President-Elect Trump’s Position Remains Unclear Tuesday’s

The Cannabis Report

Cannabis-related stocks went on a tear during the month of October, with speculators betting up the

price in advance of expected passage of state recreational legalization efforts. While the election results

may prove mixed for the future of businesses engaged in legal recreational cannabis, the bigger issue for

the near term is that the sector may have gotten ahead of itself, with share price valuations soaring high

into ¡°bubble¡± territory. Based on this alone, pot stocks could be due for retracement and pause, but the

implications of a Trump presidency need to be considered as well.

Pot Stock Rally Stalls in Face of Election Results, Retracement Likely

President-Elect Trump¡¯s Position Remains Unclear

Voters in four states passed state ballot initiatives in Tuesday¡¯s national elections that will legalize

recreational use of marijuana in those respective states. The states of California, Massachusetts, Maine

and Nevada will now join four other states and the District of Columbia in allowing the legalized

recreational use, sale, and consumption of marijuana. A legalization measure was rejected by voters in

Arizona, while three other states approved medical marijuana use, bringing the number of legal medical

marijuana usage states to 28, with an additional 16 allowing various restricted forms of medical usage.

U.S. stocks rallied strongly on the day after the election, but many marijuana-related stock prices fell.

However, marijuana stocks climbed strongly with high volumes in the month preceding the election,

with investors betting election results would benefit companies involved with cannabis. In fact, the

Marijuana Index, which selectively tracks 23 U.S. and Canadian companies focused on the legal

marijuana market doubled during the month. The Index gained 0.6 percent for the day, mainly due to

the strength of its two largest market cap stocks, with nine stocks in the index seeing declines greater

than 5 percent.

While most declines are likely due to profit taking after the October run-up, there may also be some

concern about the election of Donald Trump, along with House and Senate control by the Republicans, a

party not seen as traditionally friendly to marijuana legalization. The legal status of cannabis in America

is complicated by a regulatory regime with competing state and federal overlap and ongoing federal

indecision on how to appropriately follow its own laws. Under federal law marijuana is classified under

the Controlled Substances Act as a Schedule I drug, which is defined as a substance with no acceptable

medical use and a high potential for abuse.

The Obama Administration has opted to not interfere with states that have legalized the drug, but

investors have no way of knowing how Trump and a Republican Congress may decide to address federal

marijuana laws in relation to contrary laws established by states. Trump does not have a written

position on legal marijuana, but has been quoted as saying that both recreational and medical marijuana

should be addressed at the state level. Nevertheless, re-asserting federal government legal oversight

and enforcement in pot-legal states would only take an executive order to the Justice Department, with

such a move likely resulting in sharp declines for cannabis stocks.

So, what¡¯s a pot-minded stock trader to do?

Buy? Sell? Hold? Short?

We point out that with the addition of the new legalized states, legal marijuana is projected to be a $20

billion per year business by 2020, a significant gain from the estimated $5.6 billion in 2015.

Cannabis Sativa Inc. (OTC: CBDS) has seen its share price rise more than 865 percent the past year, rising

from lows below 50 cents to recent highs breaching $8. Through its subsidiaries, CBDS develops,

manufactures, and markets herbal-based skin care products across the U.S. and internationally, and

researches, develops and licenses natural cannabis products comprised of cannabis formulations,

edibles, topicals, strains, recipes, and delivery systems. Included in the company¡¯s mission statement is

to ¡°shape the future of legal marijuana, ¡°brand and market the highest quality cannabis products

available today¡ªand to innovate the future of casual cannabis.¡±

Under its ¡°Hi Brands International¡± subsidiary, the company opened its first branded marijuana

dispensary in Oregon in 2015. Former CEO Gary Johnson, who just ran as the Libertarian candidate for

president, said that Cannabis Sativa is ¡°poised to dominate the [cannabis] industry with the ¡®Hi¡¯ brand

the way Apple leads the electronics and smart phone space.¡± While that may currently seem a stretch,

the company has actively sought legitimacy for both itself and legal marijuana by filling its board and

executives with legal professionals including a former U.S. senator, former state judge and former

commander of the Los Angeles Police Department¡¯s narcotics enforcement program, among others.

While the company has reported improving year-over-year revenue growth the past three years, as well

as declining net losses, the revenues (about $50,000 in the last quarter) are underwhelming at best.

Bottom line is that it¡¯s going to take a lot more revenue growth to justify the stock¡¯s current market cap

north of $100 million, and the stock price could be poised for further near term correction.

CannaGrow Holdings Inc. (OTC: CGRW) is another high flyer that, with an almost 300 percent share price

surge over the past year, has also soared. Especially when considering that annual revenues seem range

bound between $340,000 to $420,000. While the company is one of the few in the pot sector with

positive earnings, those earnings may not justify the plus-$200 million market cap.

The company serves as a lessor, liaison, and consultant to licensed cannabis growers in Colorado, for

whom it provides turnkey setup of growing facilities. With the legal cannabis business on fire in

Colorado, the company is undoubtedly well positioned for future growth. However, like most pot stock

share prices, there likely needs to be some retracement and then a healthy pause, not to mention an

improvement in revenue growth, before the share price can ascend again.

Like CGRW, America Cannabis Company Inc. (OTC: AMMJ) assists businesses and cultivators with all

details of establishing and operating their cannabis enterprises. The company also sells products and

equipment used in marijuana cultivation. Based in Colorado, the company is also well positioned for

possible future growth, especially given since it has expanded its consulting reach into six other states.

Founded in 2013, CGRW has seen its share price rise more than 1,300 percent over the past year, with a

low below 10 cents rising above a recent $2. Quarterly revenue growth has been in slight decline the

past 12 months, but has seen healthy growth since the company¡¯s founding.

Another Colorado operation, General Cannabis Corp. (OTC: CANN), also provides consulting services,

and experienced a plus-300 percent gain in its share price over the past year, with a recent share price

high of $5.19 eclipsing the low of 32 cents. Of the Colorado-based consulting cannabis companies, CANN

appears to have the highest revenue growth rates. Nevertheless, like the others, its share price climbed

to high too fast and may be due for a retracement and a pause.

United Cannabis Corporation (OTC: CNAB) serves as a cannabis consultant and owns intellectual

property relating to the legalized growth, production, manufacture, marketing, management, utilization,

and distribution of legal marijuana and cannabis-infused products. As its story is similar to the other

cannabis consulting companies profiled here, perhaps its intellectual property relating to medical

cannabis can give it a leg up on the competition. Founded in 1999 to investigate potential medical uses

for marijuana, the company also possesses a deep institutional knowledge of the cannabis sector, both

recreational and medical.

The last position on our list, The Scotts Miracle-Gro Company (NYSE: SMG), hit all-time highs on

Wednesday, with some analysts attributing it to the voter approved state legalization measures. The

stock price breached $91.60 during the day, this after climbing 34 percent over the past six months,

attributed in large part to the company¡¯s entry into selling hydroponic equipment for cannabis

cultivation. The company¡¯s marijuana-based boom may not last, but as long-term manufacturer and

marketer of consumer lawn and garden products, $5.4 billion market cap, and dividend yield of 2.26

percent, the stock may be a safe long-term play.

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