Beyond the Bong

Illinois Becomes the Next U.S. State to Legalize Recreational Marijuana

Frank Sinatra crooned: “You’re riding high in April, shot down in May…”

For investors, that’s exactly what transpired over the past two months.

The S&P 500 and Nasdaq soared into May at all-time highs.

Not to be overlooked, the Dow Jones Industrial Average strode into the month closing in on its previous high-water mark set back in October.

And then it all came crashing down on U.S. global trade concerns and escalating tariffs.

For pot stocks, May was especially painful…

No May Flowers, but Two New Options Bloom

The North American Marijuana Index fell 15.8% during the month…

North American Marijuana Index - line graph

The sector is still up double digits for the year. But the losses in May were twice those of the broader market.

So some marijuana shareholders struggled to see anything positive. But two new hedges came into bloom in recent days.

For those looking to make more leveraged plays on cannabis, Horizons ETFs has you covered.

Last week, the company launched two new exchange-traded funds: the BetaPro Marijuana Companies 2x Daily Bull ETF (TSX: HMJU) and the BetaPro Marijuana Companies Inverse ETF (TSX: HMJI).

These are the first of their kind for pot stocks.

But that wasn’t the only milestone reached last week…

States Come Out Swinging

I’ve long believed a change at the U.S. federal level is on the horizon.

And as states continue to charge ahead, it appears even more likely.

First, with time running out, the Illinois state legislature passed a bill legalizing adult-use marijuana.

This makes Illinois the 11th state to legalize recreational cannabis!

And the Prairie State’s weed market is projected to be worth more than $2 billion.

(I’ll be discussing this sweeping legislative victory in Thursday’s CannaBiz Now! with the National Cannabis Industry Association’s Morgan Fox, so be sure to tune in.)

Illinois wasn’t the only state to make a major marijuana announcement last week. Colorado made headlines as well.

Gov. Jared Polis signed HB 19-1090. This bill repeals the provision that prohibited publicly traded marijuana companies from holding licenses in the state.

This is a major milestone for Colorado and the cannabis industry as a whole!

The governor also signed HB 1230, legalizing and regulating public consumption.

Colorado, already one of the most mature legal marijuana markets in the U.S., isn’t slowing down. Cannabis sales are projected to grow another 40% by 2022.

So this will be an attractive market for public companies to move on.

Though – of course – the feds had to end the week by raining on everyone’s parade…

FDA Cools Off CBD Craze

To cap off a big week, the Food and Drug Administration (FDA) heard testimony on regulating products containing cannabidiol (CBD) on Friday.

This was a major market mover!

More so than the cannonade of U.S. earnings we heard last week!

And that’s despite the fact that it was merely a listening session for regulators.

But Acting FDA Commissioner Ned Sharpless sent pot stocks into a tailspin with his prepared opening remarks.

He stated, “There are real risks associated with THC and CBD and critical questions remain about the safety of their widespread use in foods and dietary supplements, as well as other consumer products…”

The FDA is pushing manufacturers to present far more evidence on the benefits of CBD.

But Friday’s cannabis sell-off was a knee-jerk reaction (another topic I’ll cover more in-depth in Thursday’s CannaBiz Now!).

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.

1) PharmaCielo (OTC: PHCEF) is taking a page from Acreage Holdings (OTC: ACRGF) and Northern Swan. The Canadian company operating in Colombia brought aboard former U.S. Congressman and medical cannabis advocate Dana Rohrabacher. He will serve as special advisor for the Colombian cultivator.

This is all in preparation to enter the U.S. market, particularly American CBD. So while the rest of the CBD universe collapsed on Friday, PharmaCielo’s shares gained.

2) Neptune Wellness Solutions (Nasdaq: NEPT) is also looking to enter the U.S. market through its recent acquisition of SugarLeaf. This gives the company 1.5 million kilograms of hemp processing footprint.

It will report fourth quarter earnings on June 12.

3) Supreme Cannabis (OTC: SPRWF) celebrated a different milestone last week. This time, it was the rescheduling of CBD in South Africa. This allows the sale of CBD products in the country.

The total African cannabis market is projected to be worth more than $7 billion by 2023. And Supreme Cannabis, through its stake in Medigrow Lesotho, is one of the few pot stocks on the continent. It’s looking to now sell into South Africa.

4) KushCo Holdings’ (OTC: KSHB) shares have struggled mightily this year. The cannabis industry’s packaging supplier is trailing the sector, falling more than 18% in 2019. But Executive Vice President of Corporate Development Stephen Christoffersen will speak at the virtual KCSA Cannabis Investor Event tomorrow at 11 a.m. Interested investors should tune in…

5) Khiron Life Sciences (OTC: KHRNF) President Chris Naprawa will also be speaking at the virtual KCSA Cannabis Investor Event tomorrow at 12:30 p.m.

Khiron is another play on Latin America and CBD. And last year it became the first Colombian-based medical marijuana company to be listed on a global exchange.

Last week, Khiron shares were added to the ETFMG Alternative Harvest ETF (NYSE: MJ).

All in all, May was a month to forget for cannabis shares.

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

The Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) fell 13% in the past month.

Though four of this week’s High Five performed even worse…

Line graph - the high five

Neptune Wellness has outperformed the broader cannabis sector over the past month.

Meanwhile, Khiron has been the biggest laggard.

But I’m looking for these cannabis companies to begin to turn it around.

Last week was another example of why I love the cannabis sector.

We had two new investing options introduced. We had two states make major decisions. And we had the feds and former politicians make splashes in the sector.

Not to mention, a blitz of earnings.

It was volatile, with major announcements almost on a daily basis.

That gives investors with the guts and fearlessness to take advantage of the peaks and troughs a real opportunity at big gains. And that’s what the dawn of a new industry is all about.

If you have a pot stock in mind that you’d like me to discuss here, leave the ticker symbol in the comments section.

Here’s to high returns,

Matthew