Beyond the Bong

Congressional Hearing Calls for More Cannabis Research

Over the past year, we’ve gotten used to marijuana legislative history being made time and again.

In March, the Secure and Fair Enforcement (SAFE) Banking Act cleared the House Financial Services Committee. This was the first measure to end prohibition in the U.S. to ever receive a committee vote and then pass.

Then, in September, the SAFE Banking Act cleared a floor vote in the House of Representatives.

In November, the Marijuana Opportunity Reinvestment and Expungement (MORE) Act breezed through the House Judiciary Committee.

There is a current of change in this country. History is being made as efforts to end federal prohibition gain steam and support.

But we’re not done setting milestones…

Last week, the Energy and Commerce Subcommittee on Health heard debate on cannabis for the first time.

It’s noteworthy since the Committee on Energy and Commerce is the oldest committee in the House.

But the hearing wasn’t the market mover investors were hoping for.

The debate was supposed to focus on cannabis policies for the next decade. These addressed cannabis research, ending federal prohibition and de-scheduling cannabis.

But mainly, the 3 1/2 hours were spent with witnesses from the Drug Enforcement Administration (DEA), Food and Drug Administration and the National Institute on Drug Abuse being pressed by lawmakers on the health effects of marijuana.

Though this latest congressional discussion is another positive step in the right direction for the industry… the end result was a letdown.

That’s because the cannabis industry itself was shut out from testifying.

And the three government agencies and lawmakers all agreed more cannabis research needs to be done. That’s all fine and well, but since marijuana is still classified as a Schedule I drug, all research needs to be approved by the DEA. And even if you want to get your hands on cannabis for research, there’s only one DEA-licensed supplier: the University of Mississippi.

This bottleneck creates inadequate supply for research. Plus, the university can’t create any cannabis-derived formulations.

So we’re probably looking at years before this is resolved.

The hearing was a small step forward for cannabis. But not big enough to tackle some of the issues the industry is currently grappling with…

Stick to Bud

Few stories were more frightening in cannabis last year than the e-cigarette or vaping product use associated-lung injury (EVALI) outbreak.

The vaping crisis added increased downward pressure on already depressed shares of U.S. multistate operators.

And the Centers for Disease Control and Prevention (CDC) rushed in to investigate as the outbreak spread.

EVALI cases ramped up in July but really skyrocketed into September.

Chart - Evali Cases Timeline

Thankfully, that was the peak. And they began tapering off.

As long suspected, we now know for certain that vitamin E acetate is the culprit.

And even though the number of hospitalizations has slowed, more than 2,600 EVALI cases have been reported. Plus, no U.S. state was immune. On top of that, 60 people have lost their lives so far.

Illicit market participants were to blame for EVALI.

But the life-destroying vape cartridges weren’t merely bought in back-alley sales.

The CDC found 16% of EVALI patients purchased their THC vape products from only commercial sources. Couple that with the fact that California’s Bureau of Cannabis Control seized nearly 10,000 illegal vape pens from unlicensed retailers from December 10 to 12, you have the makings of an ongoing crisis…

Which also explains why the Energy and Commerce Subcommittee on Health spent so much time discussing the potential adverse effects of cannabis.

So until the government begins to crack down heavily on black market sales and regulate the legal markets, THC vape products remain questionable. And because of this systemic issue, the CDC continues to recommend consumers avoid all vape products.

I know plenty of cannabis industry insiders who thought EVALI was going to undo the progress made in recent years. There’s a chance it still might. But it also underscores the need for more regulation, more research and more protection for consumers.

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.

1) Canopy Growth Corp. (NYSE: CGC) shares are at their highest level since September. And the company will report third quarter results in mid-February. But we saw Aphria slash its full-year forecast last week, in part because of the vape ban in Alberta. The question is, will Canopy’s earnings be a miss like Aphria… or a home run like OrganiGram?

2) Cronos Group (Nasdaq: CRON) shares hit their highest point last week since November. The company shouldn’t be on the earnings calendar until March. When it is, we’re looking for a 209% increase in revenue as its loss per share declines. Like Canopy, eyes will be on the fact Cronos moved into the Alberta adult-use market last year.

3) Trulieve Cannabis (OTC: TCNNF) finally had enough. Shares have dropped heavily since mid-December following a series of claims made by a short seller. Last week, Trulieve filed a libel lawsuit against Grizzly Research for what the company asserts are false statements.

4) Aurora Cannabis (NYSE: ACB) kicked off 2020 with a 22% drop. That’s because it received some analyst downgrades. Shares have fought their way higher on the back of OrganiGram’s earnings and Cowen’s recent outperform rating.

5) Scotts Miracle-Gro (NYSE: SMG) maintains a spot on our list. The gardening supply company is tied to the cannabis space but wasn’t bothered by the sector’s weakness in 2019. It’ll report first quarter earnings on January 29. Shares have fallen on the release date in three of the past three years.

Year to date, Canopy is the only member of this week’s High Five outperforming our benchmark, the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF).

Chart - The High Five

Pot stocks blazed higher last week thanks to Canadian earnings.

And the sector is far outpacing the broader markets in 2020. In fact, the Marijuana ETF has gained 15% year to date. That’s more than six times the gain of the S&P 500.

That’s after the Energy and Commerce Subcommittee on Health hearing for American pot stocks turned out to be a dud. At least it did show dire need for change. And that the current U.S. laws are outdated relics from the last century.

This supports my long-term thesis for cannabis. The road ahead will be bumpy. But it always is when you first enter new territory.

We’re in this for the long haul.

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