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CB1 Capital CIO Todd Harrison on Banking Reform as Catalyst for US Cannabis Space

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

CB1 Capital Management CIO Todd Harrison shares his opinion on 2019 cannabis industry catalysts. He discusses the possibility of the World Health Organization voting on the rescheduling of cannabis in March; however, he believes the issue is more likely to be addresses in 2020. Harrison is optimistic that recent comments by the nominee for US Attorney General, William Barr, will lead to reconciliation between state and federal law as it pertains to cannabis. Harrison emphasizes the importance of banking normalization and reform for the US cannabis industry and believes when such reforms are enacted, institutional investors will flood the space. While cannabis is a crop worth $300 billion worldwide, CB1 Capital also sees it as an ingredient with a $1 to $2 trillion market cap globally. Harrison likes multi-state operators like iAnthus Capital Holdings Inc (CNSX:IAN) (OTCMKTS:ITHUF) (FRA:2IA) and KushCo Holdings Inc (OTCMKTS:KSHB) as a picks-and-shovels play.

Transcript:

Todd Harrison: How you doing James?

James West: I’m rocking the free world thanks. A bit of a dip in at least a pause in the effusive upside in the cannabis space lately today.

Todd Harrison: Yeah, a little bit. It’s called gravity. I mean, I think that MJ is up 60 some odd percent from the December low in a straight line. So, you know a little back end fill probably makes sense you could argue it’s healthy, but seeing a lot of rotation between Canada and the US.

You know, we got a lot of catalyst in front of us. I think we talked about it last time we were on the show in terms of some of the things we’re looking at going forward, but happy to walk through those two with you.

James West: Yeah, you bet tell me about the catalyst you see going forward.

Todd Harrison: Well, I mean there’s a few that we just had you know, the WHO, this was very odd in November, the World Health Organization actually, you know came out with your recommendation for cannabis their recommendation to the United Nations regarding rescheduling.

Whether or not that can make it into the March vote for the UN remains to be seen that’s been a lot of chatter soft chatter that this is going to be a 2020 vote but hope springs eternal, you know, if we can get this thing rescheduled on global basis at think it’s going to open up a lot of doors. So that’s one thing the other thing I think that just happened that’s waking some people up is the attorney general or the new Attorney General William Barr had come out with some constructive comments regarding states’ rights and respecting states’ rights and also the desire to reconcile federal and state law.

So that’s you know, that’s lent a little bit of a positive backdrop on the US space particularly, but I think what everybody’s sort of focusing on and hoping for is banking reform and we’ve talked about this for the entirety of the time that we’ve been on the show together, but the ability for the US banking system to sort of get out of the 1950s and get with the program here is really going to open the doors not just for these operators to be able to you know to get some debt financing in place which is going to change the balance sheet, but also for US institutions and for these names like the Black Box of the world who have said they want to enter the cannabis space as soon as they can get somebody to clear these trades that sort of the oxy moment for cannabis. I think at least in the US, but I think globally.

James West: Hmm. That’s a lot. That’s a lot to ingest the, you know, the cannabis sector had been treating in lockstep with broader markets is represented by the S&P Q4 2018 and now that seems to be broken.

The cannabis stops are now outperforming the S&P and even in a day like today where the S&P was more or less sideways we have a day where the cannabis sector is almost entirely in the red, now apart from the expected cycle of profit-taking against multiple up days by shorter term traders and the longer-term trend towards accumulation by an ever-growing circle of global investors.

What is the outlook in your opinion for the correlation between daily performance of the S&P versus the cannabis sector generally and how can we sort of play that as individual investors observing the interaction between these two metrics?

Todd Harrison: I think it speaks to broader risk appetites, you know for the US and I remember we were we were talking right at the beginning of January and we were talking about how last year everybody was thinking about how the year was going to be gangbusters and we saw how it ended and coming into this year. Everybody was sort of resolve to the fact that we’re in a bear market in that we’re going into recession at things were really sour. Obviously. You’ve had a 180 by the FED. You’ve had a lot of tweets by our president regarding the tariffs and trade War reconciliation.

And then you had I think primarily, you know, a lot of people all sides a lot of people from a positioning standpoint sold a lot of stocks in the fourth quarter thinking that you know, there were some rough sledding ahead and certainly I think you’re seeing a race up a bit of a long squeeze now to the upside as folks are trying to get their exposure on but you know, listen we continue to like our you know our space, you know the but you know the rally notwithstanding, you know, if you kind of look back to wear this space was in October. We’re still about 20 percent using again the MJ as a proxy but across the board.

You can look at these names as hear about 20 percent off where we were in October. So, you know looking forward for the next however many years, you know, I think our space has a lot of tailwinds. I think our space has a lot of growth that’s one of the few sectors where you’re going to see this exponential growth not only domestically but globally where the conversations and things like tech or really about a deceleration.

So, we like this as a relative playing like this is an absolute play. But the one thing that I will note at the risk of speaking too much once again as we continue to see it just a tremendous amount of paper in the marketplace, deals every day 5-10 more deals good companies looking for financing good companies looking to go public. So, there’s a lot of supply out there, which kind of brings us back to the question of banking reform and when will institutions be able to step in and just swallow this supply.

James West: Hmm and is that what is pent-up is that much demand, once the banking sort of rules homogenize across borders.

Todd Harrison: I mean we think so. I mean again, you know, you look at cannabis and we always kind of throw this math around but as a 300 billion-dollar global crop as a flower right? As an end product, if you contemplate that 300 billion as an ingredient, which is how we look at the world right.

Cannabis and hemp are probably the most ubiquitous in agile ingredients in the world and certainly as more people understand what this is in terms of wellness in terms of health care in terms of being good for you not as discretionary vice.

Again, we look at this a bit differently, you know, we see this as a one to two trillion-dollar market cap in about 10 years versus call it, you know, 50, 75, even 100 if you want to round up for some privates right now. So, we think that yes, we do think that the institutions are going to be sort of the turn key for this. We can’t really point to exactly when that’s going to happen, but we internally here see that as a first half of 2019 sort of dynamic.

We’re looking at just at the US MSOs. You’re talking about probably five billion top line on the street. That’s way too much money to be floating around the streets. So, we think is a function to need is a function of safety into the function of really banks wanting to get their piece of the pie. This is going to happen sooner rather than later.

James West: Okay great. Todd, just in parting. What’s your favorite stock of the day today?

Todd Harrison: Oof, It’s like asking me what my favorite child is, but certainly like iAnthus coming out of this deal, which is supposed to close today, iAnthus this and MPX. We think iAnthus, think Green Thumb and Acreage have pretty good-looking charts.

Kush Bottlers is another one, you know, there’s going to be a lot of I think US institutions that are going to have moral qualms about touching the plant we think Kush is probably really well positioned as a picks and shovels play for the Cannabis space. So, I would say I would say those four if I was going to be marked until next time we speak.

James West: Awesome, Todd. Well, I look forward to that. Talk soon. Thanks for joining.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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