Canopy Growth Corp (TSE:WEED) Surge: Benjamin A. Smith Called This Market Move

Midas Letter Lead Financial Writer Benjamin A. Smith shares his thoughts on Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) moving up the charts and describes how he was able to anticipate this rebound. He also addresses Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P) picking up steam and what it means for the large cap names this year. Smith offers his thoughts on 2019 macro catalysts in the sector and the importance of the STATES Act in the US space. He discusses the impact of big names on Wall Street like Piper Jaffray covering the cannabis space and what it meant for Canopy’s recent surge. Smith interprets what Wall Street’s interest will mean for MSOs in the US cannabis sector.

Transcript:

James West:   Hello, Ben!

Ed Milewski:  Ben.

Benjamin A. Smith: Hey guys, hey James.

James West:   Hey, you got a new camera, by the looks of things – you’re in focus!

Benjamin A. Smith: Yeah, looks like the camera thing was indeed the issue here. So technical difficulties have been fixed.

James West:   Now Ben, just to jump right into it, here, you have been making some fair comments to say the least. I mean, in particular, I saw that there was a lot of appreciation for your sentiment that Canopy was going to start moving again. And boom, here we are, and it’s up $5.

Ed Milewski:  Ben told me that when you were away, we were just chatting, he says, keep your eye on Canopy; it’s getting loaded for a move, here.

James West:   Wow.

Ed Milewski:  And there you go, so you wait two weeks, so I know it’s a long time, but-

James West:   So Ben, let us ask you: what is the story, morning glory, behind the move on Canopy today?

Benjamin A. Smith: Well, you know, the big catalyst, of course, is the Piper Jaffray recommendation of Canopy stock; of course, that went a long way. But some of these recommendations from these big analysts won’t necessarily move the stock to this degree unless it’s primed, and I think you’ve been seeing over the past, you know, three or so weeks, that the stock has been base-building, it’s been forming higher lows on the hourly, and it’s been sort of grinding higher in a channel. So while it was primed and loaded for someone to come out like Piper and recommend the stock and sort of send it into orbit. It broke resistance on the top of the channel, and it just, you know, kept flying today. So that was the catalyst: big Wall Street analysts initiating coverage on the stock and getting more analysts into the fray.

James West:   So do you think that Piper coming out with a recommendation like that is the sort of vanguard of larger banking and financial management companies coming into the cannabis space in a public way?

Benjamin A. Smith: Yeah, I think so. I think in a way it was big, because you know, they’re one of the major analysts of Wall Street, and the fact that they’re coming in now and not waiting for the States Act to pass just shows that more players on Wall Street are getting into the game and not waiting for, you know, the States Act or some other legislative events to arrive before, you know, throwing their names in the hat.

So you’re just seeing more adoption and more people and investment banks wanting to get into the space, which is ultimately a good thing.

Ed Milewski: Ten minutes ago I looked at the Midas Letter Index of the large-caps; they were all green, and it was up 12 percent. Do you think – I mean, they were all up; is Canopy leading them, or is it just Canopy is part of the move, but not necessarily the reason why the others are moving? It looks like money is going back into the sector!

Benjamin A. Smith: Yeah, it looks like it. I think Canopy, ultimately, is the straw that stirs the drink in the sector. so the fact that they moved drags all boats up with it. I think the move in Aurora Cannabis was very interesting, as well. Yesterday, I wrote a piece that although, you know, some news pieces came out on Bloomberg, on the Globe and Mail that they actually missed revenue estimates, they only did so – there was only two estimates out there, and both of the estimates were 60 million and 75 million, they were like 25 percent away from each other. So you know, I think people recognize this fact and bid Aurora Cannabis up as well, realizing that, you know, no one really knows what’s going on in terms of, you know, Bay Street analysts’ estimates.

Even Aphria, with earnings coming out on Friday, you have three estimates out there; the consensus, or sorry, the median estimate is 28.3 million, but, you know, the low end estimate is 20 million and the high end is 35. So, you know, some of these estimates don’t really make sense, and I think people realize that in Aurora, and they got swept up in the, you know, Canopy euphoria that happened today.

James West:   Interesting. So do you see any other macro-catalysts in the sector that are likely to either continue to drive the positive sentiment that we see now, or is likely to cause a reversal?

Benjamin A. Smith: Yeah, most definitely. You know, there’s catalysts on both ends of the spectrum. On the Canadian side, you have edibles coming up in Q3, so there are some companies like HEXO Corp that are positioned to capitalize on that – of course, Canopy is another company well positioned to capitalize on that. South of the border you have the States Act, and I don’t think that this is really getting, you know, enough attention – if that passes, of course, you know, Federally and the states sub law and Federal law will be in unison, essentially, and then that will drive more investment banking into the sector because banks won’t be afraid of flaunting money-laundering laws or anything like that. So you know, a lot of American companies won’t need to go to Canada to raise capital anymore; that’s a big, big event for the US MSOs. So yeah, I would say those two are the big drivers.

Also on the Canadian side as well, we have more retail outlets opening up as we go. In April 25 outlets at least will be opening up in Ontario, and that’s big, because I think sales have been stunted to a certain degree by the messy rollout because everything’s only been available online. But once you get the retail going with that and get some of the, you know, branding considerations going with that as well, I think it’s really going to drive sales and make potential post-legalization sales really shine through.

James West:   In the US MSO universe, you know we’re not quite seeing the same level of enthusiasm as we are in the Canadian operator space, and given your comments bout the States Act, does that sort of jibe with what you’re saying, there, Ben, that it’s under-appreciated in the context of a catalyst?

Benjamin A. Smith: I’m not sure about that. I mean, some of the moves in the Unites States with the MSOs have been quite large, lately. Acreage, for example, has gone up almost 100 percent off the lows in about three weeks; a lot of the big ones are up 30, 40 percent, so I think some of the moves down there have been sort of equivalent to what has happened north of the border. So I don’t know. We haven’t seen a lot of press in terms of what’s coming up with the legislative aspects of the States Act, but once a Bill is tabled and that starts to gather momentum in Congress, I think we’re going to hear more about it, and people will get more excited about it, but right now, it’s sort of, you know, it’s something that’s on the radar but sort of dormant at this point.

James West:   All right, Ben, that’s a great update for us. Thank you very much – we’ll come back to you soon.

Original article: Canopy Growth Corp (TSE:WEED) Surge: Benjamin A. Smith Called This Market Move

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