by Tim Seymour
In this report we will outline the investment dynamics driving overall returns in this high growth emerging asset class, heading into the final quarter of 2019.The report will focus on the following relevant vectors:
- Recap of the 3Q 2019 market and investment climate
- Highlight key cannabis sector allocation themes, and company specific fundamentals
- Summarize current macro and legislative events and assess catalysts for the 4th Qtr
- Discuss asset allocation and our approach to portfolio construction into 4Q
CNBC Article – Cannabis legislation progresses, yet US companies and US cannabis investors are moving in reverse
by Tim SeymourKey highlights
- Legislation to legalize and regulate cannabis in the U.S. continues to gain steam but commercial and investment banks are moving in the opposite direction.
- Capital in an exciting, profitable and socially-beneficial industry shouldn’t just be flowing north to Canada. It should stay in the U.S. so that when Americans invest in this space, they can do so with confidence.
- In a head-scratching move, Bank of New York Mellon Corp said it would restrict trading of popular cannabis companies that are listed on Canadian exchanges, but have U.S. operations. Canadian-listed firms without U.S. operations would still be tradable.
Tim Seymour, Portfolio Manager of CNBS Cannabis ETF, discusses the promise of investing in the cannabis sector, but points out the issues that have contributed to challenging market conditions.Key highlights
Cannabis is the same exciting growth industry it was 12 months ago; the problems are:
- complex regulatory environment has restricted real investment capital
- made it so non-regulated, that products sometimes have easier pathway to market, and they are the focus of the health issues
- many companies did deals that were not strategic in nature, but simply to do deals and grab market share from using their share price as currency. 1 + 1 does NOT “equal 3,” more like equals “1.3”
- overall markets everywhere are not paying for story stocks.
- profitability is critical, and what we saw from Aphria’s results were how the market will reward good operators
- capital markets created structures that were not investor-friendly and alignment of interests was off-sides. This needs to change, and the market is forcing companies to change by restricting capital.
CNBS Investment Case
Cannabis has created new markets globally as its legalized use spreads worldwide. The cannabis industry is at an inflection point, which provides both opportunity and risk for investors. Investors who want to access this industry may best be served by having a diversified, professionally managed product.
History of Cannabis
Dating back to the Ancient Empires of China, Egypt and Rome, the cannabis plant has been used by different cultures around the world in many ways. The trend of 20th century opposition tocannabis is just a sliver of time when considering its 6,000 year history.
Chemistry Behind Cannabis
Over 100 naturally occurring compounds are found in the cannabis plant. These compounds are knownas cannabinoids. Cannabinoids are chemical compounds that act directly and indirectly on cannabinoidreceptors to help the body maintain stability and health.