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Why It's So Hard to Bet Against Canada's Marijuana Boom - CannaMaps
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Why It’s So Hard to Bet Against Canada’s Marijuana Boom

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Why It’s So Hard to Bet Against Canada’s Marijuana Boom

Pot’s meteoric rise in Canada has spurred speculation of a bubble, but betting against the boom isn’t so easy.

Short-selling Canadian marijuana stocks is expensive as the values of companies continue to climb and few shares are available to borrow, a key step in betting against a security. The brokerages of top Canadian banks don’t trade those stocks, and smaller firms charge prohibitive interest rates to lend them.

“It’s harder to find that borrow, and that borrow is very expensive,” said Matt Bottomley, an analyst at Canaccord Genuity Group Inc. “It’s a hard industry to short.”

Canadian marijuana stocks have ballooned as the nation marches toward legalization by July. The country’s top four producers are now worth more than C$10 billion ($7.8 billion) after Canopy Growth Corp., the first marijuana unicorn, more than doubled this year, Aurora Cannabis Inc. more than tripled, Aphria Inc. gained more than 180 percent and MedReleaf Corp. has climbed more than 60 percent since its June debut.

Canopy Growth gained 1.3 percent to C$19.43 at 2:06 p.m. in Toronto, while Aurora rose 1.3 percent and Aphria increased 0.6 percent.

While investor optimism is being fueled by estimates that there could be C$6 billion in recreational sales by 2021, Canada and its provinces are still working out the details of how they will regulate, tax and distribute the products, and some publicly traded companies have yet to make a sale. Some analysts are skeptical about their demand projections.

But an investor willing to bet those risks will eventually bring down the value of the stocks would have to pay a high price. The annual interest rate to short Aurora, Aphria or MedReleaf is upward of 20 percent, said Chris Damas, editor of the BCMI Cannabis Report.

The problem is most of the Canadian marijuana stocks are small to microcap companies held by small retail investors who don’t have margin accounts for short trades, said Ihor Dusaniwsky, head of predictive analytics at S3 Partners in New York. The higher loan fee means there’s almost no stock left to short, and some investors who have taken short positions in the market have lost money, he said.

In short-selling, investors sell stocks that they borrowed when prices are high, with a view to buying them cheap later when they have to return the shares to the lender. They profit from the price difference minus the cost of borrowing.

High Cost

The annual cost to borrow Aurora shares for a short position is 26 percent, compared with less than 0.5 percent for most stocks in the S&P 500 index, such as Apple Inc. and Amazon.com Inc., Dusaniwsky said.

“The higher the fee means there’s almost no stock left to short,” Dusaniwsky said in a telephone interview. “No one is making money shorting these stocks.”

The short position in Canopy Growth currently has a notional value of more than $69 million, down 26 percent from a month ago, while the short interest in Aurora Cannabis declined 18 percent to $140 million, according to S3 Partners data. This year to date, short sellers have lost $112 million in Aurora and $33 million in Canopy Growth, Dusaniwsky said.

“If you don’t have short sellers in the market, you have no ability for anyone to bet against a company plus you have no ability to hedge,” Damas said by telephone. “It directly feeds into the massively euphoric bull market we’ve had in these stocks.”

Provincial distribution plans, Constellation Brands Inc.’s foray into the market and Aphria’s deal with a national pharmacy chain have all brought more certainty to the nascent industry and helped spur more retail investment, Bottomley said.

But the boom could “end badly” like previous manias that caused the tech and rare earth bubbles to burst given little short-selling and no bad news to slow down “the runaway train of Canadian cannabis,” BCMI said in a report Wednesday.

Original Article at https://www.bloomberg.com/news/articles/2017-12-14/why-it-s-so-difficult-to-bet-against-canada-s-marijuana-boom

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[Winner] November 1, 2018 Giveaway (Episode 2)

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Automatic Weapons to host November CannaMaps Giveaway!

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Will mega marijuana deal get approval in New York?

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Will mega marijuana deal get approval in New York?

ALBANY — The planned merger of two of the nation’s largest cannabis companies is being closely watched by industry insiders in New York who are wondering just how state regulators are going to handle an acquisition that, on its face, seems to violate state law.

MedMen Enterprises and PharmaCann announced the $682 million deal to stockholders last week, noting that the acquisition would create the nation’s largest cannabis company with licenses to operate 79 facilities across a dozen states, including two cultivation facilities and eight medical marijuana dispensaries in New York.

The only catch?

New York Public Health Law, which allows marijuana for medical use only, prohibits a registered marijuana organization from owning and operating more than four dispensaries in the state. The provision was designed to prevent market domination, even as some argue it limits access for patients who must travel to far-flung destinations to get their medicine.

In response to that concern, the state last year doubled the number of medical marijuana organizations allowed to operate statewide from five to 10 — a move that also doubled the number of allowed dispensaries statewide from 20 to 40.

The four-dispensary-per-company limit remains, however.

MedMen, a Los Angeles-based company known for its high-end marijuana stores, would acquire the assets and licenses of Illinois-based PharmaCann in the stock deal, though it must gain regulatory approval from local and state authorities in each of the markets where those assets are held.

“We are in talks with the regulators in all of the jurisdictions impacted by this acquisition, including New York,” said MedMen spokesman Daniel Yi. “The first step in any acquisition is for the two parties to agree to the terms and enter into a binding contract. Then you go seek approvals from all the relevant regulators. We have begun that process now.”

New York’s Department of Health, which oversees the state’s still-nascent medical marijuana program, said Monday that any merger proposal submitted to the agency for approval must be in compliance with state law. There are also requirements regarding ownership changes, said department spokeswoman Jill Montag.

“Regulations prohibit a registered organization from changing the composition of its ownership without prior written approval of the Department of Health,” she said. “MedMen and PharmaCann do not have approval from the department to conduct this transaction, and at this time the department has insufficient information to determine if approval can be granted.”

MedMen said it expects the transaction to close within six months to a year. It declined to speculate on its plans should New York reject the deal.

“It would not be proper for us to get ahead of the process,” Yi said. “We are currently in talks with regulators and we feel confident about the outcomes.”

In a news release issued Monday, MedMen said that it will use “commercially reasonable efforts” to transition licenses to a third party if it is unable to gain regulatory approvals within a two-year time span, with proceeds going to the company and its investors.

Founded in 2014 in Oak Park, Ill., PharmaCann was one of the five original organizations registered to operate grow sites and retail stores in New York, which went live with its medical marijuana program in January 2016.

The firm quickly became a major player in the industry, and today is considered one of the nation’s leading providers of medical cannabis with operations in Illinois, New York, Maryland and Massachusetts, and planned expansions in Michigan, Ohio, Pennsylvania and Virginia.

Its facilities in New York include a cultivation center in Orange County and dispensaries in Albany, the Bronx, and Central and Western New York.

MedMen, meanwhile, had become a major player of its own, primarily out west, selling both recreational and medical marijuana. It entered the New York market last year when it bought out Bloomfield Industries, one of five original organizations licensed to operate in the state.

But it didn’t garner much attention until this past spring, when MedMen opened its first dispensary in Manhattan on pricey Fifth Avenue. The move appeared to be a gamble that New York would soon legalize recreational marijuana, since the state’s tightly regulated medical marijuana program is small by industry standards and unlikely to generate sizable revenues without significant expansion.

Indeed, New York appears poised to jump on the recreational bandwagon. Gov. Andrew M. Cuomo in January ordered a study into a regulated, adult-use program, and by June the Department of Health concluded such a program would have more positives than negatives.

A task force is currently researching and crafting legislation for consideration in the upcoming 2019 legislative session, and public hearings on the matter are being held statewide.

MedMen said Monday that it has consistently advocated for full legalization of marijuana, as well as an increase in the number of licenses and dispensaries.

“We believe that legal, regulated cannabis leads to safer, healthier and happier communities,” Yi said.

Original Article at https://www.timesunion.com/news/article/Will-mega-marijuana-deal-get-approval-in-New-York-13311377.php

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