That’s according to Pierce Crosby, who follows stock market trends closely as general manager at investor social network TradingView.

This year’s rise of the retailer trader market, and the volatility that comes with it, is a new factor to consider when investing in cannabis. But because popular broker apps like Robinhood don’t offer trading of American multi-state operators, Crosby says the top U.S. pot stocks remain undervalued and are a less-risky bet related to potential federal legalization in the country this year.

After retail investors on r/WallStreetBets sent GameStop stock “to the moon” last month, the subreddit’s millions of users had a new target this week: weed stocks.

Most notably, shares of Tilray Inc. (Nasdaq: TLRY) fell 49.7 per cent Thursday and continued to slide Friday, after rallying 112 per cent during the first three days of the week.

Stocks for other Canadian licensed producers went on similar swings this week.

Aphria Inc. (TSX: APHA) (Nasdaq: APHA) is down 6.5 per cent on the week, after surging 34 per cent to an all-time-high of $39 Wednesday on the Toronto Stock Exchange.

Aurora Cannabis Inc. (TSX: ACB) (NYSE: ACB) stock rose 21 per cent Wednesday, fell 23.5 per cent Thursday, and is down about 1 per cent overall this week.

Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) shares are down about 4 per cent on the week after climbing as high as 22 per cent on Wednesday.

The pot stock movement is related to high short-interest ratios, which measure how many of a company’s traded shares are being used in bets against that company.

GameStop shares surged from just below US$20 to over US$483 over a two-week stretch in January. The stock currently trades just above US$51.

An army of Reddit traders essentially pushed each other to buy its shares and squeeze hedge funds that put major bets on the price to fall. Traders who bet on stock prices to decline are called short sellers.

“Broadly speaking, what you have is a very large audience who wants the next GameStop,” Crosby says.

Read more: US pot stocks have room to run even after Geogia runoff surge, analyst says

When Sundial Growers Inc. launched its IPO in August 2019 on the Nasdaq, it garnered unicorn status with a US$1 billion market valuation. The company’s market capitalization fell to US$50 million by August 2020. Press photo

Reddit-fueled short squeeze favours Canadian pot stocks

Cannabis stocks are attractive to Reddit traders because of their smaller market caps, so the traders can actually make a major impact on the price. Reddit can’t move Apple or other billion-dollar companies because their market cap is too large.

According to a website that tracks stock ticker mentions on r/WallStreetBets, Calgary-based Sundial Growers Inc. (Nasdaq: SNDL) was the most popular stock Wednesday, overtaking GameStop.

That’s likely because of major short interest in Sundial, as well as its smaller market cap of less than US$1 billion at the start of the month, Crosby explains.

Short interest in the stock was equal to 17 per cent of the shares available for trading, according to Fintel.

Sundial shares surged 246 per cent in the first three days of the week up to US$3.95 from US$ 1.14 on the Nasdaq, but have since come crashing down to US$1.98.

When looking at Sundial’s earning potential, Crosby says the crash makes sense.

In its third-quarter financial results, the firm posted revenues of $12.9 million, a 36.3 per cent decline from the $20.2 million in revenues reported in the second quarter. The company posted a net loss of $71.4 million during the quarter.

“That’s the thing for a long-term play, you have to actually look deeper into the fundamentals of business,” Crosby says.

But because Canadian cannabis companies have largely been underperforming over the last two years, they have more short bets placed against them compared to U.S. operators. That’s partly why pot stocks north of the border have been bigger targets by Reddit traders.

Also, because weed is legal federally in Canada, pot stocks there can list on major U.S. exchanges and trade on most online brokers like Robinhood or Questrade.

Aphria and Tilray were the third and fourth most-mentioned tickers on r/WallStreetBets this week.

Part of the discussion on Reddit has centered around the pending merger between the two firms and their compelling surge in international deals.

“From a retail investor standpoint, they think: ‘Holy shit, this company is going to be the provider of the world for cannabis,'” Crosby says.

But he warns that Reddit-fueled stock surges are more like flashes in the pan. So, by the time a new investor tries to catch the trend, it’ll probably be over.

Fearless Girl statue located by Wall Street, New York City. Photo by Kristen Visbal via Flickr Commons

Poking establishment in the eye

The analyst expects retailer trader flash mobs to continue fueling more volatility in the sector. And because short interest data is publicly disclosed, shorted pot stocks will continue to be listed and targeted by Reddit users.

“It’s kind of taking the fight to the institutional guy’s playground,” Crosby says. “People are realizing that if they really want to poke a finger in the eye of the establishment, basically, doing these kind of targeted attacks are an easy way to do it.”

In terms of legality, the Reddit retail trading frenzy is completely legal even with big financiers on Wall Street calling for restrictions to end to the phenomenon, Crosby continues.

This week the Wall Street Journal reported that the U.S. Justice Department’s fraud section has subpoenaed information from Robinhood and other online brokers to investigate possible manipulation.

Proving market manipulation requires generally showing that traders colluded to create an artificial price and took action to accomplish it.

However, the only way to slow the frenzy is for online brokers to limit trading, Crosby explains. In a move that triggered widespread scrutiny, Robinhood limited trading on Jan. 28 for several speculative names, including GameStop and AMC Entertainment.

“Really the question around this volatility will basically be about limiting trading. That will likely be the core focus of regulators,” he says.

Crosby’s go-to pot stock choice over the past year has been Aphria. And while the firm’s strong logistics focus and international potential continues to surge with merger-partner Tilray, Crosby thinks the story has played itself out lately.

Green Thumb Industries reported US$157.1 million in net revenues and US$9.6 million in net income in its most recent quarter. Press photo

US pot stocks remain undervalued

For many on social media, possible decriminalization of the plant under the Biden administration has been commented on as a major positive catalyst.

The irony, though, is that U.S. firms have benefited less from the Reddit trading frenzy. Even though they already operate in the largest cannabis market in the world, they can’t trade on the big U.S. exchanges because weed is federally illegal.

Read more: US cannabis banking likely to come ahead of Senate legalization bill

And because of that, U.S. multi-state operators — which don’t trade at most online brokers — have a much larger long-term upside for investors, Crosby notes.

Piper Sandler analysts recently said cannabis could become a US$115 billion global market by 2030, if recreational use is legalized at the federal level. Even if that doesn’t happen, the industry potential is still big, reaching US$50 billion by 2030, the investment bank added. Adult-use has been legalized in 15 U.S. states.

Crosby’s go-to U.S. pot stock is Illinois-based Green Thumb Industries (CSE: GTII), which operates 13 grow facilities and 97 retail stores across 12 U.S. markets.

“As investors, you’re looking at narratives,” he says. “Basically, the shift in narratives and the longer-term stories.”

Because it is all about the consumer, I believe cannabis is the next great American growth story. It's wonderful that so many people still don't see it. That's what makes a market and what creates such a great opportunity. Buyer beware… #MSOgang https://t.co/8ExtdQx5qb

— Ben Kovler (@Bkov9) February 12, 2021

Top image via Deposit Photos

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On Thursday, user sasquatch_jr posted a link to the list of products and their prices. The user also provided a link to the Python script used to pull the data from Shopify.

While the script was able to pull the wholesale pricing information, a spokesperson confirmed via Shopify that no customer data was accessed.

The BCLDB is working with Shopify and other IT service providers to ensure the site is secure, BCLDB communications manager Viviana Zanocco tells Mugglehead.

“The LDB is investigating after our wholesale cannabis price list was posted on a public platform. The person seems to have been able to access the BC Cannabis Wholesale site that serves private and public retail stores, who are our wholesale customers,” Zanocco explained in an email statement. “The BC Cannabis Wholesale site is the home for pricing and product information for all available SKUs, and other data that would help retailers in placing their orders.”

In a table, sasquatch_jr lists many of the products with comparisons to retail prices at BC Cannabis Stores, the province-owned shop operated by the BCLDB, showing a number of retail markups that far exceed amounts typical for analogous industries like liquor.

For example, when the provincial branch dropped the retail markup on alcohol for restaurants and bars last year to help with the Covid-related drop in sales — they used to have to pay the same as consumers — the amount those businesses paid decreased by around 20 per cent.

Depending on regional laws, wholesale-to-retail markup typically ranges from 20–45 per cent, which can be higher when factors like private distribution is involved.

BC Cannabis Stores sells Redecan CBD Reign Drops for $19.99 a bottle, a 117 per cent markup from the wholesale price of $9.20.

Despite frustrations expressed by consumers online, the BCLDB provided explanations for the discrepancies.

Zanocco says the retail markup at the BCCS averages out at 30 per cent, but can be higher for reasons specific to an individual product:

• Beverages cost more to ship, and so an additional mark up is added.
• Licensed producers may drop their price when product is not moving through the warehouse, and accept a lower margin. Retailers who’ve already bought it at the higher price — Emerald Health Chemdog, for instance — cannot sell below the new wholesale price, so on paper private retailers’ or the BCCS’ markup may increase depending on the new and old price points.
• Sometimes new products arrive at a much lower wholesale cost. BCCS chooses to price it competitively, so the margin on this particular SKU is higher than comparable product.

Screenshot of Redecan CBD Reign Drops on the BC Cannabis Stores website. Taken by Nick Laba 2021-2-12

Redecan CBD Reign Drops at Muse Cannabis for $16.99. Screenshot taken by Nick Laba 2021-2-12

“BC Cannabis Stores must balance our need to be profitable – and contribute revenue to public services – while staying competitive with the illicit market that we’ve been mandated to eliminate,” Zanocco said.

On the wholesale side, the BCLDB applies a 15 per cent markup on purchases from licensed producers. All retailers, including the BCCS, then buy the products at a common wholesale price and pay the cost of shipping from the distribution branch’s warehouse to the retail outlet.

Shopify exposes entire stores via an undocumented and unprotected API

Redditor sasquatch_jr, who’s surprised the BCLDB hasn’t reached out to them, says they’re a backend engineer during the day. The data discovery was made as a result of some time off work over the holidays, the user tells Mugglehead in an email, digging into monitoring Shopify stores using a strange, undocumented feature that “gives you way more information than I would want to be public if I was a store owner.”

sasquatch_jr details the method used on GitHub: “Shopify helpfully exposes entire stores via an undocumented and unprotected API (such as this). This price list was made by parsing that JSON document. At no time did a retailer give me credentials and I have never actually logged into BC Cannabis Wholesale store. The script used to generate this is freely available and is not very complicated for anyone who understands basic programming or python.”

Publication of the BCLDB’s wholesale pricing data comes in the wake of continued calls for this information from people in the industry. Thus far, provincial cannabis wholesalers like B.C.’s liquor branch and the Ontario Cannabis Store have kept pricing a secret.

Read more: The Ontario Cannabis Store should reveal its wholesale pricing, lawyer says

Other notable retail markups from the recent data include:

• Edison Byte Truffle – Milk Chocolate (duo pack): $4.83 wholesale, $9.99 BCCS retail: 107 per cent markup;
• Redecan CBD gems (15 capsules): $9.20 wholesale, $16.99 BCCS retail: 85 per cent markup;
• 7ACRES White Widow pre-roll (2 x 0.5 grams): $6.35 wholesale, $10.99 BCCS retail: 73 per cent markup;
• Everie CBD Sparling Beverage (various): $3.52 wholesale, $5.99 retail: 70 per cent markup;
• Emerald Health Therapeutics Chemdog dried flower (3.5 grams): $19.55 wholesale, $32.99 retail: 69 per cent markup.

Top image: Screenshot taken by Nick Laba 2021-2-12 at 10:25 a.m. PST from https://sasquatch-jr.github.io/bcldb_wholesale_cannabis_price_list/ 

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People in the industry say lowering the disproportionate, outdated payment will allow them to create more jobs — leading to a more robust local industry.

This week, city council is considering a motion that could lead to a decrease in the $34,000 annual fee. If passed on Feb. 18, an updated fee likely wouldn’t kick in until January 2022. 

Coun. Rebecca Bligh introduced the motion Tuesday, which asked city staff to review the payment. If staff are unable to justify the amount it will likely come down in cost. 

Council heard from speakers late Wednesday night, all who strongly supported the motion. The meeting ended before all speakers could be heard, and will resume Feb. 18 at 3 p.m. After hearing all of the speakers, city council will vote on the motion. 

Retail licensing fees are collected annually by the city to recoup the cost of regulating and overseeing a business. But weed stores seem to pay a disproportionate chunk of cash for their retail licenses. 

Read more: Vancouver pot shops pay Canada’s highest licensing fees. They don’t have a clear answer why 

A single weed store will pay a $33,958 annual retail licensing fee, while the entire Pacific National Exhibition pays $18,856. A single liquor store pays $492. Depending on hours of operation and how many seats it has, a restaurant or venue can pay anywhere from $155 to $23,525. 

Jaclynn Pehota, executive director of the Association of Canadian Cannabis Retailers, spoke Wednesday night in support of reviewing the fee. 

“The business licensing fee needs to be reduced. It’s not paying for anything sensible, for anything functional, for anything actually serving the people of Vancouver,” Pehota said in a phone interview. 

The fee is a carry over from Vancouver’s 2015 Medical Marijuana-Related Uses bylaw, which allowed for the regulation of weed pre-legalization, Pehota says. That meant Vancouver had to shoulder all of the costs associated with regulation. 

After legalization the province took over the bulk of regulation and licensing, but the fee stayed the same. 

Because of this, Pehota says she’s confident a review of the fee will lead to its reduction. 

‘It’s not a fee. It’s a tax’

In a June 2020 memorandum, city staff said compliance and enforcement made up 62 per cent of Vancouver’s weed-related expenses, dropping to 54 per cent in 2020. The city is responsible for enforcing zoning and licensing bylaws, states the document, while the province’s Community Safety Unit polices unregulated sales. 

“As the province has yet to provide municipalities an equitable share of the cannabis excise duty revenue, city staff have to rely on the cannabis retail business licence fee as the sole revenue tool to recover some of the costs of legalization,” Jessie Adcock, general manager of  development, buildings and licensing wrote in the memorandum.

But that’s not how the cost recovery licensing fees are supposed to work, Pehota says, adding that businesses on the Granville Street strip aren’t paying for the cost of policing the illegal nightclubs that have been popping up in penthouses.

Store owner Mike Babins has been selling cannabis since the city first regulated medical weed in 2015. The fees made sense then — they don’t now, he says. Photo by Noah Giroux

“It’s not a fee. It’s a tax,” says Mike Babins, co-owner of Evergreen Cannabis, Vancouver’s first regulated weed store. He’s also slated as one of the speakers on Feb. 18. 

If the fee was more similar to what liquor stores pay, Babins says he could hire a much needed full-time employee and pay them a living wage. 

“Everyone has to work extra hard because we can’t hire anyone else because we just had to pay the city $34,000,” Babins says.

Vancouver’s cannabis industry could be a strong pillar in the city’s economic tapestry, says Vancouver city Coun. Rebecca Bligh. Photo submitted.

The cannabis industry is a huge opportunity for Vancouver, but is lagging behind in its conservative policies, Coun. Bligh tells Mugglehead. 

“It’s time to recognize, whether it’s liquor retail or cannabis retail, they offer a very similar service depending on consumer preference. So both ought to be treated the same way. That has to be the end goal,” Bligh explains. 

Vancouver used to be a leader in cannabis policy but other municipalities have since surpassed us, she says. “We can look to them to see how they’re managing it and find a solution that’s far more equitable.”

According to Bligh, even if the motion passes, businesses will still have to pay the fee while city staff do their review. If staff recommend a change, retailers likely wont see it until next January. 

Lower fees could create 40–100 jobs overnight, Ian Dawkins told city council Wednesday night. Dawkins is the co-founder of Althing Consulting, a cannabis consulting firm in Vancouver. 

He said current regulations are “complete lunacy” and that, with an overhaul to the city’s cannabis policy, Vancouver could be a multi-billion dollar weed hub similar to Colorado. 

Top image of Vancouver City Hall in June 2011. Image by Kelam via Wikimedia Commons

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As the pandemic constrained already struggling enforcement efforts, illicit operators have seized on the opportunity to ramp up cultivation and sales to the profitable, multistate black market.

And they’re not the mix of hippies and rednecks that popularized growing weed in Californian forests. Experts estimate that more than 95 per cent of the sites are run by Mexican cartels that care little about the environmental fallout of their methods.

The toxic carbofuran they use kills wildlife, taints waterways, spreads into the air as pressurized cylinders explode during wildfires, and travels in or on weed plants to consumers on the other side of the country.

A sign in the famous weed cultivation hub of Humboldt County, California, encouraging growers to get licensed in August 2016. Photo by Tony Webster via Wikimedia Commons

Reclamation efforts have been underfunded and unorganized. Cartels are taking advantage

Twenty million acres of dense national forest conceal an unregulated industry on California’s public lands. Organizations like the Cannabis Removal on Public Lands Project (CROP) and the International Cannabis Farmers Association (ICFA) say California law enforcement need help.

“The law enforcement presence on those federal lands in California is extremely undermanned and outgunned,” explains Rich McIntyre, director of CROP.

There’s only one officer for every quarter-million acres of land, he says, and while growers have semi-automatic weapons, federal rangers are walking around with .38-caliber rifles.

California’s ‘Emerald Triangle,’ — encompassing Humboldt, Mendocino and Trinity counties — is one of the most famous regions for growing cannabis in the world. Growers there are credited with popularizing ‘sinsemilla’ which refers to the practice of removing all male plants from a site to eliminate seeds and increase resin production. Image by O’Dea via Wikimedia Commons

“Covid has emboldened them to increase the number of grows this year for the first time in 15 years,” he says. “Law enforcement is seeing trespass grow activity on federal lands at pre-legalization levels.”

And reclamation efforts have gotten harder as funds from the U.S. Forest Service budget have shifted towards fire abatement and suppression to deal with the increase in wildfires. But an uptick in wildfires is one of the symptoms of the trespass grows.

“It looks like the Dolan fire was set, at least in part, to try to draw attention away from the growing sites,” McIntyre says. “Someone sets a fire someplace else just trying to attract attention from you as you’re growing.”

That fire had devastating consequences including killing 11 endangered condors, and the debris contributed to the massive landslide that destroyed a section of Highway 1 earlier this month.

CROP’s goals are to get more state and federal resources for reclaiming trespass grow sites, expand forest service law enforcement in national forests and increase criminal penalties for bringing toxic chemicals onto public lands.

Toxic pesticides, including carbofuran, can be vaporized during wildfires, creating noxious fumes that are toxic to the nervous system — which can cause dizziness, nausea and sometimes seizures or cardiac arrest.

McIntyre says the presence of carbofuran has impeded firefighters’ efforts to douse wildfires.

The Dolan fire raged from September to December in 2020. A man originally said the fires were set to hide a series of murders, but doubts have been cast on the accuracy of his claims as well as his mental fitness. Public domain image

Increase enforcement or defund the police?

However, a movement asking for increased law enforcement is difficult in 2021, when many are calling to defund the police.

Specifically people involved in cannabis cultivation, which have long been the most vulnerable in the industry, are now being left behind as the marijuana movement is dominated by big capital interest.

California has created social equity programs to get people from minority and underprivileged groups involved in legal cannabis. The program provides help to break into the high-barrier industry, and even supplies the cultivation applications in Spanish.

Read more: Neglecting legacy cannabis operators is costing California billions a year

Read more: San Francisco dispensary CEO alleges foul play in High Times pot shop deal

But the programs have been rife with failure and corruption, and many aren’t at all interested in joining the licit industry.

“Typically, the reason why people continue to cultivate on private lands is because there’s no cost,” says Jackee Riccio, regional field director at CROP. “They can use water, they can use land, they don’t have a landlord, they don’t owe money. And they definitely don’t have money for the taxes.”

According to Riccio, the group most impacted by the trespass grows are tribal communities living on the lands. CROP has included Indigenous leaders from regional tribes into their program. Some of the growers are cultivating on tribal mounds, which affects the tribes’ cultural resources, harming their way of life both physically and spiritually.

The hope with legalization was the cartels would struggle to find a market, but the illicit sector is strong as ever. ICFA executive director Kristin Nevedal notes that cannabis on the unregulated market sells for about 60 per cent more.

“There’s zero overhead in the illicit market,” she says. “There’s zero testing expenses. There’s zero taxes. Those price points are factored in and everyone [on the legal side] has so much expense that they can’t afford to pay the farmer US$1,600–$1,700 a pound on cannabis.”

But illicit operators can. In contrast, the legal rate for harvested weed is around US$1,000 per pound.

CROP estimates that 80 per cent of the trespass cannabis is going to East Coast cities and upper Midwest cities, like Chicago, New York and Boston.

Known and unknown harms of toxic carbofuran

The trespass grows are harmful to the environment, wildlife and humans. Growers haul in huge amounts of trash, planting equipment and habitation infrastructure like stoves into the previously pristine natural landscape.

Most of the sites use carbofuran. One ingested teaspoon can kill a full-grown bear. Direct human exposure to the chemical is extremely toxic, and can be deadly.

Cannabis bioaccumulates materials from the soil, like pesticides, better than most food crops. Photo by Hung T. Vu via CROP

“Every site is responsible for five or 10 animal deaths,” says Greta Wengert, executive director of the Integral Ecology Research Center. Extrapolating that number across the 300–400 grow sites, she estimates that hundreds or thousands of animals die as a result each year.

While workers using carbofuran are vulnerable to exposure themselves, some experts are concerned the pesticide could be harming cannabis users. According to Riccio, weed is a very good bio-accumulator, meaning it can easily uptake chemicals from the soil.

While it’s possible that cannabis grown with carbofuran could negatively impact health when inhaled or ingested, little research has been done on the effects or how much of the pesticide is making its way to consumers.

Wengert has tested ready-for-sale product found on raided grow sites and found carbofuran in the buds.

The pesticide has been banned in the U.S., but the World Health Organization says carbofuran is generally not found in other treated crops, so the greatest risk is likely direct exposure either in the air, water or on the plant’s surface.

CROP is asking for US$25 million from Congress to curb trespass grows

To shutdown trespass grows and get carbofuran-tainted weed out of the unregulated market, organizations need money and resources.

CROP is presenting a bipartisan bill in Congress seeking US$25 million over five years. The bill proposes the money go toward increasing law enforcement and general funding to dismantle the sites.

One of the biggest challenges is removing all the grow-site infrastructure so it can’t be easily replanted the next season.

“With trespass cultivation you can eradicate, meaning cut down the plants and haul them out, but enforcement doesn’t remove the water dams that were put in, remove the miles of water line, take out the supplies that were brought in including the trash, nutrients, and pesticides, or take out the miles and miles of drip irrigation,” says Nevedal of the ICFA. “When that infrastructure remains in place, that location is a perfect target to be replanted.”

With the grow sites buried deep in national forests, there are no roads to easily remove the infrastructure and, according to Nevedal, dragging it out by hand is unrealistic. Usually, helicopters are required.

But for years the reclamation effort has been put solely on the back of law enforcement without funding or partnerships, so the logistics for coordinated reclamation efforts has been largely out of the picture.

‘May 26, 2020, deputies with the Humboldt County Sheriff’s Office Marijuana Enforcement Team (MET) served one search warrant … During the service of the warrant, deputies eradicated approximately 18,690 growing cannabis plants. Deputies seized and destroyed approximately 818 pounds of cannabis bud.’ From Humboldt County Sheriff’s Office press release. Public domain image

“People have a false sense that law enforcement should be responsible for the cleanup side of things,” Wengert says. “ I can’t express how far from the truth that is. If they had the support, funding, collaboration, and partnerships to spearhead they would do it.”

“I don’t think a finger can be pointed at any one entity or any group for not doing this. It’s a collective effort that, until recently, has really had no funding. And there’s really no one to blame specifically for that, except that people weren’t aware of this problem.”

Top image by Hung T. Vu via CROP 

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On Wednesday, Washington State-based CaaMTech said its patent application for “compositions and methods comprising a psilocybin derivative” has been granted allowance by the U.S. Patent and Trademark Office.

The patent covers a whole range of cannabinoids including THC and CBD, mixed with a wide array of chemicals linked to psilocybin found in certain species of mushrooms.

CaaMTech applied for its first patent in 2017 for engineering novel cannabinoid and psychedelic compounds, and has since filed a hundred more patents related to similar lab work.

At the U.S. patent office, allowance is the final hurdle of examination before a patent is issued.

“The allowance of our first patent application has given a shot of energy to the team that has worked diligently over these past four years to bring it to the finish line,” CaaMTech CEO Andrew Chadeayne said in a statement.

CaaMTech’s first of over one hundred patent applications is nearing the finish line! #psychedelics #cannabis #patents #entourageeffect #science #pharmacology https://t.co/NtnREvO4pf

— CaaMTech (@CaaMTechInc) February 10, 2021

The drug discovery firm says its research has shown that cannabinoids work in synergy with psychedelics to activate serotonin receptors, which is a key aspect in treating various conditions including depression, anxiety and PTSD.

“This is essentially the idea of the entourage effect in cannabis applied to psychedelics,” CaaMTech spokesperson Davis Wuolle says. “It’s a really big idea, and the implications are huge.”

Patent protection on the engineering methods and various drug combinations lays the foundation to proceed with clinical trials to develop and produce FDA-approved treatments with larger pharmaceutical companies, CaaMTech says.

A big challenge in clinical trials is getting a high enough dose for the drug to be efficacious, but not so high as to introduce unwanted side effects.

The company says its research shows that far less psychedelic compounds may be needed in combination of cannabinoids to get the same level of medicinal effects. In turn, that could reduce some of the undesired side effects of the psychedelics such as hallucinations and paranoia.

CaaMTech says it’s still working on screening all of the cannabanoid and psilocybin derivatives in its lab to identify which combos have the most potential. The firm has already gathered preliminary data proving the concept for several combinations.

Read more: MagicMed attracts investors to advance its novel psychedelic derivatives library

Interest in the use of psychedelic medicines to mental health conditions has grown considerably in the last year. CaaMTech is putting most of its focus on developing novel drugs using both psilocybin and cannabinoids. Species of mushrooms that produce psilocybin have been used traditionally as medicine for thousands of years.

CaaMTech points out the irony that the U.S. patent office is close to issuing the company its first patent involving two Schedule 1 drugs in the U.S. — that classification denotes substances with no medical use.

The company’s philosophy is to use rigorous science to prove psychedelic drugs can be used safely while meeting modern medicine standards.

Before Chadeayne became CEO of CaaMTech, he helped build up intellectual property for ebbu, a Colorado-based hemp research firm. The startup company’s successful THC-rich cannabis genetic breeding program was a key reason why it was acquired by pot giant Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) for $429 million in 2018.

Top image via CaaMTech

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GTEC has had a string of firsts in the Canadian cannabis market: first to package in glass jars, first to list terpene content on product labels, first to launch the now meme-status cultivar Black Cherry Punch and, most recently, first to launch a legal blunt.

Its brands, BLK MKT and Tenzo, have scored high marks from consumers for delivering on quality when it comes to the weed inside.

Last week, the British Columbia-based producer’s stock got its biggest bump in over a year after the company launched an e-commerce site for registered patients. However, renewed industry optimism has been boosting weed stocks across the board.

Read more: GTEC stock soars after launching patient portal

Read more: US pot stocks have room to run even after Georgia runoff surge, analyst says

Read more: US cannabis banking likely to come ahead of Senate legalization bill

GTEC CEO Norton Singhavon (centre), head of cultivation David Buckle (left), co-founder and VP Mike Blady (right). Submitted photo

‘I want that feedback’

But who’s been driving the decisions at GTEC? Investors? Shareholders?

Consumers and budtenders, CEO Norton Singhavon tells Mugglehead in a phone interview.

Singhavon says he gets a little irritated sometimes when his shareholders tell him to do more stock promotion.

“I’m not gonna put money into stock promotion,” he says. “I’d rather use that money for brand promotion.”

On Twitter, Singhavon openly asks for feedback.

“If my product is not up to par, and I can do better, I want to know. I want that feedback. So listening to consumers, I think is first and foremost, but number two is listening to budtenders,” he explains.

“They’re equally as important because of the consumer interaction,” he continues. “I could talk to a budtender and he or she may have spoken to 40 or 50 people that day.”

While other licensed producers push industrial-scale production, and strive to be “in every single country known to fucking mankind,” GTEC’s business model is to keep things small, simple and nimble — putting out the best product they can on a commercial scale, while listening to what consumers want.

“We basically went out with our brands throwing stuff at a dartboard, and we didn’t know if it would stick,” Singhavon says. “We didn’t know if BLK MKT would stick. We didn’t know if Tenzo would stick.”

Again, with the launch of GreenTec — GTEC’s patient portal — the company listened to ongoing calls from medical users for more access to quality product, but is starting small and seeing how things go.

While other firms have formed entire subsidiaries to serve patients, Singhavon says GTEC’s done the operational bare minimum.

“What I mean by bare minimum was that a lot of people threw tons of money at it,” he says. “They’re greasing doctors and clinics, and giving kickbacks — all sorts of shady stuff that you can’t do.”

An incoming crop from GTEC. Submitted photo, taken Feb. 10, 2021

“We didn’t do any of that. We just built a very basic website that cost us [around] $15K. We hired Melissa [Scheuerman] to run it — she has her salary. And that’s that. If it turns into a wildly successful business, we’ll scale up the team, probably make a more robust website, but for now it’s a low-risk investment,” he adds.

If the portal does $10,000–15,000 per month in sales, it will break even, according to Singhavon. And while the process of registering patients takes time, selling direct-to-consumer has the added benefit of cutting out the middle man. Because it doesn’t have to go through provincial distribution channels like recreational product, GTEC’s margins improve and patients see the associated cost reduction.

But just because Singhavon and his team keep close watch on the collective cannabis consciousness on sites like Reddit, doesn’t mean they hop on every trend. Despite significant excitement among producers across Canada, GTEC has no immediate plans to host farmgate sales.

Read more: Ontario set to be first province to launch farmgate sales this year

In contrast to launching a website, selling weed on-site requires significant resources, and it can also put you in competition with retailers.

Looking into the idea, Singhavon said he was given some unexpected feedback from people working in weed retail: If you’re within five or 10 kilometers, “‘I’m not going to carry your brand, Nort. I love you and I want to support your brands. But if you’re my competitor, man, don’t be expecting product on my shelves.’ And I’m like, holy shit, I never even thought about that.”

At the moment, it’s impossible to separate GTEC’s increased valuation from the din of the pot stock fervor, but at least the company appears to have the mindset and fundamentals for the long game.

Shares in GTEC were up 23 per cent on Wednesday to $0.37 on the TSX Venture Exchange.

Top image via Spiritleaf

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Getting 7–9 hours of sleep is an important factor in maintaining and boosting our immune system. A single night with four hours of sleep results in a 70 per cent reduction in natural killer cell activity critical to a healthy immune system. 

A 2015 study published in the journal Sleep found that people who sleep less than seven hours per night were three times more likely to develop the common cold. Taking the vaccine rollout into consideration, a 2020 UC Berkeley study found those who didn’t get sufficient sleep in the week before they received the flu shot only produced less than 50 per cent of the normal antibody response, rendering that vaccination significantly less effective.

Indeed, getting good sleep serves as a health insurance policy. Insomnia affects between 30–45 per cent of the global adult population at one point in their lives and sleep disorders are correlated with a spectrum of serious health problems, including diabetes, cardiovascular disease, and hypertension. A global experiment involving 1.6 billion people across 70 countries effectively takes place every year called: Daylight Savings Time. The loss of one hour of sleep that occurs in spring results in a 26 per cent increase in heart attacks the next day.

Men who get four to five hours of sleep a night will have a level of testosterone that is 10 years their senior, according to Matthew Walker, the director of the Center for Human Sleep Science at the UC Berkeley and the author of Why We Sleep.

For people stressed about job security or finding work during the pandemic, restless nights can exasperate the issue. Gaining ample sleep improves almost every area of our lives, including increased productivity, energy and cognitive function at work, and an overall calmer and happier mood all day long. In a comprehensive sleep study conducted by the University of Turku in Finland in 2007, people who were sleep deprived had reduced reaction time, a more limited ability to pay attention, difficulty with both short- and long-term memory, trouble with logical reasoning and critical thinking and were not able to switch between tasks as easily. A lack of sleep leads to a 40 per cent reduction in the ability to make new memories, according to a 2007 study published in Nature Neuroscience.

As sleep disorders continue to rise globally, scientists around the world are gathering more data on how vital sleep is for people. These factors are a major driving force for the growth of the global sleep aid market. A recent report by Infinium Global Research estimated the sleep aids market will reach up to US$114 billion by 2025, with a compound annual growth rate of 7 per cent. 

Sleep disorders are majorly caused due to pre-existing health issues, psychological conditions, physical injuries, and environmental changes. Obstructive sleep apnea affects an estimated 17 per cent men and 9 per cent women in America. As of 2019, nearly 30 per cent of the global population experience snoring. The growing prevalence of sleep disorders is creating a surge in demand for sleep aids.

Moreover, as mental stress due to hectic life rises, so do unhealthy habits such as smoking and drinking and lack of physical exercise. This is expected to further augment the demand for sleep aids worldwide.

The Infinium report includes a detailed survey on the consumer preference towards various products in the market. According to the results, majority of the people across the world preferred mattress and pillows as compared to other types of sleep aids. In fact, sleep experts consider traditional sleeping medications as blunt instruments that do not produce the benefits of naturalistic sleep.

Due to the pandemic, spending in many areas, including tourism and entertainment, is depressed, leading to increased spending in health and wellness and upgrades around the house. That’s why investors should take a closer look at stocks related to new sleep-related technologies, mattresses, and household furnishings. When the housing market remains strong, as it has during the last year, mattress sales typically climb.

As the turmoil of the global health crisis continues, here is a look at four sleep-related stocks: Hapbee Technologies, Inc. (TSXV: HAPB), ResMed Inc. (NYSE: RMD), Sleep Number Corporation (Nasdaq: SNBR), and Casper Sleep Inc. (NYSE: CSPR).

Hapbee Technologies, Inc. (TSXV: HAPB) (OTCQB: HAPBF) is a wearable magnetic field tech company that recently has teamed up with Arizona-based software design firm SILSYNC, Inc. to design and engineer a new magnetic signal product that attaches to beds to help customers get a deeper, restful sleep. 

As part of the agreement, Vancouver-based Hapbee will leverage its patented ultra-low radio frequency energy (ulRFE®) technology developed and produced by its partner EMulate Therapeutics, Inc.

EMulate has invested approximately US$70 million to develop its magnetic field technology over the past 15 years, which is backed by 32 patents that relate to Hapbee.

Using the cutting-edge proprietary tech, Hapbee delivers low-power electromagnetic signals in a wearable product designed to produce sensations such as Happy, Alert, Focus, Relax, Calm and Sleepy.

The wellness company expects phase one of the industrial design for the bed-related form factor to be completed this quarter. Pending successful development of the prototype, the product is intended to transmit Hapbee signals such as Sleepy and Relax, enabled via the Hapbee Companion App. 

“The popularity of our Sleepy signal, demonstrated by feedback from early adopters and thousands of hours of signal use, has encouraged us to explore the development of a novel form factor for delivering this sensation, among others,” Hapbee CEO Scott Donnell said. 

Magnetic fields have been used in therapeutic settings for decades, and SILSYNC says utilizing Hapbee’s patented ultra-low radio frequency energy tech will be a gamechanger for the sleep aid space. 

SILSYNC will provide consulting, design, prototype development, testing, validation, and related services for the product.

“SILSYNC’s award-winning engineering team has years of experience designing and prototyping innovative consumer hardware solutions for its clients,” Donnel continued. “We look forward to working with SILSYNC to expand our platform and help subscribers take ownership of how they feel around the clock.”

Hapbee expects the Product’s initial phase of industrial design to be complete in Q1 of this year, and the Company plans to provide further updates as the development project matures.

ResMed Inc. (NYSE: RMD) is a medical device company aiming to improve lives by developing, manufacturing, and distributing innovative medical devices and cloud-based software solutions that better diagnose, treat, and manage sleep apnea, chronic obstructive pulmonary disease, and other major sleeping disorders. 

Over the last decade, The New Dehli-based company has developed a portfolio of world-class sleep aid products and become a leader in the field. This has laid the foundation for strong earnings and sales growth and generated substantial returns for investors over the period.

Sales continue to trend upward in the firm’s fiscal year 2021 after it posted impressive revenue of US$3 billion in 2020. ResMed recently released its second-quarter results, booking a 9 per cent increase in quarterly revenue to US$800 million and a 17 per cent increase in net profit to US$206.4 million. 

“As we navigate through the global pandemic, we have seen great adoption of digital health and an increase in the importance of out-of-hospital healthcare these last 12 months, and that will only expand throughout 2021 as vaccines become more widely available,” ResMed CEO Mick Farrell said. 

Looking ahead, ResMed’s market opportunity continues to grow through a recently launched digital education campaign for consumers and doctors on sleep disorders. With the growing prevalence of sleep apnea, the firm’s goal is to reach 250 million lives in out-of-hospital healthcare by 2025. It also has a massive digital health network with millions of connected devices generating valuable patient data.

Sleep Number Corporation (Nasdaq: SNBR) is a designer, manufacturer, and retailer of custom-designed 360 smart beds. The company is considered a leader in sleep innovation by designing beds that can be adjusted by the user’s desired level of firmness. It also makes additional sleep-related products.

The Minneapolis-headquartered company has invested in advancing sleep science, and its SleepIQ digital technology has helped it gather from nearly 8 billion hours of highly accurate sleep data to provide effortless comfort and individualized sleep health insights.

Sleep Number reported third-quarter year-over-year net sales growth of 12 per cent to a record US$531 million. The company has US$200 million of free cash flow on a US$2 billion market cap, and it also has gross margins that are above 60 per cent. 

“Society is more concerned than ever about health and wellness, and there is an increased understanding that sleep is vital for healthy living. Quality sleep actually boosts the immune system, and our 360 smart beds provide an effortless solution to achieve proven-quality sleep,” Sleep Number CEO Shelly Ibach said. 

Casper Sleep Inc.  (NYSE: CSPR) is a maker of proprietary foam sleep products, including mattresses, pillows, bedding, furniture, and even dog beds. It also sells its sleep technology and bedroom accessories on its e-commerce platform and in 66 retail stores.

The New York-based firm reported US$123.5 million in third-quarter revenue, which dipped 3.3 per cent due to pandemic-related supply chain disruptions. 

Casper Sleep recently hired Walmart’s former Vice President of Supply Chain as Chief Operating Officer to bolster its operating efficiencies across supplier relationships and negotiations, inventory, and logistics.

“We believe the worst of our supply chain disruptions are behind us, and we are well-positioned going forward,” Casper Sleep CEO Philip Krim said.

The firm has an endorsement from the American Chiropractic Association and sells 32 different products to 2 million customers. 

About Mugglehead

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Mugglehead Media Corp. and staging-mugglehead.kinsta.cloud (collectively, Mugglehead) is a news and media publisher dedicated to cannabis, psychedelics, and mental wellness. It is not registered as an investment adviser, broker-dealer or other financial or securities professional with any financial or securities regulatory authority. You understand that no content published by Mugglehead constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Mugglehead does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned on this Site.

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Tilray stock climbed over 40 per cent to US$42.35 when the Nasdaq closed on Tuesday.

The British Columbia-based operator says it will import product to U.K. medical cannabis distributor Grow Pharma to authorized patients in England, Scotland, Wales and Northern Ireland.

It’s the fourth international supply deal Tilray’s reported since the firm said it was combining operations with its rival Aphria Inc. (TSX: APHA) on Dec. 16.

Read more: Tilray first to gain cannabis market approval in Portugal

I feel very proud of this agreement that will enable patients in the UK to have access to a consistent supply of Tilray medical cannabis.

Progress throughout Europe is happening quickly. https://t.co/CVHUkqzLks

— Brendan Kennedy (@BrendanTKennedy) February 9, 2021

Since the $5 billion merger agreement was unveiled, shares in Tilray have surged 438 per cent. The new company will keep Tilray’s name and trade under TLRY on the Nasdaq.

The companies say the deal will create a new leader in the global pot sector after it closes in the second quarter of 2021.

On Feb. 4, Tilray said its medical cannabis products were available in 17 countries around the world after inking a supply deal with Worldpharma Biotech to import product into Spain.

Tilray said last week it’s the first company allowed to sell medical cannabis products in Portugal.

The firm says the Portuguese government awarded it the first national supply contract to sell pharmaceutical-grade weed from its GMP-certified facility based in the country.

Gaining market approval from the Portuguese national authority Infarmed was a big win, Tilray said, because it means more supply deals inside the European Union.

In January, the firm was selected by the French government to supply medical cannabis from its Portuguese facility as part of an 18–24 month experiment in France.

Aphria is also eyeing the growing European medical market. The firm owns a major pharmaceutical distribution business inside Germany, CC Pharma, which signed a contract last month to start selling Aphria’s medical cannabis brand there.

Aphria said Monday it promoted its chief strategy officer and consumer packaged goods veteran, Denise Faltischek, to lead its German operations. The company remains on track to be the first licensed medical cannabis producer in Germany, according to a statement.

Top image via Tilray

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Last week, Field Trip Health — a subsidiary of Canada-based psychedelic therapy company Field Trip Ltd (CSE: FTRP) (OTCQX: FTRPF) — released its Psychedelic Medicine Whitepaper, which outlines in detail the socioeconomic impact of treatment-resistant mental health conditions, the promising efficacy of ketamine- and psilocybin-assisted psychotherapy as well as Field Trip’s approach to treatment.

Publication of the paper was followed by a webinar featuring the firm’s medical directors Dr. Michael Verbora and Dr. Ben Medrano. Since the session on Feb. 3, company shares have risen over 30 per cent to $6.11 on the Canadian Securities Exchange.

The white paper notes that, while a standard definition isn’t widely established, treatment-resistant depression (TRD) is generally classified as depression that hasn’t responded to two or more medications, and accounts for around 30 per cent of cases. In Canada, the 12-month and lifetime prevalence of major depressive disorder is estimated at 4.7 and 11.2 per cent, respectively. Those figures skew nearly twice as high among American adults.

“With rising sociopolitical unrest and economic uncertainty, as well as the impact of the Covid-19 pandemic on daily living and human interaction, this number has been and is expected to continue rising,” the paper reads.

Depression not only weighs on someone’s personal life, but is among the leading causes of productivity loss and disability in Canada and the U.S.

According to the white paper, the economic burden of depression is $51 billion annually in Canada, which includes health care costs, lost productivity and reductions in health-related quality of life. It’s estimated that at in any given week least 500,000 employed Canadians are unable to work due to mental health problems. That cost spikes to $210.5 billion south of the border, with a significant share related to TRD.

Read more: MagicMed aims to mainstream psychedelic therapy with world’s largest ‘Psybrary’

Read more: First Canadian health care workers approved for psilocybin therapy training

Ketamine is cost-effective, efficacious medicine for treatment-resistant depression

But along with a recent surge in enthusiasm for off-label applications of an animal tranquilizer and popular club drug, Field Trip’s report highlights evidence showing ketamine’s strong efficacy in treating depression, especially where conventional therapy has failed. Ketamine is also much less expensive than its close relative esketamine, which is approved in Canada and the U.S. for TRD while the former is not.

“In a cost effectiveness review of Spravato (esketamine), the U.S.-based Institute for Clinical and Economic Review (ICER, 2019) deemed the drug to not be cost-effective in the treatment of TRD and estimated first-year direct medical costs at US$36,500, compared to US$3,600 for ketamine,” states the report.

Ketamine was first introduced in the 1970s, marketed as a safer alternative to existing anesthetics. In the early 2000s it was found to have potent and rapid antidepressant properties at lower doses: “Ketamine can reduce depressive symptoms within two hours of administration, and these effects can be sustained for up to two weeks following a single dose.”

Most conventional antidepressants, selective serotonin reuptake inhibitors (SSRIs), can require months of intake before seeing results, and up to 30 per cent of cases with MDD don’t respond to that class of medication at all.

Read more: Psilocybin therapy 4 times more effective than antidepressants: study

On the other hand, some research shows that a single administration of ketamine reduced suicidal ideation in over 50 per cent of patients.

“Ketamine alone can be used as a psychedelic molecule with antidepressant properties,” reads the paper. “When administered without psychotherapy, ketamine generally provides rapid relief from depressive symptoms for up to 1–2 weeks.”

A patient ‘journey’ through Field Trip’s ketamine program. Chart via Field Trip

Field Trip’s Ketamine Assisted Programs (CORE) include program intake, six ketamine sessions accompanied by a preparation therapy session, and three-to-four standalone integration therapy sessions.  A ketamine therapy session lasts 45–90 minutes, with time afterwards for patients to reflect on their experience.

Data in the report shows that patients who took the program went from severe depression to sub-clinical depressive symptoms, and from moderate-severe anxiety to minimal-mild anxiety.

Unlike other psychedelics, ketamine doesn’t have deep cultural roots and associated ceremonial use. But Field Trip practitioners explain that similar practices to establish “set and setting” are used.

“Set refers to mindset, so we work with everyone to get them into the mindset of change,” explains Verbora, the company’s medical director. “To become lighter, more free, less stressed and improve their cognitive and emotional flexibility. The setting is very similar clinic-to-clinic but at every session the dose can be adjusted as well as the using which can create very different and unique experiences.”

Current evidence suggests ketamine therapy can lead to lasting reductions in depression and anxiety. Chart via Field Trip

“Ketamine is a pharmaceutical drug and there are no historical shamanic practices with the drug. Our clinics are specially designed to offer a calm and relaxing environment. We ask patients to use eye shades and specially curated music to go inwards in their healing. As the type of drugs we are able to use clinically expands and evidence increases we will follow the evidence based protocols (or rituals) that lead to the best outcomes,” he told Mugglehead in an email.

There is no minimum or maximum age to access the treatment but patients are screened for factors that could negatively impact treatment.

“Psychedelics currently are not recommended for those with psychosis or schizophrenia for example,” Verbora says. “Many of our patients have concurrent disorders. Be it PTSD and eating disorders or treatment resistant depression with severe anxiety. We do our best to provide a curated program for these patients.”

As it’s still a controlled substance, ketamine is only administered by physicians and nurse practitioners. 

A session at the treatment center in Toronto costs $300 per hour, and patients signed up to a 16–20 hour program costs up to $6,000. In Canada, to get access to any program, patients must be referred by a Canadian physician, whereas in the U.S. anyone can access Field Trip’s treatments.

Field Trip at the forefront of formalized psychedelic clinics

Field Trip currently has clinics in Toronto, New York City, Los Angeles and Chicago. The company has near-term expansion plans to open two additional clinics in the coming months, including one in Houston, Texas, and as many as 75 more in the next three years.

And on Tuesday, the firm announced the opening of its psychedelic research and cultivation facility in Jamaica, launched in partnership with the University of the West Indies.

Field Trip’s patient lounge in Toronto. Opening last March, its Toronto location is the company’s first medical centre. Image via Field Trip

They also received authorization in January to participate in a  MAPS-sponsored multi-site study of MDMA-assisted therapy to treat eating disorders.

The use of psychedelics to treat mental health conditions is innovating the concept of mental health facilities and treatment centers across North America. With special permits and exceptions from governments, both medical professionals and investors are using hallucinogenic drugs to give rise to a new generation of multidisciplinary psychiatric treatments. 

Read more: Canada grants terminal patients access to psilocybin therapy

Read more: Mydecine to make first legal import of psilocybin mushrooms into Canada

Read more: What Measure 109 means for the future of psychedelic therapy

The profit motive in healthcare is a double-edged sword, says Field Trip founder and executive chairman Ronan Levy.

“On the one hand, it encourages innovation and availability. On the other hand, it can result in profit over quality. Fortunately, to date, it seems most companies in the psychedelic sector are focused on ethical and compassionate operations, so we believe that it’s net positive so far in terms of creating awareness and access.”

Other organizations such as the Pacific Brain Health Centre also offer ketamine-assisted treatment for around US$1,200 per session, and clinical trials with psilocybin for alcohol use disorders. The Heffter Research Institute has ongoing research with psilocybin and substance use therapy.

Top image of ketamine vials via public domain

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On Tuesday, the Canadian pot giant said improved operational execution drove record net revenue to $153 million in its fiscal third quarter ended Dec. 31.

Reflecting upon his first year as CEO, David Klein said he’s extremely proud despite the company’s difficult decisions to right size its production footprint and terminate employees. The top boss says Canopy is more agile to grapple with the Canadian recreational market that’s grown at a slower rate than first anticipated.

“We’re at the end of that transition year and our team has made great progress,” Klein said in a conference call with analysts. “We are firmly on a path to profitability.”

Canopy stock rose nearly 12 per cent Tuesday to $62.35 on the Toronto Stock Exchange. The company’s share price has nearly doubled since the start of the year.

But the Ontario-based company booked a net loss of $829.3 million in the third quarter, which it said was largely driven by a number of impairment and restructuring charges related to late-year cuts. Last December, Canopy shut down five of its Canadian facilities and laid off 220 workers in order to save up to $200 million a year.

Klein said the trend of reporting massive losses will eventually come to end as the firm executes its new strategy across core markets.

Canopy’s sales climbed 13 per cent quarter-over-quarter, driven by revenue increases in Canadian recreational and international medical markets, as well as its BioSteel beverage business and U.S. CBD unit.

Canopy hinges profit hopes on US legalization

Canopy sells Martha Stewart CBD product in 580 U.S. Vitamin Shoppe locations. Press photo

Accelerating its U.S. growth strategy is key to reaching profitability in the second half of its fiscal 2022, Canopy says.

Cowen analyst Vivien Azer asked Klein if he’s confident that Canopy will reach its stated financial targets considering the volatility of the cannabis sector compared to alcohol.

The chief executive pointed to continued growth in the German medical and Canadian recreational markets. But he emphasized how Canopy is already making ground in the U.S. CBD market and is in a unique position to capitalize on THC sales if and when they’re federally legalized.

“So a lot of moving parts, Vivien,” Klein said. “But we feel that we’ve got our arms around enough of the detail to have a high degree of comfort in being able to put these numbers out.”

With Democrats holding power in the White House and Congress, the firm expects significant cannabis reform in America this year. To ensure progress, Canopy and a new coalition of top North American operators, advocacy groups and trade organizations formed the U.S. Cannabis Council to work with federal lawmakers on Captiol Hill.

Read more: Canopy, Curaleaf, advocacy groups join forces to advance US cannabis reform

Hopes are high. Shares in Canopy and the broader cannabis sector have rallied since three top Democratic lawmakers said last week they plan to remove weed from America’s list of Schedule 1 drugs this year.

Senators Cory Booker, Ron Wyden and Majority Leader Chuck Schumer stated a plan to introduce a draft legalization bill early this year with a focus on restorative justice and public health, as well as responsible taxes and regulations.

Canopy is the only Canadian firm with an immediate stateside opportunity when federal legalization arrives. The firm would be able to close its deal to buy Acreage Holdings (CSE: ACRG.A.U) and possibly buy a bigger stake in TerrAscend (CSE: TER), which are both sizable multi-state operators.

“We believe that this legislative package or a combination of reform measures could allow Canopy to enter the U.S. THC market during calendar 2021,” Klein said.

Canopy is already focused on building its U.S. cannabidiol brands, which it expanded in the third quarter with celebrity chef Martha Stewart.

The company released Stewart-branded CBD gummies and tinctures last September, which are sold online and in hundreds of U.S. nutrition stores.

“In just four months since launch, Martha Stewart CBD products have already exceeded the annual sales of over 94 per cent of all CBD brands sold in the U.S,” Klein noted. “And based upon the current run rate, Martha would rank among the top 3 per cent of all CBD brand.”

Canopy expanded the Stewart product line to include pet CBD products this month, which its says has already received record press coverage earning over 1 billion media impressions.

Read more: Martha Stewart and Canopy Growth release CBD dog treats — but are they safe?

Canopy’s Houseplant Grapefruit THC-infused beverage is sold across Canada. Press photo

Steady, not significant, growth expected in Canadian adult-use market

North of the border, Canopy’s third-quarter Canadian recreational market share ticked up to 15.7 per cent, compared to 15.5 per cent in the previous quarter.

The firm’s beverages reportedly captured 34 per cent market share, even as new beverage brands have entered the marketplace.

Canopy CFO Mike Lee said beverage sales will remain muted in the country until larger quantity purchases and consumption lounges are permitted.

He added that Canopy’s 80 per cent of sales will continue to be driven by dried flower and pre-rolled joints over the next 12–18 months.

The company expects the Canadian adult-use market to grow 40 per cent this year, relative to a projected $2.6 billion in 2020. In 2023 and 2024, the firm estimates growth of 25–30 per cent.

Canopy booked an adjusted earnings before interest, taxes, depreciation, and amortization loss of $68 million in the third quarter, compared to an EBITDA loss of $85.7 million in the second quarter. The firm expects to hit positive adjusted EBITDA during the second half of 2022.

Cash and short-term investments were a reported $1.59 billion as of Dec. 31, down from $1.72 billion Sept. 30.

Top image via Canopy

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