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MONEY IN THE BANK BUT NOT FROM GROWING CANNABIS


Cannabis companies are growing revenue but still losing lots of money. Our SP+GTM algorithm has flashed that signal since 2014, and the red light is getting brighter. Recent numbers from Tilray, Canopy Growth, and Aurora Cannabis have led to significant stock price declines. Nothing new here, if our following are news articles. If you listened to us your portfolio of cannabis stock would thin but profitable. Meanwhile, the “professional noise” called for a significant runup only to die in their tracks. We estimated the entire investment losses for the section since our primary SELL SIGNAL topped $ 22 billion. What! Our SP+GTM algorithm projected a $204 billion sector in less than a decade, but for investors whose interest has been piqued by cannabis stocks, there is still no reason to rush into the publicly traded companies. For the first time since Canada legalized recreational cannabis, pot stocks are reporting earnings. While cannabis company revenue is up, share prices continue to come down. Long-term investors should not be convinced that it is time to buy on the dip. And the declines will be more significant. Over the last month, some of North America's largest cannabis companies saw revenue soar — Tilray, Aurora Cannabis, and Canopy Growth grew the top line by 85 percent, 260 percent, and 33 percent, respectively. But these cannabis companies continue to lose money because the bottom line is earnings per share. Revenue tracking is for amateurs. The deal substance is profit margin cultivating cannabis, which will never happen with the current business models touted by the experts. We said from day one, marijuana is a commodity and must trade as one --- while the experts claim marijuana is an “exotic product with sustainable value. Total noise!

We have been laughed at, ridiculed, and been discounted as an “uninformed spectator.” Now what? Being right is only a virtue to the people that follow us.

In the process we have kept our “powder dry” and not built plants to lose money. At the moment, the business models in-place by the "experts" pegged marijuana selling above $4,200 a pound and built plants accordingly, which were excessive, overpriced and inadequately designed.

Tilray had a net loss of $18.7 million for the quarter (cannabis farms in Enniskillen, Ontario, is the highest unit cost structure in Canada). Canopy Growth: a net loss of $330.6 million. Aurora: a $112 million operating loss. While recreational cannabis use wasn't included in these figures, the numbers show that Canadian cannabis companies are spending far more than they're bringing in because the original costs to cultivate are out of whack.

Costs remain higher than revenue. That fact will never go away for the current players in the cultivation market. What these companies are attempted to do is to capital more expenses to contract costs only to create unworkable balance sheet in the future. While some companies are starting to see the size of their losses slow, not one is profitable, and it could still take years before their business model is modified, and they abandoned many of the current cultivation facilities and recreate more realistic plants. Indeed, these companies are better at growing their bank accounts than cannabis

Investors in early in the game made fortunes — the rest never. Investors who bought in early still have made a boatload of cash, but now the “worm has turned” with possible prices falling at least by 70 percent from where they were trading before legalization day. Noted short seller Andrew Left of Citron Research is short Tilray, Canopy, and Cronos. It will still be months before Canada's pot companies produce enough to meet what appears to be strong demand. Until then, they'll be spending big money on developing more massive greenhouses. For instance, in August, Aurora announced it was starting production on a 1.2 million-square-foot facility, which will take months to build.

These companies also are still trying to figure out how to market their products, while edibles, which our Our SP+GTM algorithm projects will become $4 billion industry worldwide. The black market also offers more choice, lower prices, and faster delivery. The black market still has a good foothold, because of some of the government's missteps. There are delivery services that will come to your door in 10 minutes and have lower prices, so it's going to take some time for this to work itself out.

Stocks may drop further after the government provides cannabis sales figures at the end of this year or early next. Those numbers won't be as strong as people had hoped.

The spin to need investors occupied: For things to take off, though, other countries need to legalize weed. Canada, with 35 million people, is a decent size, but it's small compared to everyone else. If the U.K. legalizes marijuana — and the country did start allowing doctors to prescribe it — and Germany comes around, and if the United States sanctions it on a federal level, then it becomes an industry on par with tobacco or booze. It will still be years before this happens, but Canada's foray into legal weed should push other countries to get there faster. The U.K. did an about-face; it flipped in three months from not allowing medical prescriptions to allowing them. That shows the power of what Canada has done.

Even if you believe in the long-term opportunity, Our SP+GTM algorithm suggests waiting until the first half of 2020 to buy in. Valuations are still too high and will remain so until our business model is embraced. Eventually, they should be more in line with tobacco and alcohol businesses, which trade at around 10 to 14 times earnings.

For now, look for the lowest-cost producers — Aphria, Inc. (APHA) is the only cultivator that has facilities geared to low-cost values and decline in marijuana's commodity prices. Buy AHA at $10.15 per share is overpriced, and a price level below $1.50 would be an excellent entry point. Be patient. SP+GTM algorithm projects its happened in

One factor is a given: cannabis is a fabulous long-term story, a vast market, and potential to make a lot of investors very rich if they believe in our proprietary SP+GTM algorithm.


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