Commodities and Gold

Cannabis Corner: Still a Little Crowded

Pulling the plug on CannTrust Holdings Inc. (OTCMKTS: CNTTQ) has given surviving cannabis distributors a little relief.

Admittedly, CTST never accounted for even $80 million in annual sales, but simply relinquishing that slice of the global market gave the survivors the fuel to rally 4% this week. Aurora Cannabis Corp. (NYSE:ACB) and Canopy Growth Corp. (NYSE:CGC) did well.

Tilray Inc. (NASDAQ:TLRY) has been a true powerhouse, tripling in value over the past month. As the smallest of the “big three,” it has the most at stake here and the most to gain from CTST’s downfall.

Of course, TLRY has a lot of ground left to recover for shareholders. The stock has been battered. But, now we know it won’t be the first company to fall. That’s enough to keep hope alive.

And opening up an $80 million slice of the cannabis market is actually significant. The latest Canadian sales numbers I’ve seen have about $150 million a month flowing through this industry.

CGC has captured about 30% of that market. ACB and TLRY together have another 25% share. That leaves room for the giants to practically double by simply letting weaker operators fall along the way.

TLRY can practically hit its revenue growth goal for 2020 by simply absorbing CTST’s abandoned supply contracts. There’s plenty of room here for opportunistic expansion.

All management needs to do is keep executing on its plans, walking the tightrope between spending money to lock down long-term distribution deals and maintaining enough cash to keep going.

They don’t want to be the next cannabis stock to go under. I don’t think it will and neither does Wall Street.

Most of the other vendors in this space are tiny independent growers. They’re going to need capital they can’t find in this market environment.

This is the moment Big Cannabis was built to exploit. When we see TLRY, CGC and ACB start absorbing failed competitors, it will be time for investors to get off the sidelines and put money to work.

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. The Financial Times describes Ms. Kramer as “A one-woman financial investment powerhouse” and The Economist distinguishes her as “one of the best-known investors in America”. Ms. Kramer is often quoted in publications such as the Wall Street Journal, New York Post, Bloomberg, and Reuters. She is a frequent guest commentator on CNBC, CBS, Fox News and Bloomberg, providing investment insight and economic analysis. Ms. Kramer was an analyst and investment banker at Morgan Stanley and Lehman Brothers. Ms. Kramer founded and ran a long-short hedge fund and has been chief investment officer overseeing debt and equity portfolios. Since 2010, Ms. Kramer’s financial publications have provided stock analysis and investment advice to her subscribers. Her products include GameChangers, Value Authority, High Octane Trader, Triple-Digit Trader, 2-Day Trader, IPO Edge and Inner Circle. Ms. Kramer, a Certified Fraud Examiner, has also testified as an expert in investment suitability, risk management, compliance, executive compensation, and corporate governance. Ms. Kramer received her MBA from the Wharton School at the University of Pennsylvania and her BA with honors from Wellesley College. Ms. Kramer has provided testimony regarding investment policy to the U.S. Senate and is a frequent speaker on the markets, portfolio management and securities fraud and compliance. Ms. Kramer is also the author of “Ahead of the Curve” (Simon & Schuster 2007) and “The Little Book of Big Profits from Small Stocks” (Wiley 2012).