Canadian Rules on Cannabis May Not Be so Great
Don't be so quick to assume that newly relaxed regulations on cannabis in Canada means a huge market expansion for the entire industry. The new regulations will become official on Wednesday, Oct. 17, making adult use of cannabis legal in all parts of Canada, with specific regions maintaining authority to adjust the rule in some ways. Pot stocks surged on the news. Tilray Inc. (TLRY) - Get Report popped 11.69% on Monday, Canopy Growth Corp. (CGC) - Get Report rose 14.24%, Medmen Enterprises Inc. (MMNFF) rose 9.59% and Aurora Cannabis Inc (ACBFF) rose 11.03%.
Constellations Brands Inc. (STZ) - Get Report Chief Operating Officer Bill Newlands told Jim Cramer at his Action Alerts Plusteach-in event last Saturday that "our view is that in the next 10+ years, this is going to be a $200 billion business worldwide." The industry is currently less than $30 billion.
But there's an issue. Under the Cannabis Act, otherwise known as "The Act," companies are barely allowed to do any sort of branding or advertising. Packaging, for example, must be generic - no differentiation. This raises a question: How many companies will actually expand operations into the country? It would be hard for cannabis sellers to differentiate. "What would you advertise if you can't differentiate?" Smoke Wallin, President of Vertical, a Los Angeles-based cannabis seller, told TheStreet. He added there "could be a very long slow process of discovery where consumers have to find out for themselves." I'm not incredibly moved on these Canadian laws on pot.
More Bank Earnings
Bank of America Corp. (BAC) - Get Report reported stellar earnings on Monday, beating analysts' estimates on both revenue and earnings per share. Like JPMorgan Chase & Co. (JPM) - Get Report and Wells Fargo & Co. (WFC) - Get Report , Bank of America showed that net interest margins expanded as the Federal Reserve has increased interest rates. All those banks also didn't show much weakness in loan volumes.
Goldman Sachs Group Inc. (GS) - Get Report and Morgan Stanley (MS) - Get Report report earnings before the market opens. The key questions won't differ from the other big banks. Although both Goldman and Morgan Stanley are investment banks and don't have big consumer banking businesses, they both have important corporate lending units. Net interest margins and loan volumes will be important. Investors should know how the economy is doing by reading the tea leaves from Goldman Sachs and Morgan Stanley.
As I said in Monday's newsletter, I think we'll see loan volumes get hit harder next quarter and subsequent quarters as more rate hikes will kick in and consumers' wallets will take a hit. Cramer is "worried" about the what he thinks is an aggressive rate hiking path on the Federal Reserve's part, as he noted in his Action Alerts Plus teach-in Saturday.
Netflix Reports Earnings, But Don't Forget These Other Names
Netflix Inc. (NFLX) - Get Report is set to report earnings after the bell Tuesday. The stock is down about 16% since its rough earnings report in July, in which it missed earnings estimates and slashed its guidance. TheStreet's tech columnist Eric Jhonsa said the bar has been now set lower for Netflix, and, of course, the promising stock is way down of late so the earnings print could do investors some good.
Everyone loves to focus on Netflix. But don't forget other important tech names. International Business Machines Corp. (IBM) - Get Report also reports after the market closes Tuesday. It's an interesting stock. It's down about 8.5% year to date. A Morgan Stanley note said "overall IT demand will remain strong." There seems to be some room for a bright earnings report. Be sure to look out for tech earnings in general, and not just the sexy Netflix.