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NEWS: The Green Organic Dutchman Completes First Shipment to Ontario Cannabis Store

The Green Organic Dutchman Holdings Ltd. (the “Company” or “TGOD”) (TSX:TGOD) (US:TGODF), a leading producer of premium certified organic cannabis, is pleased to announce that it has completed its inaugural shipment to the Ontario Cannabis Store, marking the Company’s entrance into Canada’s recreational market. Ontario consumers will soon be able to experience TGOD’s acclaimed Unite Organic dried flower, the Company’s high THC signature strain, which will be available on www.ocs.ca as well as at select retail locations across the province.

“We are thrilled to introduce Unite Organic dried flower to Ontario adult consumers. Launched earlier this year with our Grower’s Circle, Unite Organic was highly praised by medical patients.  Our small pilot confirmed that market demand for premium certified organic cannabis exceeds available supply,” commented Brian Athaide, CEO of TGOD.  “Today’s milestone gets us one step closer to achieving our vision of becoming the world’s leading brand for premium certified organic cannabis in both medical and recreational segments.  We look forward to continuing to expand our distribution network as we ramp up production in the months ahead.”

In a recent study conducted by Hill & Knowlton, over 50% of recreational consumers stated that it is important that their cannabis be organic. TGOD’s cannabis is grown in the Company’s proprietary living soil, in accordance with all-natural principles and without irradiation. The Company’s growing process is also certified organic by both Pro-cert and ECOCERT, two leading organic certification bodies, providing consumers with a safe, consistent, and enjoyable cannabis experience.

Initially available to a small group of medical patients called the Grower’s Circle, TGOD recently opened sales to medical patients across the country. The Company has also signed supply agreements with Alberta and British Columbia.

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Mexico’s top court demands regulation on medical marijuana after long delays

Mexico’s supreme court ordered the health ministry on Wednesday to issue regulation within six months on medical marijuana use, saying its failure to do so after legalization in 2017 had put rights at risk for patients, including children.

The court made the decision as part of its ruling in favor of a child who needed medication derived from cannabis substance THC to treat epilepsy.

“Due to the absence of rules regulating the therapeutic use of cannabis, it was impossible for the plaintiff to access treatment based on this substance or any of its derivatives,” the court said in a statement.

The health ministry had been instructed to update its guidelines within half a year following a June 2017 reform to legalize marijuana for medical and scientific needs.

The ministry said in a statement on Wednesday it would comply with the court’s ruling and ensure the child’s access to treatment.

President Andres Manuel Lopez Obrador’s government submitted a bill in November to create a medical marijuana industry and allow its recreational use, part of a crime-fighting plan that would make Mexico one of the world’s most populous countries to legalize the drug.

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Lithium production won’t be able to keep up with longer-term demand

While gold has lured investors from battery metals in the short-term, lithium producers and explorers alike are pointing out current glut fearmongering in the lithium space does not account for longer-term demand, which will be driven by increasing adoption of electric vehicles and energy storage.

Lithium Australia (ASX: LIT) managing director Adrian Griffin told Small Caps that conventional lithium production will not be able to keep up with demand by 2030.

He said the current fearmongering and analyst claims that lithium is heading towards a glut amid a rapid increase in hard rock production and a slower than expected uptake of electric vehicles does not take into account longer-term market fundamentals.

Mr Griffin added that the current oversupply situation is a temporary aberration.

Managing director and chief executive officer of Pilbara Minerals (ASX: PLS) Ken Brinsden agrees.

Speaking with Small Caps, Mr Brinsden said the lithium sector was undergoing a “rebalancing period” and the “market upset” today will be “short-lived”.

China is the only country that processes lithium into lithium carbonate and lithium hydroxide chemicals required for the battery sector.

Mr Brinsden said the current rebalancing period was a necessary stage so that China could move ahead with refining its processing technologies and building more capacity.

While China is refining its technologies, Mr Brinsden said the rest of the world has continued to “go nuts” for lithium – particularly Korea and Japan which are looking to build downstream lithium processing plants.

New chemical manufacturing capacity will be coming online next year, and electric vehicle adoption continues to grow – creating more lithium demand.

Mr Brinsden pointed out that only five years ago the lithium sector was a boutique market with most of the material funnelled into ceramics, medicine and minor end-uses.

He added that Australia essentially only has four base-load mines and even with planned expansions these mines will struggle to meet even Western Australia’s mounting requirements.

Meanwhile, lithium brine explorer BMG Resources (ASX: BMG) managing director Bruce McCracken also shares the sentiment that long-term demand drivers for the material are “becoming increasingly evident”.

“Lithium is perfect for batteries – it is light and energetic,” he added.

Mr Griffin pointed out the current lithium glut concerns were a result of “misinformation, misinterpretation and misunderstanding”

“If global demand for lithium-ion batteries grows beyond the pundits’ wildest expectations, which it seems it may, then conventional sources of lithium supply simply will not cope with demand.”

He said to fill this gap, unconventional lithium sources will be needed.

Electric vehicles drive demand

According to Mr Griffin, about 3.5 million tonnes of lithium carbonate equivalent will be required annually by 2030 for use in electric vehicles alone, with about 50 million EVs anticipated to be on the world’s roads.

He pointed out this demand is underpinned by legislative requirements in the EV space, which require all or most vehicles on the road to be electric by 2030 in numerous countries throughout Europe and China.

Mr McCracken added that McKinsey’s latest research reveals that EV demand will “significantly ramp up” between now and 2025.

“This is a trend we see fuelled by a continuous decline in battery costs and higher energy density,” he said.

Energy storage and electronics pressure industry further

In addition to EV driven demand, the industry will be pressured for more lithium as energy storage and electronic products sectors also continue to grow.

When looking at meeting these global lithium requirements, Mr Griffin said current mining and planned projects and expansions will not meet consumption needs longer term.

He pointed out that 200,000tpa of lithium is currently produced and output from these mines will dwindle as they mature.

“New mines targeting lower grades can fill demand gaps, but alternative sources of lithium may prove more attractive as genuine supply shortages put pressure on conventional production.”

Lithium Australia plans to help fill this gap with its battery recycling and proprietary processing technologies that allow the company to develop lithium chemicals from materials generally deemed as waste including spent batteries, lithium mine tailings and other lithium minerals including lepidolite and petalite.

Meanwhile, lithium brine explorer BMG is about to commence drilling at its joint venture in in Northern Chile, with Mr McCracken pointing out and brine operations offer “several advantages” over hard rock including reduced development times and costs.

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California has the biggest legal marijuana market in the world, despite black market

California is on track to post a record $3.1 billion in licensed cannabis sales this year, solidifying its status as the largest legal marijuana market in the world, according to a study released Thursday by financial analysts who advise the industry.

Legal sales are up significantly from an approximate $2.5 billion in 2018, the first year of licensed cannabis sales in California, according to the analysis by sales-tracking firms Arcview Market Research and BDS Analytics. After a rocky start in 2018, retailers that have survived California’s tough licensing, testing and packaging regulations are “battle hardened” and stronger because of an influx of investment that has allowed them to take advantage of the state’s large population and pent-up demand for legal products, said Tom Adams, managing director and principal analyst for BDS Analytics.

“Any market in the world would be ecstatic about a 23% growth rate,” Adams said. “That is fabulous for any industry to have that kind of growth.’’

But California’s black market for marijuana continues to flourish as high taxes and a refusal by most cities to allow licensed shops makes it cheaper and easier for people to buy from illicit dealers, he said. An estimated $8.7 billion is expected to be spent in the illegal cannabis market in 2019 — more than double the amount of legal sales. Advertisement

The size of the black market continues to trouble many supporters of Proposition 64, the statewide initiative approved by voters in 2016 that legalized growing and selling cannabis for recreational use.

“The illegal market is competitive because legal marijuana is so expensive to produce under Prop. 64,” said Dale Gieringer, director of Cal NORML, which supported the initiative though it preferred other regulations.

Assemblyman Rob Bonta (D-Alameda) tried unsuccessfully this year to win legislative approval to temporarily reduce cannabis taxes.

“It’s abundantly clear that the illicit market is still undercutting the licensed and regulated market,” Bonta said. “The much lower than projected statewide cannabis tax revenue indicates that significant numbers of cannabis businesses remain in the illicit market not paying their taxes, rather than migrating to the regulated market.”

Tamar Todd, an attorney who lectures on cannabis law at UC Davis and UC Berkeley and is vice chairwoman of a state advisory panel on marijuana, said the growth of the legal market and the continued existence of a large illicit market is not a surprise.

More than 20 years after California became the first state to legalize the sale of medical marijuana, it will take years more to move many longtime growers and sellers into a complicated licensing system, she said.

“I personally take a really long view of the transition toward legalization, especially in California that had a really large illicit and quasi-legal market under medical [marijuana law] for 20 years that operated without state oversight and state enforcement,” Todd said.

California remains easily the biggest government-sanctioned market in the nation, topping the $1.6 billion in legal sales projected this year for Colorado, which legalized cannabis in 2014. Legal pot sellers here are expected to sell nearly triple the $1.1 billion in legal cannabis that will be sold this year in Canada, which began allowing pot shops in October.

Adams said California’s legal market this year is also larger than those in Germany, which he projected to reach $240 million this year, and the Netherlands, which he expects will have smaller sales.

The first year of licensed cannabis sales in California saw spending drop from $3 billion to $2.5 billion because many medical marijuana shops closed once licensing began or kept operating outside the legal market. There are currently 583 licensed pot shops in California and 263 licensed home-delivery firms.

The climb back this year is happening “despite these huge levels of taxation and regulatory woes that we think add 77% to the cost of a gram in the legal market versus what it costs on the open market,” Adams said.

Jerred Kiloh’s Sherman Oaks store, the Higher Path, has seen sales hold steady after spiking in the first months after legalization. He said many licensed stores in the San Fernando Valley have seen an uptick in sales because of the city’s enforcement against illegal operators in the area.

But he is skeptical of the $3.1-billion projection because many other pot shops have seen sales declines in the last year as they struggle with a competitive disadvantage against the illegal market.

“If you look at Los Angeles, it’s 10 to 1 when it comes to illegal operators versus legal ones,” said Kiloh, who is president of the United Cannabis Business Assn.

Contributing to the size of the illicit market, industry officials say, some 76% of cities and 69% of counties have banned cannabis stores. Proposition 64 gave local governments the power to prohibit legal marijuana sales in their jurisdictions.

The local control provision of the initiative “requires by design that there is going to be a very long transition period because it’s saying there are communities in California that are going to wait and see and are going to opt to keep an illicit market,” Todd said.

As more states allow cannabis and the federal government changes laws, more cities may decide that it is better to license pot shops than have home deliveries they can’t control come from outside their jurisdictions.

If federal and state law change to allow California cannabis to be legally exported out of the state, that also could reduce the illicit market, Todd said.

The release of the report coincides with the return of the California Legislature for its last two months of work for 2019, and is likely to add urgency to the debate on a cluster of bills aimed at bolstering the legal market and reducing illegal sales.

Lawmakers have shelved a measure that would have cut the state excise tax on cannabis sales from 15% to 11% for three years, but bills still under consideration would fine websites that advertise unlicensed pot dealers and create a state-sanctioned bank for use by cannabis firms.

Assemblyman Phil Ting (D-San Francisco) was unable to get the votes needed for a bill that would have required cities to allow pot shops if their voters supported Proposition 64. But he noted enforcement is stepping up.

“California’s cities and counties need our support to go after the illicit cannabis market,” Ting said. “At the same time, local governments need to do their part and help bring legal cannabis businesses to light, so they can thrive and pay taxes that help fund public services.”

Without changes to make it easier for illegal pot sellers to get licenses and compete, the illicit market will continue to be a significant part of cannabis sales in California, according to the report released Thursday.

Adams’ Colorado-based firm projects legal cannabis sales in California will grow to $7.2 billion in 2024, but illegal sales will still be $6.4 billion that year. More cities are expected to allow pot shops, and state efforts to get illegal operators licensed, in part through tougher enforcement, will help with the shift, officials say.

“Unless the state acts to lower the taxes and lower the regulatory load, they are making the illicit market participants happy campers by keeping them in business,” Adams said.

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Bond markets are sending one big global recession warning

The U.S. bond market just flashed what could be its biggest warning yet of a coming recession, and it is not alone.

The spread between the 2-year Treasury yield and the 10-year yield flipped so that the 2-year was higher than the benchmark 10-year yield for the first time since June 2007. Other parts of the curve have already inverted, but traditionally the 2-year to 10-year spread is the most widely watched by market players.

The U.S. 30-year bond yield fell to a record low early Wednesday, touching 2.015% for the first time ever, dropping through its prior record of 2.08%. Yields across Europe fell, and the German 10-year bund touched a new low of negative 0.65%.

The long end of the curve, or the 10-year and 30-year yields, are reflecting fears about the global economy, so therefore rates have been declining. But the shorter end, the 2-year has not been declining as quickly, since it reflects the Fed funds rate, which is still above 2%.

An inverted yield curve has been a reliable recession indicator, but it does not always precede an economic contraction and the length of time before a recession occurs has varied. According to Credit Suisse, the average length of time since the late 1990s for a recession to occur after inversion was 22 months.

“The bond market is screaming recession. … Just take a look at what the U.S. market is doing,” said National Alliance’s Andrew Brenner. “As I look at the European curve, you’re at record lows across the board … I think the key things today were Germany did show a contraction in their GDP, and the Chinese numbers were weaker.” German GDP contracted by 0.1% in the second quarter as exports fell, and Chinese industrial output growth slowed to 4.8% in July, a 17-year low. Both were impacted by trade wars.

The U.K. yield curve, the spread between the 2-year and 10-year gilt, also inverted, but Brenner said the British bond market was also reflecting concerns about Brexit.

Strategists say that in order to signal recession, the yield curve cannot just flip in and out of inversion, but it needs to stay there for some time to be meaningful. Because other parts of the curve are inverted, this signal is viewed as fairly strong.

For now, the Fed is getting the blame for the recession warning, with many investors fearing the central bank could make a policy mistake by cutting rates too slowly to respond to uncertainties about growth.

“The yield curve does not necessarily mean there’s a recession. A lot will depend on the Fed. And as I have argued the Fed has raised rates too much,” said Joseph LaVorgna, Natixis chief economist, Americas. “Mr. Powell should act more aggressively to respond to this inversion. The sooner they act, the better. A yield curve inversion now is telling you a recession is probably eight quarters away.” LaVorgna said he expects that the time frame is lengthening.

Fed Chairman Jerome Powell has said the central bank will be ready to cut as needed, based on concerns about sluggish global growth, the trade wars and weak inflation.

“The point is the curve is telling you that absent Fed action, growth will slow and inflation with it. It’s telling you where the direction of things is headed,” said LaVorgna.

Strategists at BMO said it’s clear that the market is viewing the Fed as behind the curve because of the fact that the 3-month bill yield has been higher than the 10-year yield since the Fed cut rates last month. The central bank ended its rate-hiking cycle after its December increase. It then stayed on hold for months, and finally cut rates for the first time since the financial crisis at the end of July.

Just as the timing of the economy’s past moves into recession has been varied, the stock market too can take take quite a while to peak after an inversion.

“Sometimes the S&P 500 peaks within two to three months of a 2s10s inversion but it can take one to two years for an S&P 500 peak after an inversion,” according to Bank of America Merrill Lynch strategists. “For the ten inversions back to 1956, the S&P 500 topped out within approximately three months of the inversion six times (1956, 1959, 1965, 1973, 1980, and 2000). The S&P 500 took 11 to 22 months to peak after the other four inversions (1967, 1978, 1989, and 2005).”

Brenner said he doesn’t see the U.S. moving into a recession, with the consumer still strong and making up 70% of the economy.

“I think the Fed will say stuff which is somewhat accomodative for the markets. As far as the U.S. economy, you have no spending limits and you have Trump, Pelosi and Schumer who agree on one thing — they all want to spend,” said Brenner. President Donald Trump, House Speaker Nancy Pelosi and Sen. Minority Leader Chuck Schumer have discussed stimulus spending packages.

The Fed is not alone, with more than 20 central banks around the world cutting rates or taking other easing moves. The fact that rates are so low globally, with $14 trillion in negative yielding debt, has also driven Treasury yields lower as investors around the world reach for yield in the U.S. bond market. Yields move opposite price.

The U.S. yield curve moved in and out of inversion early Wednesday. At midmorning, the 2-year yield was at 1.599%, just under the 10-year, at 1.60%, from an earlier low of 1.57%.

“The Fed is in a tough spot. They have a hard enough time explaining why they cut interest rates in July. If you are also seeing some solidification of core inflation, the chance is they’re less likely to cut going forward,” said Jon Hill, BMO rate strategist. Core CPI showed an unexpected pickup this week. “The market is still debating whether it’s a 25 or 50 basis point rate cut. It’s not a question of whether they’re going to cut. It’s the speed.”

BMO points out the last time the 2-year/10-year spread fell below zero, fed funds were at 5.25%. The range is now 2 to 2.25% after the Fed’s July rate cut.

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