Beyond the Bong

Curaleaf Acquires GR Companies for $875 Million

Massive one-day moves – both up and down – are the norm for pot stocks. So you’ve probably noticed that investing or trading in the sector requires nerves of steel.

The past few weeks have provided ample examples of this.

The Canadian producers were party poopers, with negative headline after negative headline. Even last week, the sector was under pressure after Bank of America (NYSE: BAC) downgraded Aurora Cannabis (NYSE: ACB).

Thankfully, most of the headlines last week were good.

First, the sector got a jump-start from OrganiGram Holdings’ (Nasdaq: OGI) earnings, which I covered in last Monday’s issue.

That woke investors to the fact that there is good news out there in the space.

Then, the Food and Drug Administration sparked a rally after it said it would expedite efforts to have a regulatory framework for CBD in place by this fall.

Next, Curaleaf Holdings (OTC: CURLF) demonstrated once again that it’s a dog-eat-dog world.

Shares jumped as it announced the $875 million acquisition of GR Companies.

This move is poised to make Curaleaf one of the largest – if not the largest – cannabis companies in the world. At the very least, it’s now the apex predator in the American cannabis industry.

GR Companies, operating under the brand Grassroots, has licenses for 61 dispensaries in the U.S. At the moment, 20 of these are operational. And it has 17 cultivation licenses.

Blend that with Curaleaf’s portfolio and you have a monster with licenses for 131 dispensaries in 19 states. Of those, 68 are up and running. To feed all those outlets, it now has 20 cultivation sites with 26 production facilities.

Curaleaf’s total population reach with the GR Companies acquisition is now 177 million Americans. That’s more than any other U.S. multistate operator has access to.

Curaleaf will pony up $75 million in cash along with 102.8 million shares for the acquisition. And the deal is expected to close sometime in early 2020.

In other positive news, Flowr Corp. (OTC: FLWPF) has abandoned its recently announced secondary offering. This triggered a 20% jump in shares.

Clearly, the sector’s volatility was on full display last week.

Now for what I see ahead…

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.

Today, I’m adding some technicals to the mix.

1) Aphria (NYSE: APHA) will report fourth quarter earnings after the markets 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.

At the same time, shares have been trading in a tight channel over the past month…

Chart - Aphiria With Bollinger Bands

They’ve found support at the bottom edge of the Bollinger Band at $6.17. But our near-term resistance to the upside has been the top of the band, which is currently at $7.25.

2) Cronos Group (Nasdaq: CRON) is in a similar holding pattern. 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.

Like many Canadian producers, we’ve seen shares trade in a fairly tight range in recent months…

Chart - Crono With Bollinger Bands

They just pierced the bottom of the Bollinger Band. And we’ve seen some short-term bounces follow that. But our resistance to the upside is the top of the band, which is at $16.37.

3) SOL Global Investments (OTC: SOLCF) will release its fiscal year 2019 results next Monday 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.

Shares of SOL Global have been tracing the bottom Bollinger Band lower for months…

Chart - SOL Global With Bollinger Bands

And instead of the top providing resistance, it’s been the midline. That’s currently at $1.50.

4) Neptune Wellness (Nasdaq: NEPT) has been off to the races. The extraction company announced $41.4 million in private placement, which it’s using to help fund its $18 million acquisition of SugarLeaf Labs and expand its capacity.

Shares jumped to a new all-time high on Friday. This week we’ll be looking for either a follow-through or a short-term pullback.

5) Curaleaf Holdings (OTC: CURLF) made headlines last week with its $875 million purchase of GR Companies.

Shares jumped almost 20% on the announcement.

But here’s the deal… the move wasn’t enough to pierce the top of its Bollinger Band…

Chart - Curaleaf Holdings With Bollinger Bands

For the last couple of months, Curaleaf shares have been skirting the bottom of the band, following it lower and lower. Last week’s move broke this trend. And shares ended up stalling at the top of the band.

That means we’re now looking for initial support at the midline of $7.09 and ultimate support at the bottom Bollinger Band at $6.27.

As always, we want to compare our High Five with the industry’s benchmark

Much like SOL Global, the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) has skidded along its bottom Bollinger Band for a couple of months. And the midline has served as resistance. That’s currently at $13.55.

But when comparing its performance with this week’s High Five over the past month, we see the Exchange-Traded-Fund has been trading in line with Aphria and Cronos…

Chart - The High Five

The two big movers recently – Curaleaf and Neptune Wellness – are leaving the marijuana benchmark in the dust. The test will be whether that momentum can continue.

The ebb and flow of cannabis has been center stage in recent weeks. It’s been proving once again that trading or investing in the sector isn’t for the faint of heart.

And as we move deeper into earnings season, we’ll be looking for the good to outweigh the bad.

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