Beyond the Bong

New Marijuana Law in Ohio Accidentally Decriminalizes the Plant

I warned ya!

I said last week that pot stock investors were going to have to run the gauntlet. And true to form… it was a brutal one.

Our High Five all reported earnings. And the list comprised some very notable names in the industry: Canopy Growth Corp. (NYSE: CGC), Greenlane Holdings (Nasdaq: GNLN), Neptune Wellness Solutions (Nasdaq: NEPT), Tilray (Nasdaq: TLRY) and Village Farms International (Nasdaq: VFF).

Unfortunately, the companies left very little to cheer about…

Chart - The Not-So-High Five

It was nearly across-the-board misses. And the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) was dragged down more than 6% for the week.

The hardest hit of those five were the packaging company Greenlane and the Canadian licensed producer Tilray. Both tumbled more than 20%.

But all eyes were on Canopy. And investors were horrified…

Now, net revenue jumped 249% to CA$90.5 million and the company harvested a record 40,960 kilograms of cannabis.

That’s the good news.

The bad news is Canopy’s net loss exploded to CA$1.28 billion… more than five times the loss last quarter, which resulted in Bruce Linton getting the boot.

Of course, much of that was a one-time, non-cash charge of extinguishing warrants. But Wall Street’s patience is wearing thin with cannabis’s mega empire. And to make matters worse, Canopy’s medical marijuana sales fell 38%.

Pipe Dream Becoming Reality?

One of the headlines overshadowed by the detonation of Canopy shares came from the CEO of the Canadian pot stock’s largest acquisition.

Acreage Holdings’ (OTC: ACRGF) Kevin Murphy believes the Secure and Fair Enforcement (SAFE) Banking Act will likely be the first piece of cannabis legislation to pass Congress. This would be a major step forward for the American pot industry, allowing companies to deposit their cash in federally insured banks.

Now, Acreage is waiting for federal U.S. marijuana laws to change so it can be bought out for $3.4 billion by Canopy.

And while Canopy posted lackluster results, Acreage reported revenue increased 501% to $17.7 million. But pro forma revenue was $36.6 million.

Heavyweight Toker?

Former heavyweight boxing champ and “potrepreneur” Mike Tyson is enjoying the high life.

And he might earn himself a new nickname: “Iron Lungs” Tyson.

In a recent episode of his podcast, Hotboxin’ with Mike Tyson, the legendary icon stated that he and his partner, former NFL offensive tackle Eben Britton, smoke $40,000 of weed each month.

Britton said they smoke “10 tons of weed at the ranch each month.”

Now, let’s simply call these “exaggerations” good publicity for Tyson Ranch, the 40-acre marijuana project he broke ground on back in December.

Currently, Tyson sells $500,000 per month in cannabis products… maybe it could be nearly 10% more if he and Britton weren’t burning “$40,000 per month” themselves. But the champ plans to expand to a 420-acre ranch with a luxury hotel for cannabis enthusiasts.

O-High-O Mistake

It’s the home of Thomas Edison, the Wright Brothers, the Pro Football Hall of Fame and the Rock & Roll Hall of Fame. But recently, Ohio made a hall-of-fame-worthy blunder.

It accidentally legalized cannabis… though I’d argue “decriminalized” is more apt here.

When the state passed a law on July 30 legalizing hemp, it did so by changing the definition of what qualified as marijuana. It ruled that a THC level of 0.3% or below signified a plant was hemp and a THC level of above 0.3% signified a plant was marijuana.

This is very similar to how the federal government defines hemp.

The only problem is there aren’t any crime labs in Ohio that can detect THC quantities! These labs can test only the presence of THC.

Ohio Attorney General Dave Yost sent a letter to prosecutors saying it could be several months before a reliable testing system was put in place. In the meantime, he recommended prosecutors suspend marijuana testing and not indict any “cannabis-related items.”

Cities such as Columbus have stopped prosecuting misdemeanor marijuana cases in light of the mistake.

The High Five

In the end, it was a waterfall week for pot stocks… mostly fueled by missed expectations on earnings. But there were some bright spots. And though there are fewer companies on deck next week, we’re not out of the woods yet.

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.

We’re in the heart of cannabis earnings season. And these are the ones to watch this week.

1) Cresco Labs (OTC: CRLBF) will report second quarter earnings on Wednesday after the closing bell.

In the first quarter, the Chicago-based multistate operator (MSO) reported its revenue surged 313% to $21.1 million. This was also a 24% increase from the fourth quarter of 2018. But, as we’ve seen recently, losses on net income expanded from $600,000 to $7.6 million.

Shares dropped 6.5% on that report. So we’re looking for a move the other direction this time around.

2) Surna (OTC: SRNA) will hold its second quarter earnings call on Tuesday after market close. The company already reported second quarter revenue surged 110% to a record $4.2 million. And during the first half of the year, the environmental control and air sanitation provider entered into five $1 million contracts.

Shares of the penny pot stock have been on fire in August.

3) 3 Sixty Risk Solutions (OTC: SAYFF) will report second quarter results tomorrow morning before the opening bell. The microcap security services and risk mitigation company might be one of the few in the cannabis sector not looking forward to the SAFE Banking Act being passed.

4) Indus Holdings (OTC: INDXF) will release second quarter earnings Wednesday after the closing bell. The California-based cannabis company reported record first quarter results in May. Revenue jumped 180% to $6.4 million as gross margins bloomed from 11% to 21%.

But Wall Street wasn’t impressed, and shares dropped heavily.

5) Lift & Co. (OTC: LFCOF) will report first quarter results on Thursday before the opening bell. Lift released a report last week showing that as many as 3 million consumers could enter the Canadian market following the legalization of edibles this fall. And in the fourth quarter, the cannabis technology company reported its revenue grew 130% to CA$2.5 million.

As always, we like to compare the performance of our High Five with the industry benchmark, Horizons Marijuana Life Sciences Index ETF.

Now, where Canopy goes, so goes the cannabis ETF. And over the past month, that direction has been down

The High Five

The marijuana index has lost nearly 10% in recent weeks.

Indus and Lift & Co. have tumbled almost double that amount.

But 3 Sixty has gained 11.5%. Meanwhile, Surna has skyrocketed more than 181%!

Bellwethers like Canopy have the power to either carry an industry on their shoulders… or be wrecking balls that smash an entire sector to the ground.

That’s the promise and threat posed by large cap cannabis companies.

This week, it’s going to be slower in terms of earnings news. But pot stock earnings are far from over. It’s merely a brief reprieve. And that means investors should buckle up as the volatility shifts south to U.S. MSOs.

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,