The Momentum Case
From the report The Value Case For Investing In The Cannabis Sector
July 26, 2017 – by VIII EIGHT CAPITAL
The market has pulled back and we view this as an entry point. Recent capitulation of the cannabis sector stocks, particularly the Health Canada LPs, has largely been due to the lack of industry regulatory news. News in early 2017 of product recalls due to pesticide use, a large increase in the supply of publicly listed LPs, a sell-on-news mentally after the Spring 2017 tabling of the Cannabis Act (Bill C-45), and a lack of visibility to the next industry catalyst have all contributed to the shakeout we're seeing now. We believe the Summer will continue to be slow due to the lack of major industry catalysts, but we're bullish on the Fall and Q4/17 due to the potential domino effect of multiple industry catalysts; we expect a rising tide to float all boats. Progress on a variety of fronts including legislation, regulations, provincial distribution, and municipal involvement, would in our opinion move the industry forward, which is positive, pending no implications of major delays:
• House of Commons takes July/August off
• Could get the 3rd reading of the Cannabis Act (Bill C-45) in the House in September
• The Bill may move up to the Senate shortly after
• Likely to get a “pre-publication” of Regulations in the Fall (details within the Act, i.e. chapters in the book)
• Provinces then read details in the Regulations and start signaling towards desired distribution, particularly since half the provinces have provincial elections between June and November 2018 (start prepositioning for election cycle)
• The Provincial-Territorial Working Group on Cannabis Legalization is expected to report by November 1, 2017
• Distribution channels start mobilizing or providing details
• Cross provincial M&A when LPs start seeing which provinces are coming on faster or more favourably
• Early 2018 calendar turn will get people excited that legal recreational sales are only 6-8 months away
Source: docs.wixstatic.com/ugd/51c183_34348813c00846869dd1012695a33cf1.pdf
