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Report on Business Cannabis Professional Wednesday, July 10: OCS pulls CannTrust products, Valens moves to TSX-V; Morningstar initiates on cannabis; Jay-Z joins Caliva

Cannabis Professional’s daily recap of industry news. View archive here.

Lots going on in the early hours of this Wednesday in weed: CannTrust products are being removed from the Ontario Cannabis Store, Valens GroWorks is facing great expectations as it begins trading on the TSX Venture Exchange, Morningstar is making bold predictions for legalization in the United States and Jay-Z is joining the California cannabis industry.

– Jameson Berkow

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OCS pulls CannTrust products following Health Canada sales freeze

Ontario residents looking to buy cannabis online will no longer be able to purchase most CannTrust products.

The government-owned Ontario Cannabis Store -- and the only cannabis e-commerce retailer in the province -- has removed most of the Vaughan, Ont.-based cultivator’s products from its website. The move follows a sales freeze Health Canada imposed on 5,200 kg worth of dried CannTrust flower on Monday after the regulator discovered that product had been grown in unlicensed areas of the company’s flagship facility in Pelham.

“Due to the Health Canada temporary hold on certain CannTrust cannabis products, OCS has voluntarily removed all affected products from distribution pending the outcome of the investigation,” OCS spokesperson Daffyd Roderick confirmed to Cannabis Professional via email.

It is unclear whether the 23 physical cannabis retail stores currently operating in Canada’s most populous province are also removing CannTrust products from their shelves. The Alcohol and Gaming Commission of Ontario (AGCO), the provincial agency responsible for regulating those stores, did not immediately respond to a request for comment.

In its disclosure of the regulatory violation early Monday, CannTrust said the Health Canada investigation should be complete within the next two weeks. As Cannabis Pro’s Mark Rendell reported earlier this week, CannTrust’s stock has fallen sharply in the wake of Health Canada’s freeze order.

Valens GroWorks moves to TSX-V

When the opening bell rings Wednesday morning, Kelowna-based cannabis processor Valens GroWorks will have officially moved up the public market ladder.

Shares of the British Columbian company will begin trading on the TSX Venture exchange under the ticker “VGW” after spending nearly five years with the same ticker on the Canadian Securities Exchange. It’s time on what is often called Canada’s “entrepreneur exchange” has been a productive one to say the least: debuting in August of 2014 at $0.27 per share and closing its final day on the CSE worth more than $300-million at $3.96 per share.

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The move comes just four trading days before Valens is due to release quarterly results on July 15 after markets close. Last month, the company started construction on a new facility connected to its Kelowna headquarters that, once complete in mid-2020, will boost its total extraction capacity to 425 tonnes per year.

“If Valens were to utilize the full 425 tonnes of capacity in [full year 2020], we estimate this could support $180m-$190-[million] of revenue from tolling, without including any white labeling services,” GMP Securities analyst Ryan Macdonell told clients at the time. “Additionally, the expansion will increase Valens’ white labeling capacity to industrial scale for vaporizers, topicals, edibles, concentrates and capsules.”

White labeling, referring to a process where a company makes generic products on behalf of another company that handles the marketing and branding, could prove to be a major part of Valens future business. As Cannabis Professional reported previously, Canada’s final rules for cannabis-infused foods, drinks and vape products could advantage companies with a white label strategy as they prevent cannabis products from being produced in the same facility as other edible products.

Mr. Macdonell raised his expectations for Valens quarterly results in an early Wednesday note to clients. The analyst now expects revenue of $7-million, from $6.4-million previously.

“The increase is driven by the signs of strong demand for the company’s services including the 4x increase in the size of its agreement with Tilray and the expansion of VGW’s extraction capacity,” Mr. Macdonell said.

Morningstar initiates cannabis coverage

The United States will legalize recreational cannabis by 2023 and the North American marijuana market will be multiples larger just seven years later, Morningstar predicts in a new report.

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The Chicago-based investment research firm formally launched coverage of the legal cannabis sector this week. In its 84-page report, Morningstar initiates coverage of six cannabis companies, noting Canopy Growth, Aurora Cannabis and Curaleaf “offer investors attractive risk-adjusted upside” at current share prices.

Canada’s cultivation market will be worth US$20-billion annually by 2030, the report said. However, the total global market - excluding the United States - will be more than double that total at US$43-billion, Morningstar said, using growing expectations for federal legalization initiatives to pass in the United States as its justification.

“The U.S. cannabis market will be 10 times larger in 2030 than it is today,” the report said, referring to an “easing legal environment.”

“We forecast that roughly 10 [per cent] of the U.S. population in 2030, or roughly 35 million people, will represent the market for the legal recreational cannabis market,” the report said. “This translates into nearly 7,000 tons of annual cannabis demand. Assuming an end-user price of US$10 per gram, in constant dollars, we estimate the total market to be more than US$68 billion.”

Ambitious.

Jay-Z joins Caliva

Jay-Z is “not a ‘Business-Man’! I’m a Business... man!”

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So, in that sense, the famed rapper is combining his business with that of California-based cannabis firm Caliva. Strictly speaking, he will be the company’s chief brand officer, with a particular focus on social justice to advance the efforts of people with criminal records looking to enter the legal cannabis industry.

“Anything I do, I want to do correctly and at the highest level,” Jay-Z said in a statement, adding he had reached out to Caliva following an “extensive search” to find a suitable partner in the cannabis industry. “With all the potential in the cannabis industry, Caliva’s expertise and ethos make them the best partners for this endeavor. We want to create something amazing, have fun in the process, do good and bring people along the way.”

Caliva has a physical store in San Jose, but deliveries a wide range of cannabis products across California.

Jay-Z is just the latest rapper to enter the cannabis space and some have even gone as far as establishing their own businesses rather than work with an established company. Wiz Khalifa and Juicy J both have their own signature brands and 2 Chains launched The Gas Cannabis Company last month.

In Canada, where celebrity endorsements are forbidden, the relationships are a bit more complicated. Canopy Growth, for example, has a relationship with Snoop Dogg to sell his “Leafs by Snoop” cannabis brand here, but due to marketing restrictions, Canadians will know it only as “LBS.”

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