Cannabis stocks have a clear history of surging higher on legal breakthroughs.
For example, US cannabis stocks jumped more than 10% in one day in early April after President Trump swore he would support states rights on cannabis.
That pop triggered an extended rally.
Since then US cannabis stocks have kept rallying, recently hitting a new 52-week high. Take a look below.
Today – I see this same explosive pattern unfolding north of the border in Canada. And just like the US in early April, good news could easily trigger another pop and long-term rally.
The Canadian cannabis industry faces one of its biggest legal hurdles ever on Thursday, June 7.
The Canadian Senate is scheduled to vote on C45, the bill that would legalize recreational cannabis.
This is a critical test for C45.
It is the final vote in a long series of legislative battles and votes that have unfolded over the last 18 months.
If C45 clears this critical Senate vote it sets the stage for recreational cannabis to go legal by late summer.
In the short run, I expect that to give the entire global cannabis sector – and particularly Canada – a nice pop.
In the long run, passing C45 would set the stage for an extended rally in the second half of the year as recreational cannabis finally goes legal.
Even better – this is a great time to invest – many of the best Canadian cannabis stocks are on sale.
Although C45 is generally expected to pass, investors have been taking a cautious approach to the vote.
The Canadian cannabis index is down 22% in 2018 and trading near the year low. Take a look.
Many early industry leaders are trading at huge discounts to the 52-week high.
Some good news on C45 could trigger a big reversal in the Canadian cannabis sector.
If that happens now is the time to be aggressive.
Here is a list of five Canadian cannabis stocks that are trading at least 25% below the 52-week high.
From that group, I am highlighting Cannabis Wheaton (OTC: CBWTF) because it would benefit big from C45 passing and shares are down more than 50% from the 52-week high.
Cannabis Wheaton is a young Canadian cannabis company headquartered in Vancouver that went public last May.
CBW is pioneering a new and innovative business model in Canada’s cannabis industry known as streaming.
Streaming means providing funding to cannabis companies to help them build and expand operations in exchange for an equity stake and a portion of the cultivation production.
This model comes straight from the gold and silver mining industry. In fact, Cannabis Wheaton is actually named after Silver Wheaton (NYSE: WPM), now called Wheaton Precious Metals Corp., a pioneer of streaming in Canada’s precious metals industry.
Today, CBW is taking the streaming model and applying it to the cannabis industry.
Cannabis Wheaton is a direct play on Canada’s high-growth recreational market.
CBW has been busy investing tens of millions of dollars into the most promising cannabis companies and projects all across Canada.
When CBW went public last May it revealed that it had already entered into agreements with 14 streaming partners in 6 provinces across Canada. Today it has more than 20.
That group includes two sales license holders, two cultivation license holders, four affirmation letter holders and six advanced pre-affirmation stage applicants – consisting of licensed producers of cannabis and LP applicants
In February CBW announced it had entered a deal to develop a 1.4 million square foot cannabis greenhouse.
Here are some more details from the press release.
The Company estimates that the Phase I build-out will result in approximately 120,000,000 grams of cannabis per annum and believes there is further potential to increase the Facility’s output with additional technological improvements that will be adapted from Mr. Quiring’s existing greenhouses. GreenhouseCo also has the ability for additional expansion up to a total of 2.8 million square feet of greenhouse cultivation. The Company will assist GreenhouseCo in obtaining its ACMPR license for the cultivation and sale of cannabis (the “License”) through its Wheaton Licensing Program by providing GreenhouseCo with all of the resources and expertise necessary to achieve the License.
CBW is also making moves to expand into the high-growth edibles market.
CBW recently announced a promising deal with Dixie, one of the largest and most popular edible companies in the US, to be its exclusive distributor in Canada and Mexico.
Here are some more details from the press release.
CBW has entered into a definitive licensing agreement with Dixie Brands, Inc. pursuant to which Cannabis Wheaton will have the exclusive license to Dixie’s intellectual property, product branding and formulation methodologies related to over 100 cannabinoid-infused products in Canada and Mexico.
Based in Denver, Colorado, Dixie specializes in developing intellectual property related to a variety of cannabinoid-infused products ranging from beverages to pet treat supplements. Since the founding of the brand in 2009 Dixie has emerged as a leader in the U.S. cannabis industry through its quality products and education and advocacy initiatives.
As you can see CBW is ramping up big-time ahead of Canada legalizing recreational cannabis. That bodes well for sales and income in the next few years.
Despite the promising outlook, shares are down 50% from the 52-week high.
Looking forward I am expecting to see some good news on the C45 vote. If that happens, I expect CBW to reverse and begin trending higher after this extended selloff.
Risks to Consider:
Some of that weakness is being driven by concerns about share dilution. However, despite the rising share count I still think this stock can perform well in the next few years.
The Big Picture:
The Canadian cannabis sector has a key vote on Thursday with C45. I am expecting to hear good news and I expect that to snap Canadian cannabis stocks out of this bear market and into a new rally.