The cannabis sector has had a bit of a rough go over the last year or so, to say the least. In Canada, the worst performing stock on the TSE Composite index in 2021 was Canopy Growth Corp. (TSX: WEED | NYSE: CGC) dropping an abysmal 67% throughout the course of 2021. In fact, you’d be hard pressed to find a single cannabis name that showed a positive return over the year. I looked at about 20 equities and only found OrganiGram Holdings Ltd. (TSX: OGI | NASDAQ: OGI) that bucked the negative trend but that doesn’t mean there weren’t possibly a few more. Nevertheless, 2021 was not the year to be a diehard cannabis investor.

Will 2022 be the time to shine for cannabis? Perhaps, if you are in the correct segment or have the right name. I don’t think we are going to see full on legalization in the U.S. this year that could potentially be the rising tide that lifts all boats. It strikes me that there may be a few more pressing matters on the political agenda that could take precedence over this subject, but you never know. In the meantime, I believe one has to focus on the road to profitability because sooner or later if you need to raise cash to survive in a sector with performance as poor as we saw in 2021 from cannabis it could be very difficult to get your hands on the capital you require to continue as a going concern. That’s why today we are going to have a closer look at Avicanna Inc. (TSX: AVCN | OTCQX: AVCNF).

The Company has a few irons in the fire, so to speak, that are all coming along nicely on the road to positive cash flow. Avicanna is a Canadian commercial-stage biopharmaceutical company established in cannabinoid research, development, and evidence-based products. Avicanna’s scientific platform has resulted in 30+ commercial and proprietary formulations and products including cosmetics, medical cannabis, and pharmaceuticals, in addition to its raw material business unit, which reaches across international markets. The latter, marketed under the Aureus™ brand, has successfully completed sales to 11 countries.

The two business segments I’d like to focus on today are the cosmetic business and the raw materials business. When I see what Kylie Jenner’s net worth is after selling 51% of her cosmetics brand to Coty for $600 million in 2019 it made me stop and think about what kind of money there was in this line of business. Ever since the legalization of cannabis in Canada and parts of the U.S. there has been a lot of hype but not a lot of profits. Recreational cannabis has struggled to compete with the illicit market (and still turn a profit), and cannabis 2.0 also seems to be having a hard time finding traction in the marketplace. Medical cannabis appears to be doing well in certain areas but still has a lot of clinical trials and evidence-based science work ahead of it before it hits the mainstream. That’s why I’m quite intrigued by Avicanna’s CBD derma-cosmetic products marketed under Pura Health & Wellness (H&W) ™ or Pura Earth™. These registered, clinically tested products include a portfolio of functional CBD topical products that have been designed to deliver CBD in synergy with other natural ingredients for specific functional skin benefits.

Source: Avicanna Inc. Corporate Presentation

On December 22^nd the Company announced the brand launch and commercialization in the United States of its proprietary Pura H&W^TM through its exclusive partnership with Red White and Bloom Brands Inc. (CSE: RWB). Avicanna’s skincare line is currently available nationwide across Canada in medical channels in partnership with Medical Cannabis by Shoppers™ and in adult-use sales channels through retailers in 4 provinces. These products are also currently being sold in Colombia and Ecuador with anticipated product launches in the UK, and certain Latin American countries in 2022. I like the kind of revenue that can be generated in this business segment.

Another key differentiator for Avicanna, at least to me, is their established, sustainable and economical cultivation and extraction infrastructure in Columbia. I’ve often wondered why there was such a frenzy to build greenhouses in Canada to cultivate cannabis when you had to anticipate that it would just be a matter of time before far more economic sources of raw materials were available. Aureus^TM is the Company’s business-to-business raw material brand for cannabinoid Active Pharmaceutical Ingredients, feminized seeds, cannabis biomass, and formulations offered with quality testing and tracking. The Company’s extracts include oils, cannabinoid distillates, and isolated cannabinoids (CBD, THC, CBG, and other cannabinoids), and bulk formulations (derived from hemp and cannabis cultivars). Avicanna was ranked highest amongst global cannabis companies in the SAM Corporate Sustainability Assessment in the 2020 Sustainability Yearbook, a sustainability index that has become the basis for numerous S&P Global ESG indices. And as noted earlier, the Company has realized commercial sales of CBD, CBG and THC with exports made into eleven countries. To summarize, their raw materials business is profitable and ESG friendly.

These are just two of what I think are Avicanna’s differentiators but there’s a lot more going on. Their third quarter MD&A was 40 pages long if you’d like to have a read. Another near-term catalyst is agreements signed by the Company with two companies founded by former NBA star Al Harrington for the use of his brands, re+PLAY™ and Viola™. On December 20^th Avicanna announced the launch of re+PLAY™ branded CBD topicals products in Canada across adult use channels in Alberta and Ontario, and medical channels in partnership with Medical Cannabis by Shoppers™. Granted all these late December announcements won’t show up in the Company’s Q4 results but there is definitely momentum. Gross revenue and product sales grew sequentially in each of the first three quarters of 2021. If that trajectory continues in Q4, then the addition of the two incremental deals noted above could make for an exciting Q1, 2022.

With all that said, Avicanna was not cash flow positive or profitable as of the end of their third quarter (Sep 30, 2021) and might not be come year end 2021. However, you can see the direction things are going and make a case for some exciting results in early 2022. With only 46 million shares outstanding and a market cap of C$23 million based on yesterday’s close, there could be a lot of leverage to a quarterly result that shows positive numbers.

“Psychedelics are a multibillion-dollar market….and that is what this industry is banking on. We are product based, we are a premium brand — the Red Light Truffle will be available in smart shops and we potentially could even have products within the smart shops and on an advanced e-commerce platform by the end of Q3. We plan on setting up a facility that we hope one day will qualify for EU-GMP certification. That means that we can grow a perfect clean room medical grade truffle that could potentially be tested…truffles are sold legally in Netherlands…we think we can capitalize with a premium brand feel and with a micro dose responsible use product.” States Todd Shapiro, Co-Founder, CEO and Director of Red Light Holland Corp. (CSE: TRIP), in an interview with InvestorIntel’s Tracy Weslosky.

Todd went on to say that Red Light Holland will have two divisions – Red Light Recreational and Red Light Health. The company is starting with recreational and will have a medical play in the future. Todd also said that Bruce Linton is the Chairman of Red Light Holland’s Advisory Board. Bruce is the founder and former CEO of Canopy Growth Corporation. Under his leadership, Canopy Growth was the first cannabis producing company in North America to be listed on a major stock exchange (TSX) and included on a major stock index (S&P/TSX Composite Index). Canopy Growth was also the first cannabis-producing company to list on the New York Stock Exchange.

To access the complete interview, click here

Disclaimer: Red Light Holland Corp. is an advertorial member of InvestorIntel Corp.

The cannabis market continues to be a trader’s market. It’s not for investors. The difference is the inexplicable random gyrations in the trading of the public marijuana companies’ shares. Up three dollars, down two, up four, down two, then sideways… that’s the average weekly chart in the cannabis space.

It’s a strange market. Good news can send share prices down. News that should crater the stock instead pushes it up. It brings back memories of the internet boom in the late 1990‘s.

Canopy Growth Corporation (TSX: WEED) is the largest cannabis company in Canada. Its current market cap is $5.5Billion, with close to 200,000,000 shares outstanding. Its year high was $44 a share, but those same shares can be bought today for around $28. That’s a $14 per share difference, and that share price difference represents about $2.8Billion in market cap difference. But the company is substantially the same – that $2.8B market cap delta was not driven by a fundamental change in anything except investor sentiment. Value created and destroyed by mere perception, not facts. And that, is a trader’s market.

If further proof is needed, look at Aurora Cannabis Inc. (TSX: ACB | OTCQX: ACBFF). It’s one of our long-term favourites to survive the inevitable carnage in this sector. Its low over the past 12 months was $1.90. One hundred and ninety pennies. Today, it’s trading about $11, after stretching to hit a high of $15.20. With 470M shares out, the market perceives Aurora having created about $4.7B of value over the past 12 months. Not even Aladdin with his magic lamp could do that.

The main reason for the irrational exuberance (thank you Alan Greenspan) is the federal government’s campaign promise to decriminalize cannabis. Investors know the medical market is limited in size, and the real $$$ will be in the recreational space, if it ever happens. Almost everyone takes it for granted that decrim will happen, on schedule, on July 1, 2018, despite the well-known fact a politician on a campaign trail makes more empty promises than does Harold Hill.

Also take into account the potential size of the market. Don’t trust the numbers from people in the market who have a clear vested interest in a huge number. Instead, look to independent data sources, such as the survey of 1,500 Canadians conducted by Abacus Data on behalf of Maclean’s as part of The Canada Project. It found that 84 per cent of respondents over 18 never smoke marijuana, and of the 16 per cent that do, daily users amount to only 5 per cent, and 3 per cent say they use a few times a week.

5 per cent of 32 million Canadians is 1.6M daily users. That sounds like a lot, but consider there are 89 licenced producers with many more applications in the pipeline. That’s not a lot of users to spread around, and it gets worse when you consider that taxation and price controls have not yet been finalized. For many of the LP’s, the only end game will be consolidation or bankruptcy.

Public consultation by the feds only closed three weeks ago on January 20, 2018. The infrastructure issues are so deep, so broad, so regulated by at least three other levels of government, that there is no way decrim can be implemented on the Liberals’ schedule.

We’ve been warning about this since the Liberals started promising in 2014. This will be the fourth year that we’ve warned investors not to trust the government. Every time we’ve pointed this out, traders have objected: “The Liberals promised it and the govt needs the tax revenue. Of course cannabis will be decriminalized.”

The Senate has already indicated it will not simply accept the Liberals’ legislation, and there are still the persistent barriers created by international treaties like the Single Convention that need to be overcome. Even if those huge challenges are overcome, the implementation of the legislation requires a previously unheard-of level of co-operation at the municipal level, across Canada, across ten provinces and three territories.

But the federal government just told the market, NO. The first paragraph from an article in last week’s Globe and Mail summarizes the facts: “Canadians will have to wait until late in the summer before they will be able to legally consume cannabis under a new timeline laid out by the federal government – even if the Senate votes in favour of the legislation by May or June.”

In a slippery bit of news that fell sideways into the media, Health Minister Ginette Petitpas Taylor told certain members of the Senate that the feds will wait 8 to 12 weeks after the legislation is passed (if it ever is passed) before actually decriminalizing cannabis, to give provinces and municipalities the time to create an implementation structure. If the legislation is passed for July 1/18, that means the earliest you can buy weed legally would be for your Thanksgiving party. This dovetails with our warnings that the government’s timeline was impossible (see for example our detailed article from Sept/17).

That interim period is important. It matters because it negatively impacts cash flow. It negatively impacts balance sheets. It impacts business plans and human resources decisions. And those impacts will play out in the market. The market is always wrong in the short term and right in the long term.

If you’re looking for comfort, the Liberals are not the place to look for it. How about this recent blumphus from Public Safety Minister Ralph Goodale: “Our goal is this summer in an orderly fashion with all the pieces sequenced in the right order so that they are effective.” What does that even mean?

So what to do. One, be realistic. Recognize the reality of the real timetable for decrim. You will not be able to legally buy marijuana outside of the medical market on July 2, 2018. Second, avoid business plans whose survival depends on decrim happening at all. Third, avoid business plans whose survival depends on decrim happening in 2018. Fourth, be a nimble trader, not an investor. Wait to be an investor after the cannabis market has its inevitable severe correction.

Or, you can believe the government’s election promise.