Cannabis Stocks: Mergers, Acquisitions, and Pension Funds

Written by Nick Hodge
Posted February 27, 2019

The infant cannabis industry is starting to put on its walking shoes.

I was on a call with a company that was looking for a few million this week when the discussion turned to its tissue culture program, where new cannabis plants are grown from a few cells instead of being cloned from a mother plant.

Growers no longer want to have a mother plant and cloning operation onsite because it takes up valuable square footage that could be used for growing salable product.

Instead, many growers are buying from or starting their own tissue culture operations.

Every inch matters. We’re measuring and comparing yields with metrics like ‘grams per kilowatt-hour.’ The maturation of the sector continues.

Some thoughts on this…

First, there are ever-changing rules and frameworks and guidelines. You need to be aware of these moving parts as a cannabis consumer or investor. For example, the state of Oregon says it’s perfectly okay to fly with cannabis in the state. So if you want to take a joint on your flight from Medford to Pendleton, the state is fine with it. But the TSA isn’t going to be so kind.

Same with investing. U.S. citizens can readily buy shares of cannabis companies through multiple exchanges. But try to get a broker to take shares of a company you bought privately and you are going to have issues unless you know the right people.

And think about bordering states with different laws. Where I live in eastern Washington, it is common to run some errands in Idaho, which is very close and where the booze and gas are cheaper. But if your weed is in the car, when you cross the border you cross the law.

Growing pains, to be sure. I’m confident all the non-legal states will be sufficiently jealous of the tax revenue soon enough that they’ll get over any contrived moral reservations they have — and we’ll see full recreational legality in the U.S. by 2025.

And speaking of jealousy…

Guess who’s starting to invest in cannabis stocks?

Pension funds.

Because of required filings from the five major cannabis companies that trade on U.S. exchanges — Canopy Growth, Aurora, Aphria, Cronos, and Tilray — we learned this week that Canadian pension funds invested in pot for the first time in Q4 2018.

It’s still only a small bit. The filings showed two major pension funds owned cannabis shares valued at ~US$60 million — a fraction of the hundreds of billions they have under management. But it’s a start. Continued institutional buying like this will drive up share prices for investors who get in the right stocks now.

And finally, as we’ve been telling you, there will be continued mergers and acquisitions. Banks are now wising up to what we’ve been saying for months.

Jefferies Financial was out this week with an industry note initiating coverage on the cannabis sector, and called for “increased consolidation” amid further moves by major consumer brand companies to take positions.

That’s a major financial institution. Just now initiating on the cannabis sector. Just now beginning to get in on a sector we’ve already made thousands of percent from.

While Jefferies was initiating, another one of Jimmy’s recommendations has seen a major buyout. Last week, one of his companies sold its hemp division to Tilray for nearly half a billion dollars. And Jimmy’s readers saw double-digit gains overnight.

Those are the kinds of profits we’ve been delivering in the cannabis space for years…

Since long before taking pot on a plane was a consideration.

See which ones will get bought out next here.

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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