint-venture partner, Anheuser-Busch InBev (NYSE: BUD), launched their first nonalcoholic, CBD-infused beverage last week.

Everie ready-to-brew teas will be available in select Canadian provinces this month.

That was just one of several Cannabis 2.0 products Tilray began shipping. Though most of these won’t start being stocked on shelves until January – as is the case with the rest of the Canadian licensed producers.

5) Aphria (NYSE: APHA) will be adding three new vape products in January, specifically for the medical market.

Of the 51 companies Health Canada allows to sell derivatives and infused products for recreational use, 47 can do so for the medical market as well. But there aren’t many doing so, including Canopy and Tilray.

Aphria and Aurora are establishing an early lead here.

I’ve often said, wherever Canopy goes, so goes the rest of the cannabis sector.

And that’s apparent here.

This week’s High Five largely outperformed our benchmark Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) over the past month.

Chart - The High Five

Canopy’s big 31% gain is the eye-catcher. Its shares have since rallied to hover around $20 with the gift of the new CEO and early optimism over Cannabis 2.0 sales.

Aphria has also posted a solid 15% gain over the past month.

And there could be more of a rebound in store for each of this week’s High Five as their Cannabis 2.0 products make their way to shelves.

‘Tis the season to sit back and reflect.

To sip on that mug of hot cocoa or apple cider… or take a puff – not from a corncob pipe, but from a Pax.

Pot stocks came back down to earth in 2019. And the shorts wore the pants for the last half of the trading year.

But a new year is upon us. The chance for a new beginning.

And in the months ahead, I think we’ll see that cannabis has the wind to its back, not a nor’easter howling in its face.

Have a happy holiday and what I hope is a prosperous New Year.

Here’s to high returns,

Matthew