The Canadians are Coming! The Canadians are Coming!

Canopy Growth Buys Anchorage Holdings

After reading Bank of America’s full report on the global cannabis industry, I found that the analysts agreed with my original thesis when I got started in cannabis stocks — that the big market is in the US. That’s why Canopy Growth just made a deal to buy Anchorage Holdings, and why all the other large cap companies that have previously generated most of the revenue in Canada are heading south. Other leading Wall street banks and institutional investment analysts concur, and some say that the shift has already begun.

Analysts also say that most US operators are undervalued by 50-60% compared to their Canadian peers, only because marijuana remains illegal on the federal level. That suggests that the stock of most US operators will take off after the STATES Act or similar legislation legalizes marijuana, or at least reschedules or deschedules THC. Even the passage of the SAFE Act that would permit US banks to deal with cannabis companies should give most US boats a lift.

How the Canopy Growth-Anchorage Deal Just Changed the Game

Canopy’s Growth’s deal to buy Anchorage Holdings was the catalyst that will force investor as well as every US operator to stop and think things through. Because Tilray, Aurora, Aphria and other big cap Canadian operators have already announced plans to move in on the US market, most likely by acquiring successful MSOs (Multi-State Operators) such as Curaleaf, Harvest Health & Recreation, Nabis, Ianthus, Cresco Labs, MedMen, Green Thumb, and Trulieve. And other US operators. How will the pieces of the puzzle be rearranged as a result?

Canopy’s Growth’s deal to buy Anchorage Holdings was the catalyst that will force investor as well as every US operator to stop and think things through. Because Tilray, Aurora, Aphria and other big cap Canadian operators have already announced plans to move in on the US market, most likely by acquiring successful MSOs (Multi-State Operators) such as Curaleaf, Harvest Health & Recreation, Nabis, Ianthus, Cresco Labs, MedMen, Green Thumb, and Trulieve. And other US operators. How will the pieces of the puzzle be rearranged as a result?

(For other thoughts on the deal and how it could affect Canopy Growth and Aurora stocks as well as the US market, see Canopy-Anchorage Deal.)

Will US MSOs Sell Out to Canada, or Will They Fight Back?

Companies like Curaleaf and Harvest Health have three choices: sell out to the highest Canadian bidder, to one of their US peers, or merge with another US operator. The last two choices would keep control of the US cannabis industry more firmly in US hands. (Of course, if CGC ultimately buys Anchorage and exercises their warrants, the Canadian cannabis industry will fall into US hands.) The most interesting thing would be a merger between Harvest and Cresco, or Curaleaf and MedMen, something along those angles. Regardless of which companies are involved, Trulieve would make a nice addition to a big US-only merger.

And why not, since the Canadians have proven so inept at the business in their failure to successfully roll out legal recreational cannabis? After all, it took Canadians six months to open the first retail store in Ontario, the city with the biggest market in the entire country.


“A New York street dealer could have done a better job of rolling out legal cannabis in Canada than Canopy Growth or any of the other Canadian big cap outfits did.”

How Will US MSOs Respond to the Canadian Invasion?

And which US operators stand to gain the most from the northern invaders? MSOs will be the first target for a Canadian buyer, as they offer a path to the enter the US market across the country. Holding any two of the top MSOs might be a good strategy. Put yourself in the shoes of a Canadian cannabis exec and ask which US operators you would buy.

And which US operators stand to gain the most from the northern invaders? MSOs will be the first target for a Canadian buyer, as they offer a path to the enter the US market across the country. Holding any two of the top MSOs might be a good strategy. Put yourself in the shoes of a Canadian cannabis exec and ask which US operators you would buy.

The CBD side of the game is another way to go, though I would be careful about investing in outfits that focus on growing hemp for CBD to sell to MSOs and other businesses, as the competition in hemp farming is going to be even more intense than the battle for domination of the already lucrative cannabis markets in Florida, Arizona, and California, as well as in Illinois and New York in the near future. If I were running a big cap Canadian outfit, I would buy either Charlotte’s Web or Elexinol, which would open a path for entry in the the US market that could be expanded upon federal legalization of marijuana.

One thing to consider when researching stocks is a company’s revenue and growth. Alan Brochstein frequently updates his revenue charts, offering the most recent data. Check it weekly during earnings season.

Getting Ready for the Rest of 2019

The question for investors is how to adjust our portfolios for this imminent shift by focusing on US operators and reducing exposure to Canadian operators. My portfolio was already 70% US operators, 18% LATAM, and only 12% Canadian (none of the big caps), so I’m good to go. I have two US MSOs and might add a third; I’m also looking for an extraction specialist that works in the US, like Mile High, which is unfortunately not public.

I am not saying sell the Canadian big caps, just be picky about buying one at this stage. Canopy Growth and Aurora look like the safest bets — if there is such a thing as a safe bet in cannabis stocks. Other than those, I am sticking with ancillary businesses like extractors in Canada, and delivery and data management in the US.

Will We See a Summer Slump?

In coming weeks, we’ll learn more about how US operators are preparing for the shift that will pick up speed as we roll into summer. Which makes me think that, unlike in previous years, the annual “summer slump” either won’t occur at all, or will be less significant than before. Who know, we might even see a “summer bump” this year.

For my previous posts, scroll down.

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