FOMO Returns As Canopy Growth Corp, Aurora Cannabis Inc Set Record Highs

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After a brief and shallow contraction, FOMO returned in a big way today, lead by sector leaders Aurora Cannabis Inc (TSX:ACB) (OTCMKTS:ACBFF) (FRA:21PCanopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1). The resulting whirlwind lifted practically everything cannabis-related in its path, save for a few select issues. We recap the action and examine what lies ahead for the remainder of the week.

Beginning with Canopy Growth, the company announced that it has entered into an agreement to acquire the assets of ebbu, Inc., an American-based hemp research leader. The transaction will complement and accelerate multiple core verticals operating under Canopy Growth’s group of companies.

Perhaps most excitingly for medicinal/neutriceutical cannabis users, Canopy feels that by applying ebbu’s intellectual property, it could potentially and vastly reduce CBD production costs. To put therapeutic pricing into context, pharmaceutical companies like GWPH Pharmaceuticals—creator of a patented version of the cannabidiol molecule called Epidiolex—will charge $32,500 a year per standard dosage. That works out to roughly $2,708/month, or $677/week for the uninsured. Alternatives to pharma grade CBD oil at doses effective enough to mitigate serious conditions like epilepsy aren’t much better. Ultimately, if Canopy Growth can make a breakthrough in CBD oil production costs, it could potentially be a defining revenue driver in time—from the retail CBD market on up. We shall remain engaged with the narrative as the months pass by.

Aurora Cannabis also had an exceedingly strong session throughout. Their run towards record highs—touching $15.22/share just before the close—is supported by New York Stock Exchange up-listing anticipation, set to occur any day now. ACB is higher by ↑281.15% over the past 2-months, and ↑77.08% since came first talked about his company’s U.S. listing timeline on Midas Letter.

Aurora Cannabis COO, Cam Battley: “We’ve previously indicated very clearly that we plan to have a US listing, and now I can say that we’re targeting next month; it’ll be October.”

Aurora Cannabis, in many respects, is mimicking the run Canopy Growth experienced from May 14-May 24 2018, after disclosing via press release imminent plan to up-list on the NYSE. The difference this time around: overall market conditions are stronger, and Cam Battley provided more lead time for ACB investors to build positions. The result: a steadier and more protracted climb than WEED experienced five months ago. No doubt, the company’s decision to pre-release the news well in advance has been a resounding success.

Cannabis Market Regains Its FOMO

It appears the cannabis market’s recent sideways action was only a temporary pause before FOMO would regain its mojo. Collectively, this is best articulated through the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ), which attained a new record closing high today ($26.05 vs. $25.95 reached on September 20th). Every single dip was bought, with the benchmark ETF finishing right at the HOD on strong volume, suggesting continued strength heading into the morning session tomorrow.

For regular Midas Letter readers, recent FOMO iteration 2.0 shouldn’t come as any surprise. On October 8th, we indicated that buy-side cannabis investors would be emboldened if bears couldn’t make a stronger downside thrust. The weakish sell-side activity, combined with a perfect storm of bullish conditions lead to the robust price action we experienced today.

Collectively, today wasn’t just about October 17th—it had everything to do with momentum regarding possible U.S. federal legalization in 2019, and Bruce Linton’s predictions that the cannabis industry can bank legally by Christmas. With this “entourage effect” on overdrive, bears didn’t really stand a chance; not in an rising bull volume environment where short interest is already quite elevated.

If short-positioned investors were hoping that October 17th would be a sell-the-news event, perhaps they didn’t realize that events south of the border would provide more than enough impetus to keep the rally going. For the balance of the week anyway.

Final Thoughts

There are times when being on the wrong side of the trade can have lethal consequences. With serious chatter of U.S. federal cannabis legality, continuous bullish news flow, Canadian legalization media frenzy, high short interest on may Canadian issues, and more, watch for the strong possibility of sell-side capitulation in the next couple of days. If so, it will be an epic display of fireworks we haven’t seen since early January 2018, when merger mania and California legalization dominated investor sentiment. Only this time, the market may be beginning to price-in the real possibly of U.S. cannabis legalization on a federal level—a real scary thought for the bearishly positioned.

Update 8:00 am EST, October 16

Markets are poised for another explosive open:

Canopy Growth: Closed: Oct. 16, 7:55 a.m. EDT · Pre-market 59.25 +2.36 (4.15%)
Cronos Group: Closed: Oct. 16, 7:57 a.m. EDT · Pre-market 12.79 +1.05 (8.94%)
Tilray Inc.: Closed: Oct. 16, 7:57 a.m. EDT · Pre-market 175.00 +9.36 (5.65%)

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