Beyond the Bong

Vaping Health Crisis, Corporate Drama Contribute to Pot Stock Pullback

For weeks we’ve been covering the national “vaping crisis.”

And it just continues to gain steam.

The Centers for Disease Control and Prevention announced that the number of victims from the vaping-related illness is now over 530. Unfortunately, it has also claimed its eighth victim – a Missouri man in his 40s.

In response to the growing epidemic, the Food and Drug Administration launched a criminal probe last week. The agency has collected more than 150 samples for forensic analysis. Though the majority of illnesses appear to come from THC vape pens.

Meanwhile, two states – New York and Michigan – have banned all flavored e-cigarettes. Though New York’s law is the only one implemented at the moment.

The White House is still considering some sort of action.

And several TV networks owned by CBS (NYSE: CBS) and WarnerMedia are pulling all e-cigarette ads.

What we know so far is…

  • 72% of the vaping-related lung illness victims are male.
  • 67% of victims are between 18 and 34 years old, with more than half under age 25.
  • The investigation is focusing on suppliers since no single product has been identified as the cause.
  • Only 12 states haven’t reported a single vaping illness case.

Chart - Reported Lung Illness Cases

As the situation continues to develop, we’ll work to keep investors up to speed.

Though up north in the first G7 country to legalize cannabis nationwide, there’s another drama playing out…

From Trustworthy to Untrusted

Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it.”

And this advice is something executives from one of Canada’s pot stock majors probably should have kept in mind.

Unfortunately, woes continue to mount for the once-respected medical marijuana producer CannTrust Holdings (NYSE: CTST).

The walls are quickly closing in on CannTrust after it was busted for running illegal grow rooms. And the company’s reputation has been ruined in a matter of months.

Last week, Health Canada suspended the company’s license to produce and sell cannabis.

Two days later, the Alberta Gaming, Liquor and Cannabis Commission returned nearly $1 million in CannTrust products.

That follows last month’s move when the Ontario Cannabis Store returned more than $2 million worth of the company’s wares.

This situation has been a dire warning for all Canadian licensed producers and U.S. multistate operators.

Ready for Blastoff?

This week, the House of Representatives will make history.

House Majority Leader Steny Hoyer (D-Md.) announced there will be a floor vote on the SAFE Banking Act by as early as Wednesday.

The proposed marijuana banking legislation will need a two-thirds majority vote to pass, not just a simple majority. That’s because the bill is heading to the floor under what’s known as “suspension of the rules.” This is used to advance noncontroversial legislation.

That means the SAFE Banking Act will need 290 votes to pass the House. It currently has 206 co-sponsors.

This will likely be a market mover for U.S. pot stocks, regardless of how the vote pans out.

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) Better Choice Company (OTC: BTTR) scored a major win last week.

The CBD pet wellness products manufacturer announced former Canopy Growth Corp. (NYSE: CGC) CEO Bruce Linton has joined the company as a special advisor. Linton is arguably the most recognized face in the industry.

And the announcement sparked new volume in Better Choice’s shares. This addition puts it on every pot stock investor’s radar.

2) Jushi Holdings (OTC: JUSHF) might not be a household name. But the cannabis and CBD company is building out its U.S. presence, recently acquiring Pennsylvania medical marijuana dispensary operator Agape Total Health Care.

Jushi is projecting 2020 revenue of $200 million and currently has up to 25 retail location licenses.

3) Plus Products (OTC: PLPRF) made two noteworthy deals last week.

The first was with musician John Legend to launch its CBD line of products.

The second was that its SLEEP line of CBD and melatonin gummies would roll out in collaboration with mattress company Casper Sleep.

Plus Products is dominating the California edibles market with its gummies. It has expanded into New York and Nevada, with its eyes set on Illinois, Massachusetts, Michigan and even Canada. And it is preparing to launch a line of chocolates.

4) DionyMed Brands (OTC: DYMEF) shares imploded last week after the company announced the resignation of its COO and the increase of its credit facility.

The direct-to-consumer distributor had also asked its shares to be halted pending the possibility of a transaction. But it then stated “multiple transactions of various types have surfaced, all of which require more time for evaluation.”

Then, Gotham Green requested repayment on DionyMed’s outstanding $2.2 million balance.

It was a very bad week for DionyMed. Now we’re waiting to see what happens next.

5) GrowGeneration Corp. (OTC: GRWG) recently inked its third and fourth leases in Oklahoma.

The company is the largest hydroponic and organic gardening specialty retailer in the U.S. And following these two new locations, it will have 25 across the country.

Surprisingly, Oklahoma has a very strong medical marijuana market. And cultivation laws are very favorable to growers – a plus for the company.

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

Over the past month, the pot stock ETF has trailed lower, mainly on last week’s pullback…

The High Five

But only Better Choice Company and the spiraling DionyMed have underperformed the index.

DionyMed is apparently circling the drain. Shares have tumbled more than 85% in the last month. Though almost all of that took place last week.

Meanwhile, Plus Products and GrowGeneration have performed well. They’ve both gained double digits since mid-August. Not to mention, Plus Products’ shares are up 20% year to date, and GrowGeneration’s shares are up more than 126% in 2019.

As we’ve seen from CannTrust and DionyMed recently – and the looming maelstrom of the vaping crisis – we may be about to witness the “Great Cannabis Shakeout.”

The U.S. Department of Justice is dragging its feet on approving acquisitions, and companies are watching financing pools dry up.

Over the next couple of months, I expect pot stock failures will skyrocket – and shares will collapse. But the strong will surge in the wake of the destruction.

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