Although the stock market continues to edge lower after recently touching all-time highs, cannabis stocks continue to rally and this rally has shown no signs of slowing down.
The presidential election is right around the corner and cannabis stocks have been a beneficiary of the election trade as several states are set to vote on legal cannabis initiatives.
We continue to view this period as a rare opportunity for investors as they have the opportunity to invest in a sector poised to see incremental growth for years to come.
Too Big to Rollback
Legal cannabis is coming and nothing is going to stop it. The United States is in too much debt to ever rollback the progress in states like Colorado and Washington. Also, the money generated from legal cannabis in the form of tax revenue is too attractive for the government to turn down.
The cannabis industry is currently experiencing unprecedented growth and the industry is barely in the first inning. Although companies levered to the cannabis industry all seem like attractive investments, we urge caution with a majority of publicly traded companies. Investors need to be cautious and focus on companies that are well capitalized, led by a management team with a proven track record, have a sound financial structure, act in the best interests of shareholders, and continue to execute on business initiatives.
We encourage that you at least look for the following traits in a cannabis company before investing: 1) its management team and their track record, 2) its financial structure and share structure, 3) the exchange it trades on, 4) its fundamentals and its trend of performance, and 5) recent insider activity.
Premier Ancillary Opportunities
The growth of the cannabis industry has led to the creation of sectors within it. These sectors are comprised of ancillary businesses, which are levered to the growth of the cannabis industry. These businesses sell products and services such as specialty soils, climate control systems, grow lights, vaporizers, security solutions, and more. Over 150 years ago the market saw a similar opportunity, and today, investors have the opportunity to capitalize on it.
During the gold rush, most people did not make their fortunes mining for gold. The real winners were people such as Samuel Brannan and Levi Strauss, who sold the ancillary products to the gold miners (i.e. picks, shovels, clothing, etc.).
Today, there is a similar trend in the cannabis industry where many ancillary businesses seek to capitalize on the green rush. Some of our favorite cannabis stocks that fall under this category are:
American Cannabis Company (AMMJ) has been a top performer of the last month as the shares have rallied almost 200% during this time.
American Cannabis is led by a management team that continues to execute as the company has been awarded 13 licenses in 7 states. The company has built 560,000 square feet of cultivation space, produced 46 tons of SoHum Living Soil, sold 888,000 units of the Satchel, and has seen 98% growth over the last two years.
We are favorable on AMMJ due to the company’s favorable revenue mix. AMMJ’s consulting business continues to grow at rapid rates and this growth is supported through the sale of products like the Satchel and SoHum, which differs from other companies who support growth through the sale of stock and warrants.
Cannabix Technologies Inc. (BLO: Canadian Stock Exchange) (BLOZF: OTC) is up more than 115% in the last month and the shares broke out after the company announced a definitive license agreement with the University of Florida for US Patent 8,237,118. The agreement gives them exclusive worldwide rights in the area of breath analysis of controlled substances. Cannabix also said that development of the Cannabix Marijuana Breathalyzer prototype is expected to be completed by late fall 2016.
Cannabix and University researchers are developing an innovative FAIMS based instrument for the detection THC in human breath. In consideration for the patent license, BLZOF issued 603,870 shares to the University.
The company recently introduced its new Beta product and the components in the “Beta 2.0” bench-top device have been reduced in size even further, some as much as 5X. The Beta 2.0 device will also deliver greater sensitivity. Cannabix expects to have a pilot test ready device for scientific trials for later this fall, while it continues to develop its Beta 3.0 version which will be a completely portable handheld device.
Scientific trial protocols for testing will be developed with the assistance of Cannabix Scientific Advisors Drs. Marilyn Huestis and Bruce Goldberger and in accordance with the requirements in Canada of the Minster of Justice in Canada and the National Highway Traffic Safety Administration in the United States. The trials will consist of live breath testing utilizing medicinal marijuana users in correlation with blood THC testing to assess the accuracy of the breath test device and its sensitivity and specificity.
We have highlighted Kush Bottles a few times during the last month – in that time its shares are up almost 50%. We continue to see further upside to current levels as the rally was supported by the initiation of coverage by Cowen and Company, a Wall Street investment bank. The analyst covering KSHB assigned the shares a Buy rating and a $3 price target because of its unique exposure to the high growth, emerging cannabis industry.
Kush Bottles is the exclusive distributor of The Satchel, a premier child resistant cloth bag developed by American Cannabis Company (AMMJ). The company also offers several child resistant and non-child resistant exit bag solutions, all of which are fully customizable, allowing Kush Bottles’ customers the opportunity to creatively market and brand themselves. We find this aspect of its offering significant as companies compete to become a recognized brand among consumers.
We are favorable on Kush Bottles’ focus on providing exit bag products that are in compliance with regulations. The company offers several child resistant and non-child resistant exit bag solutions, all of which are fully customizable, allowing Kush Bottles’ customers the opportunity to creatively market and brand themselves. We find this aspect of its offering to be extremely important as companies compete to become a recognized brand amongst consumers.