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Sept. 26, 2019, 8:55 a.m. EDT

Your investing guide to cannabis 2.0

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By Michael Brush, MarketWatch

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Their task? Develop “quick on and quick off” cannabis products to “enhance experiences” ranging from sports and weight control to sleep and sex.

Hexo offers a cannabis-based “intimate oil” called Fleur de Lune for women meant to be applied to the genital area. It sells a sublingual cannabis peppermint oil spray called Elixir, and a powder to add to drinks or sprinkle on salads called Decarb, which stands for decarboxylated, or dried and activated cannabis powder. It hopes to roll out a sparkling water that acts as a dieting aid by curbing the appetite without making users high.

Hexo wants to dominate the cannabis drink market through a joint venture with Molson Coors called Truss. “The Truss products are phenomenal. They taste great. They work super fast,” says Hexo CEO and co-founder Sebastien St-Louis. ”We think those are going to be a home run.”

He projects that five years from now, low-margin cannabis flower sales will produce 35% of Hexo revenue, down from 84% now. The rest will come from more-profitable cannabis drinks, edibles, vapes, sprays and other derivative products.

Cronos Group /zigman2/quotes/206842762/composite CRON -0.62% : Vapes and hemp-based skin care

Key partner: Altria /zigman2/quotes/208895754/composite MO -1.51%

/zigman2/quotes/206842762/composite CRON 7.97, -0.05, -0.62%

With a $2.4 billion investment in hand from cigarette maker Altria, Cronos should be a strong contender in vapes. But it’s also getting into a broad array of other consumer products.

Cronos recently bought a company which sells hemp-based skincare and cosmetics products under the Lord Jones brand. They’re sold through Sephora, SoulCycle and other venues. “The beauty area will be a huge segment for a lot of these companies,” says Bauer.

In the second quarter, Cronos hired a chief innovation officer, Todd Abraham, to lead the effort to develop edibles. His background is in food science and product development at Procter & Gamble, Mondelez and Pillsbury.

Cronos already has brands. It sells specialized strains under names like High Expectations for “people who don’t take life too seriously,” and Spinach, a “farm to bowl” variety for “people who are sick of hearing about kale.”

OrganiGram /zigman2/quotes/209289540/composite OGI 0.00% : Fast-acting nano-based cannabis chocolates and drinks

Key partners: Hyasynth Biologicals, PAX Era

/zigman2/quotes/209289540/composite OGI 1.22, 0.00, 0.00%

Organigram has a “nano” technology that breaks down cannabis for fast-acting chocolate edibles and powders for drink mixes. These products take effect within 10 to 15 minutes, compared to much longer for the typical edible. The company has teamed up with PAX Era, which sells a pen and pod vape. Organigram plans to launch vapes, chocolates, and powder products in early 2020. It’s shopping for a partner in infused beverages.

Organigram has teamed up with Hyasynth Biologicals which says it can produce the active ingredients in cannabis using genetically modified yeast, for a fraction of the cost of growing plants. “There are no guarantees it will work out, but we really like that,” says Bauer.

Aurora Cannabis /zigman2/quotes/210559470/composite ACB -5.63% : Pain relief in martial arts

Key partners: Ultimate Fighting Championship and Pax Labs

/zigman2/quotes/210559470/composite ACB 8.71, -0.52, -5.63%

Another big cannabis flower provider, Aurora is branching out into vapes and CBD-based pain relief. The company has a partnership with San Francisco-based PAX Labs for vapes and is running studies with a mixed martial arts entertainment company UFC to test whether CBD can treat pain and inflammation.

Read: Aurora Cannabis stock sinks after analyst says it’s time to ‘sell’

Microcap madness

Microcap speculation is risky. But if you venture down into the land of companies with a stock-market value of $500 million or less, consider these three names:

Auxly Cannabis /zigman2/quotes/205690863/composite CBWTF -0.65% could be a winner given its portfolio of investments in cannabis companies that are developing consumer brands, says Motley Fool’s Flippen.

Consider “picks and shovels” companies with labs that extract active ingredients from cannabis for consumer products. Tim Seymour of Seymour Asset Management, which runs the actively managed Amplify Seymour Cannabis /zigman2/quotes/213290933/composite CNBS +1.37%  exchange-traded fund, likes Medipharm Labs /zigman2/quotes/203412746/composite MEDIF -2.43% . Bauer at the Cannabis Growth fund likes Valens Groworks .

“These are like refineries in the oil market,” he says.

Now read: ‘Don’t smoke the Kool-Aid,’ analyst says in sober note on the cannabis sector

At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush is a Manhattan-based financial writer who publishes the stock newsletter <CROSSREF GUID="{C201D050-36D6-11E9-89CA-25ABF9B2EF90}" DOCTYPEID="" FILE-NAME="" ENCODING-DATE="">Brush Up on Stocks</CROSSREF>.

/zigman2/quotes/206842762/composite
US : U.S.: Nasdaq
$ 7.97
-0.05 -0.62%
Volume: 4.45M
Nov. 25, 2020 4:00p
P/E Ratio
33.08
Dividend Yield
N/A
Market Cap
$2.84 billion
Rev. per Employee
$37,520
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/zigman2/quotes/208895754/composite
US : U.S.: NYSE
$ 40.38
-0.62 -1.51%
Volume: 6.48M
Nov. 25, 2020 7:00p
P/E Ratio
104.94
Dividend Yield
8.52%
Market Cap
$76.20 billion
Rev. per Employee
$2.71M
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/zigman2/quotes/209289540/composite
US : U.S.: Nasdaq
$ 1.22
0.00 0.00%
Volume: 6.99M
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$281.34 million
Rev. per Employee
$49,972
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/zigman2/quotes/210559470/composite
US : U.S.: NYSE
$ 8.71
-0.52 -5.63%
Volume: 34.38M
Nov. 25, 2020 7:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.69 billion
Rev. per Employee
$76,070
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/zigman2/quotes/205690863/composite
US : U.S.: OTC
$ 0.23
-0.0015 -0.65%
Volume: 590,191
Nov. 25, 2020 3:58p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$145.45 million
Rev. per Employee
N/A
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/zigman2/quotes/213290933/composite
US : U.S.: NYSE Arca
$ 16.98
+0.23 +1.37%
Volume: 84,562
Nov. 25, 2020 8:00p
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/zigman2/quotes/203412746/composite
US : U.S.: OTC
$ 0.41
-0.01 -2.43%
Volume: 319,215
Nov. 25, 2020 3:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$65.15 million
Rev. per Employee
N/A
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Michael Brush is a Manhattan-based financial writer who publishes the stock newsletter Brush Up on Stocks. Brush has covered business for the New York Times and The Economist group. He attended Columbia Business School in the Knight-Bagehot program.

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