Beyond the Bong

Effects From Vaping Putting Pressure on Legal Cannabis

Last week was a busy one for pot stocks…

More than 20 companies reported earnings. Everyone from 4Front Ventures Corp. (OTC: FFNTF) to Vireo Health (OTC: VREOF).

And we even saw a couple of gains in cannabis shares following this earnings blitz.

But that wasn’t the only headline-making news for the industry…

Things Are Tough All Over

Recently, Weedmaps – which helps consumers find cannabis products and dispensaries – announced it would no longer support illicit market operators.

Now, if you needed to read that sentence twice, I won’t fault you.

On the surface, that announcement seems like a no-brainer. But Weedmaps buried it in a press release about “supporting minorities in cannabis.”

The fact is, many have said Weedmaps has been instrumental in sabotaging the growth of legal markets across the country – namely California.

Back in February 2018, California’s Bureau of Cannabis Control sent a cease and desist letter to Weedmaps. The agency alleged that the site was engaging in activity that violated state cannabis laws.

Well, here we are, a full year and a half later, and Weedmaps is finally announcing that it will begin forfeiting black market money.

Though no one can go cold turkey…

“Beginning later this year” – according to the press release – the site will require advertisers to provide a state license number on their listings.

Now, it’s unfortunate that the legal marijuana market has had to face so many uphill battles. Not only from increased regulation and foot-dragging legislatures… but also from sites like Weedmaps, which allowed illicit players to operate freely.

But there’s another dark cloud looming over cannabis…

Up in Smoke

Young people love ripping “fat clouds.”

Vape pens and electronic cigarettes have exploded in popularity over the past decade. In fact, it’s estimated that 1 in 5 teenagers regularly vapes.

The problem is, there are no long-term studies outlining the potential risks.

In the meantime, across 16 states, nearly 200 cases of a strange respiratory illness related to vaping have health officials concerned. And recently, the illness caused its first casualty.

Now, the subject of vaping is often brought up when talking about cannabis. And the medical professionals we routinely interview always recommend using dried flower with a high-quality vaporizer, like a Pax or Mighty.

That is not the same as a vape pen or the vaping that is affecting young people across the country.

But here’s why the cannabis industry needs to pay exceptionally close attention to this situation…

Cannabis vape cartridges have accounted for nearly a quarter of all sales from January to May this year.

Top 10 Selling Cannabis Products

There’s already considerable pressure on the industry. And companies like Aphria (NYSE: APHA), Aurora Cannabis (NYSE: ACB) and OrganiGram Holdings (Nasdaq: OGI) have partnered with Pax Labs to produce vape cartridges.

Auxly Cannabis Group (OTC: CBWTF) and Cronos Group (Nasdaq: CRON) have received large investments from tobacco companies.

Then KushCo Holdings (OTC: KSHB), Planet 13 Holdings (OTC: PLNHF) and a whole host of others are also getting involved with vape pens.

This could potentially add to the anxieties stemming from the Food and Drug Administration (FDA) concerning CBD regulation.

So we’ll definitely follow this story closely as it progresses.

The High Five

Below are this week’s High Five, where – each week – 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) is trading near 52-week lows. Shares are now down more than 53% since their peak at the end of April.

Investors should keep a close eye on Canopy shares. As I’ve said before, where Canopy goes, so goes the rest of the industry.

Interestingly, shares of Canopy have fallen in April and May five out of the past six years. And they’ve fallen in July and August in three out of the last five.

So these shares are starting to exhibit some very clear seasonality. And you know I love a good investing trend.

2) High Tide Solutions (OTC: HITIF) continues its rapid expansion of its retail footprint. On Thursday, the company announced it opened its 17th Canna Cabana store in Alberta.

And last month it established a beachhead in the U.S. with its Nevada warehouse.

Shares have started to bounce back from their recent dip.

3) Tilray (Nasdaq: TLRY) also hit 52-week lows last week, along with Canopy. After missing Wall Street’s earnings estimates for the last four quarters, shares are now down an outstanding 73% from their 2019 peak in January.

But Tilray isn’t pumping the brakes. It bought adult-use cannabis retailer Four20 Investments last week for $82.7 million in stock, with another $30.1 million (CA$40 million) in common stock to follow after certain milestones are met.

This may mean more earnings misses on the horizon.

4) Charlotte’s Web Holdings (OTC: CWBHF) shares were mired in a steep pullback following its second quarter results a couple of weeks ago.

But they’ve started to see a strong rebound.

Keep an eye on Charlotte’s Web shares following Labor Day holiday sales. We’re also inching ever closer to the FDA releasing a regulatory framework for CBD, which should release a pressure valve for the industry.

5) Puration (OTC: PURA) recently reported its revenue surged 87% in the first six months of 2019 to more than $1 million. The company has a goal of $4 million in sales for 2019. It reached production capacity for its EVERx CBD Sports Water, which had been suffering from constraints.

In September, EVERx will be introduced to Europe at “The Governator” Arnold Schwarzenegger’s Arnold Sports Festival Europe in Barcelona.

But the thing to watch with the microcap is that it intends to issue a dividend to shareholders through the distribution of shares from its cannabis spinoff, Nouveau.

Currently, only one other cannabis company – Innovative Industrial Properties (NYSE: IIPR) – issues a dividend. So this would be big news for the sector.

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

With so many Canadian majors striking new lows, we’re not surprised at how the broader index has performed over the past three months…

The High Five

American CBD producer Charlotte’s Web is way out in front. Shares have posted a more than 20% gain over the past three months.

High Tide is down less than 5% during that span. Though it’s still up 40% year to date.

Meanwhile, Canopy, Tilray and the penny stock Puration have lagged the marijuana benchmark since the end of May.

Obviously, with the largest cannabis companies trading at 52-week lows, the selling pressure hasn’t slowed. But now we’re left to wonder whether this is the end.

Each week, we get closer to the launch of the Canadian infused products market. And we have to expect that will spark a jolt in revenue.

In turn, that should start reviving pot stocks from their summer slumber.

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