Cannabis CliffsNotes: GGB, Acreage Holdings, Aphria Closes Hindenburg Gap

Benjamin A. Smith

Below are the companies — Green Growth BrandsAcreage Holdings and Aphria Inc. — which have associated stories and narratives we’re focusing on today.

Green Growth Brands

GGB continues to be front and center in the news today—some may argue for notorious reasons. Local CP24/CTV News beat reporter Cristina Tenaglia announced via twitter that controversial ex-Toronto City Council member Giorgio Mammoliti has joined Green Growth Brands in the inaugural position of Director of Government Relations.

For those unfamiliar with Mammoliti’s colorful history, it’s quite extensive. The 28-year political veteran has not been incognito in respect to avoiding political controversy.

In 1994, he was one of twelve New Democratic Party MPPs—the majority provincial government at the time—to break ranks by voting against party leader Bob Rae’s proposed Bill 167, otherwise know as the Equality Rights Statute Amendment Act. The Bill would have provided same-sex couples with rights and obligations mostly equal to those of opposite-sex common law couples. In Giogio Mammoliti’s defense, attitudes on such “traditional values” were far from a settled consensus 25 years ago. But voting against his own party’s legislation didn’t win him any congeniality awards within his own caucus.

In subsequent years, Giogio Mammoliti earned the vitriol (as well as praise) from constituents and political opponents along the spectrum. In 1997, Mr. Mammoliti left the NDP for the Liberal Party after winning election to city council; he filed a human rights complaint against future mayor-elect Rob Ford, after he allegedly called him a “Gino boy” in 2007; on November 26, 2012, Mr. Mammoliti resigned from the mayor’s executive committee after Rob Ford was found guilty of governmental conflict of interest.

There are numerous public squabbles and foibles not mentioned along the way.

To its credit, GGB appears indifferent in regards to past notoriety. Like him or loathe him, Giorgio Mammoliti is a politician known for decisive action. Obviously, he is exquisitely connected at various municipal and provincial branches of government, in Canada’s most influential provincial marketplace. Irrespective of how the company’s bid for Aphria plays out, the move signals that Green Growth Brands is serious about entering Canadian (Ontario) markets—one way or another.

Acreage Holdings

Recently, our friends at New Cannabis Ventures published an article that caught my attention. The piece was authored by Acreage Holdings President George Allen, who gave his take on Five Predictions for the Cannabis Industry in 2019. So far, so good.

While I agree with most of Mr. Allen’s predictions, it was his second one—The Withering of the Canadian Rosewhich struck me as moderately caustic and unbalanced.

No question, the tenor of Mr. Allen’s prophesy in well-grounded. He rightly opines that anticipated States Act passage in 2019 will allow U.S. multi-state operators (MSOs) to thrive, as “the mere notion of investing through Canada to access the U.S. market will be folly.” He concludes that “U.S. companies that had been seeking funding in Canada will pack their bags to return home the moment the STATES Act is signed”, which is likely true since financial institutions would be legally free to conduct cannabis industry business. No longer would American banks be threatened by possible money laundering or “trafficking” charges, with harmonized federal and state law insulating them from liability. MSOs could likely access U.S. exchanges, making Canadian Securities Exchange listings an unnecessary compromise. No question about it—States Act passage would be a watershed moment.

However, Mr Allen goes a couple steps further in his pontifications. He characterizes the relevance of the Canadian cannabis market in a context some may find controversial:

“Canadian pot stocks have enjoyed their 15 minutes of fame on our front pages. But they will soon have to get used to the back end of the business section. In time, Canada will be a mere footnote in the global cannabis story.”

While the U.S. market is 9-times bigger by population, not every state has (or possibly, will) consent to a full adult-use market. Canada’s less hospitable growing climate and lack of Mexican border—a narco state where drugs pour freely through, more or less—makes it much easier for Canada to tamp down on illegal supply. And some states still don’t have caps on the number of available licenses, leading to the margin-busting scenario where massive amounts of excess cannabis are flooding certain states. In fact, Oregon lawmakers are considering preliminary steps towards legalizing interstate exports of marijuana. How many others will follow?

But perhaps most significantly, Canada is light years ahead when it comes to international deployment of assets. To date, I’m not aware of any MSO with material assets outside of the United States, where capital is best deployed domestically at the present time. MSOs should catch-up in due course, but they’ll be years behind some markets that aren’t easily accessible.

Either way, we’ll see how it plays out. I believe U.S. MSOs are some of the most compelling cannabis investments in North America today. Acreage Holdings, in fact, is one of my favorite MSOs investments. However, while Canada may play second fiddle in the years ahead, calling it a “footnote in the global cannabis story” seems perplexing, given LPs inherent leadership in many jurisdictions across the globe.

We’ll agree to disagree on this one George!

Aphria Inc.

In a symbolic show of relative strength, Aphria’s stock price has come full-circle.

Twenty-six days after Hinderburg Research cast a stunning rebuke of the company’s LATAM acquisition strategy, APHA has attained partial retribution. Investors of the Leamington-based LP have pushed shares through the Hindenburg gap-down range today, effectively signifying a psychological Manginot line has been reached.

While this doesn’t absolve guilt or innocence on either side, it appears investors are siding with Aphria on this one. Undeterred from the vitriolic soundbites Hindenburg bandied around, APHA has been bid up consistently over several session—although it’s been a grind. The prevailing sentiment feeling is probably best captured by CB1 Capital Founder Todd Harrison, who recently opined that Aphria’s “assets are worth probably double what the stock prices worth right now.”

Whether that’s true or not is beyond the purview of this article. But if APHA’s price action is any indication, more investors believe that narrative than not.

Aphria is scheduled to release 2Q 2019 financial results tomorrow before the bell.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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