All bets are off

By Corinne Doan

February 9, 2021, was not a normal day.

Two weeks earlier there were mumblings about a website called Reddit and its investment subreddit r/WallStreetBets. It’s an online discussion group for stock investors with reportedly eight million followers. There are several social media sites to exchange information for investments, but WSB dared to do something different. It was able to persuade its followers to join forces. By joining the strengths of the many, they were able to disrupt the power of the few.

A typical goal for a stock trade is to buy low and sell high. Professional analysts do fundamental research using companies’ balance sheets to determine financial health and stability. That helps determine which stocks should be bought or sold. If a weakness is discovered, a sell recommendation is released. Normally, you need to own a stock to sell. However, there is an investment tool called a ‘short,’ which allows an investor to sell stock not owned by the seller. The idea is to sell a stock in hopes the price will drop and can be bought back at a lower price. It’s a calculated risk called a ‘hedge.’ The purpose is to make a profit between the price sold, and the price it is bought back. There is a limit to how much profit can be made with a short because stock prices cannot drop below $0. However, if a stock goes up, there are no limits to how high it might go and that can create infinite losses. When a stock price unexpectantly goes up, investors race to cover their short positions to stem their losses. Simultaneously they cause the price to escalate more creating what is called a ‘short squeeze.’ Hence it’s a high-risk limited reward strategy. Anyone can short a stock but because of associated costs and risk, it is a tool used mostly by wealthy institutional investors and hedge funds.

WallStreetBets identified GameStop as a company many institutional firms were selling short around US$17 per share. To counter the institutional shorts, WSB put a buy recommendation on Game Stop. Astoundingly, a lot of people followed and with so many working together, they were able to influence the stock price to go up. Institutional players had to start buying stock to cover their shorted positions which created more momentum for the stock price to increase—a short squeeze. The stock increased to an astronomical US$483. It was a pyramid scheme that worked. Although it needs to be cautioned, some would have been left holding stock they were unable to sell before the price dropped. And drop it did. The inflated market lasted only a few days. Although it hasn’t fully returned to its pre-Reddit invasion prices at time of writing, GameStop is trading at US$52. The union of people working together like a swarm, to the point it was able to successfully turn around a flailing company’s stock price has never happened like this before.

During the same time frame, cannabis industry stocks were on a bull run. A bull market means there are more buyers than sellers causing stock prices to increase. The new American Biden-Harris administration announced cannabis legalization as part of their mandate. Accordingly, investors started buying, and as a result, cannabis stocks had been on a steady incline for over two months. The momentum was driving cannabis stock prices to become overly inflated.

Additionally, a merger between two of the cannabis industry’s power houses was announced. Tilray and Aphria merged to become the world largest cannabis company eclipsing Canopy Growth. For years Canopy has been at the forefront of the cannabis industry. It has been considered the largest cannabis conglomerate since 2018 when Constellation Brands invested $5 billion. When the Tilray-Aphria merger dethroned Canopy, the cannabis industry was tingling with excitement for new possibilities. Interest persuaded more investors, and the market continued its inflated escalation.

Many cannabis companies have been struggling since legalization. To manage challenges, licensed producers have been shuttering facilities, laying off employees, and making strategic cutbacks to stay afloat. Although it was the largest of all cannabis companies, Canopy Growth was also faced with setbacks. It was widely expected for Canopy to announce more impairments with its next set of quarterly financials. That was the pin prick investors were predicting would deflate cannabis sector stocks.

Canopy Growth’s quarterly financials were released before the market opened on Feb. 9, 2021. It revealed the company had $829 million in impairments (that’s almost a $1 billion lost). The loss was countered with $152.5 million in net revenue. Analysts estimate it could be years before Canopy can be profitable. The bad news should have plummeted Canopy’s stock prices taking the rest of the industry down like a weighted anchor.

Then came Reddit and WallStreetsBets....

Keef drinks coming to Canada

A popular line of US cannabis drinks is coming to Canada.

Keef-brand beverages will be manufactured in the South Okanagan by BevCanna.

Keef is only one of a variety of drinks the company is able to produce now that it’s received a Health Canada Standard Processing Licence.

In the US, Keef brand beverages include sodas, energy drinks, sparkling water, and mocktails. It’s unclear exactly which style of drinks will be available here right away under the licensing agreement BevCanna has with Keef, particularly with Canada's tighter restrictions.

BevCanna’s facility just outside of Osoyoos has a bottling capacity of 210 million drinks per year and owns exclusive rights to a pristine spring water aquifer in Bridesville, BC.

The company says it operates “one of the highest-capacity cannabinoid beverage processing and packaging facilities in Canada.” It can formulate, process and package a variety of formats including PET, aluminum, and glass form factors in different sizes and custom shapes.

Cannabis beverages in Canada are an untapped market, as the least used cannabis category for both men and women (7% and 5%, respectively). Not even heavy hitters, such as Molson Coors, or celebrity backing, Seth Rogen’s Houseplant, have changed drink appeal.

Cannabis sales hit $1.3B in fiscal 2019

Here’s a testament to just how fast the cannabis industry is growing in Canada.

New figures released today from Statistics Canada show $1.3 billion worth of weed was sold during the country’s first full fiscal year of legalization, a significant bump from the $908 million reported in the 2019 calendar year.

The difference between the two surveys is subtle—but the nearly $400-million difference between them is not.

We reached out to the federal statistics agency about the difference and they clarified that the new total number is from the annual retail trade survey, which uses fiscal-year figures.

In contrast, the earlier cannabis sales total came from the monthly retail trade survey, which reports according to the calendar year.

There were a number of factors that accelerated growth.

“Additional cannabis stores opened in 2019, increasing Canadian’s average proximity to brick-and-mortar cannabis stores,” says Statistics Canada.

“Supply chain development, the roll-out of brick-and-mortar stores, the pricing of products and the legalization of new products (e.g., edibles) in late 2019 all supported higher cannabis sales.”

Quick hits

Peanut Butter MAC by BLK MKT

It’s as satisfying as peeling the seal off a new jar of peanut butter.

BLK MKT’s Peanut Butter MAC is smooth and nutty. We dry-herb vaped it using a Crafty, and found this is one to savour.

A cross between Peanut Butter Breath and Miracle Alien Cookies (MAC), this high-THC Indica-hybrid is premium priced; it runs in the neighbourhood of $50 depending on where you buy it. Still, if you'e looking to treat yourself, this is worth it.

We got four beautiful, dense, sticky buds, trimmed with care, in our eighth.

The hefty little glass jar protects the treasure inside, and a Boost humidity pack keeps it fresh. Not that this has been sitting on the shelf long; it was packaged on Jan. 18, 2021, and we picked it up from a brick-and-mortar store only a couple weeks later.

Our lot was 23.54% THC, with 3.28% terpenes, including limonene, pinene, caryophyllene, and humulene.

BLK MKT is popular and gets bought up pretty quick. So if you want it, grab it when you see it.

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