Everything Has Changed: The Big 5 Canadian Cannabis Companies Have Achieved Platform Status

While Mulvaney is a move towards Federal Legalization, Canada Remains the Only Game in Town.

Citron Expects to see $8 US before the end of 2018.

In a dramatic change, Trump announced on Friday that marijuana reform ally Mick Mulvaney will replace marijuana opponent John Kelly as his acting White House chief of staff (source).

Governor Andrew Cuomo outlined a plan last week to legalize marijuana in New York (a $3.1B market).  The current “political atmosphere” is “unlike anything we’ve ever seen before” (source).  With federal legalization faintly visible at the end of the tunnel, every large CPG player is now required to explain its cannabis strategy to investors.

However, the key news for Aphria shareholders came in one-line last week in the NYT:

 Big companies are unlikely to make major moves in the American market until recreational use of THC products is legal at a federal level” (source)

Despite the increasing number of States moving towards legalization, marijuana remains a Schedule I drug at the U.S. federal level (which is why only Canadian cannabis companies are listed on the NYSE/Nasdaq).

Constellation’s investment in Canopy earlier this year was initially met with broad investor criticism that it was a one-time deal.  Then, two weeks ago, Altria/Cronos announced a deal which proved that these types of partnerships have become the new standard.

The main takeaway from Cronos take-out is both i) CPG interest in cannabis is here to stay, and ii) the only way to play is through the Canadian LPs.  Fact: no US companies have secured big CPG.

Even though federal legalization is around the corner, it will still take at least 18-24 months for the law to change which makes the Canadian Cannabis LPs the only game in town in the near-term.  In this environment, traditional metrics can no longer be used to value the businesses of the big five Canadian Cannabis companies.