Something that’s captured my attention lately is a renewed focus on the cannabis sector, that money is coming back. Stock prices are rising again. A new ‘moment’.

Prior to legalization, there was a zeitgeist that infected investors…..that as soon as Oct 18th, 2018th came running up to the door: BOOM! To the moon.

On that day, our investments would rocket, companies and their business plans will capture the wind, and we would simply be left to muse over whether it would be a Barolo or Chianti with steak tartar tonight. The last thing was to decide whether to consume it in the yacht’s dining room or on the deck. More San Pellegrino Jeeves!

It hasn’t played out that way.

Several companies have deep six-ed themselves so far this year, and I will state with a strong measure of confidence: there will be more.

On our latest podcast, GoBlue mentions ‘zombie financings‘, and Cyto asked straight up if they apply to Aleafia. I wasn’t ready for the question. I still can’t answer it two days later.

What I can say is that of the financials we’ve looked at over the past couple of months, there are many companies that have finally been built out, received their sales licenses, or enabled distribution channels. All the good stuff. All the things they’d been working towards so diligently towards is finally coming together: production planning, branding, product platforms…….all of it. Now? All that’s left is to hire the butler.

No.

What I see is many companies approaching a moment. A moment where they will need sales ramps that no company has exhibited so far……. all within a muddled landscape of brands and products that so far has produced no clear winner. Sure, Canopy Growth is at the top of market share, but discount offerings are giving new life to the Hexo’s and Zenabis’ of the world. It’s a very unsettled and changing landscape.

Companies that are leveraged and wholly dependent upon the consumer market rushing into them abound. I’ve mentioned Aleafia ($ALEF) and Zenabis ($ZENA). I’ll also mention Supreme ($FIRE), Flowr Corp ($FLWR), Organigram ($OGI), Sundial ($SNDL), 48North ($NRTH), Starseed ($WMD).

At the lower end of the dial, we have Emerald ($EMH), Harvest One ($HVT), Canada House ($CHV), Liberty Leaf ($LIB), StillCanna ($STIL), GTEC ($GTEC). I doubt the bulk of these will last the year. Norton at GTEC seems resilient, even if it is a hand to mouth operation.

Companies I see in better shape – which aren’t necessarily for the same reasons – do not present us with a lower risk profile.

Village Farms ($VFF) has great throughput and cost structure, yet it’s a ~=50% ownership in a mutt of a JV tied to a money losing veggie business. They don’t have the ability to take the JV out, cash wise nor legally. All they can do is starve $EMH out, which creditors won’t allow without a price. That is what will happen there.

$ACB is on the moon in terms of profitability (as in zero) – but boasts an amazing Space Force machine of an asset in SKY. I’ve seen it. It’s a machine of marvel.

Cronos ($CRON) and Auxly ($XLY) are well capitalized, and have ‘Big Daddy Warbucks’ at the ready, but folly around bio-synthesis and potential share counts into the billions will clip the wings of returns. Aphria ($AHPA) holds some promise, appears capitalized, yet will have every low cost producer wanting to take their bread. Can they compete with outdoor? Can anyone who doesn’t have it?

As to Canopy ($CGC), god. They don’t look able to turn off the alarm in the morning without losing a million.

It’s heartening to see the expansion of the legal market in Canada. COVID’s baby bump of March is cool, and I believe sales growth and market expansion will continue. The point is that there is only enough oxygen in the escape room for some companies to survive. Those who do will starve others of it.

It’s going to happen across extractors and retail as well. We’ll look at those later in the week.

The recent run on cannabis is being built upon the reality that legal weed is a real thing, and it can make money. We see it in Trulieve and $GTI (whatever it is they’re doing). The biggest question of all is who is going to be left to do so. With so many pointing to the 3rd and 4th quarter of this year…..it’s fast becoming October 18, 2018 all over again.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds position in $APHA & $GTEC