Is the party in Cannabis stocks over?
A couple investors seem to think the run in cannabis stocks is over. I
am here to tell you the Cannabis run is just getting started. If the
run was done… would TWEED be IPO’ing in Canada?
NO.
Certainly the cannabis group of stocks is the most volatile I have ever
seen in my 9 short years on the stock scene. This has been magnified in
Canada with companies like Abattis and Enertopia literally bouncing up
and down like a yo-yo moving double digit percentages every day because
of the legal battle between MMAR and the government. No one knows what
to do, and the emotional tug of war is being played out right in the
SPs of the companies. Great for a trader, not so much an investor
trying to get a toe hold in this sector.
By no means is the cannabis party over.
The massive surges in the SPs of many stocks and subsequent daily swings
in SP is a great metaphor for the battle for legalization. It is
happening, the stocks are surging, but the pessimism and worry are still
there because of 40 years of Drug War propaganda and the simple fact it
is still illegal. The stocks are still on an upward track. Clearly if
they were going to crash back down US companies like CBIS and ENDO
would be back down at $0.02 a share. ENDO is trading 50% below its
share price of last April.
The fact the USA still has not reclassified cannabis is holding this
industry back. The biggest thing that can happen for cannabis is for
the USA to reclassify the drug so business can take the ball and run
with it. This is far and away the single factor holding research
cannabis back, not allowing companies to research cannabis. Even
getting drugs from GWPH approved because it is still considered cannabis
is a nightmare process in the USA.
Nevertheless, the cannabis movement marches forward in spite of the
‘Establishment’s’ unwillingness to let the cannabis issue go.
Even the Establishment is breaking apart on this issue.
George Soros, Bill Gates and now Jimmy Pattison all quietly pushing
this industry forward and on the corporate side of now have giants like
Phillip Morris incubating this industry.
You can pretty much declare the war one, it is only a matter of time and the smart money knows this.
So to answer the pessimist’s question. No, it ain’t over… the cannabis party is just getting started.
Recreation vs. Medical Marijuana
Companies do not have to differentiate yet, but the industry is
developing at lightning speed and companies need to have a grasp on
where this industry is going. One of the biggest things I can’t stress
enough is that the recreational and medical markets will separate at
some point. Right now the two are one and the same and most companies
do not need to differentiate at the moment, but as this industry
develops most companies will need to pick a field to focus on.
Both markets are extremely lucrative and there are obvious synergies
but, the two businesses will require two completely different business
plans and most companies will not have the resources to follow
successfully execute in both markets. In addition, what a medical user
needs may not be what a recreational user want and vice versa. A
medical user will can consume ten times as much as rec user requiring
different pricing models.
Recreational markets will rely heavily on traditional business practices
such as product branding, corporate acquisition, deciding the right mix
of low cost mass production vs. product niches and developing products
based on consumer enjoyment. In the recreational market you will
eventually buy pre-rolled low THC cigarettes for the same price as a
pack of smokes and you will have concentrates as high as 99% THC and
everything in between.
A large part of the industry will follow a model similar to a craft
brewery model while other companies will go after the lowcost pre-rolled
cigarette market. I am sure that is Benson and Hedges plan…
to eventually replace a majority of their tobacco fields with cannabis fields.
Raw weed will eventually be dirt cheap and sold like cigarettes. If
you grow it outdoors, it is even cheaper to produce than tobacco because
of the enormous yields cannabis can produce outdoors. Many people
will prefer a slight coffee like buzz a 5% to 10% cannabis cigarette
will produce than getting fully stoned on a 20% THC joint.
Medical cannabis companies will be developing products based on physical
need and will have a specific array and dose of cannabinoids tailored
to a specific condition. The medical market will be focusing on
developing medicines from raw weed that are 10 to 100 times more
effective than raw weed. Cannabis Oil is the first of many products
that medical marijuana companies will produce. These products are not
intended to get you high and PLPL is developing technology to turn the
high off.
What I predict from my own experience as a medical user…
…within 5 years raw weed will be relegated to the recreational market.
At this point in time, marijuana companies do not have to differentiate
between the medical and recreational markets, but faster than you can
read this newsletter the industry is already changing.
Abattis Bioceuticals Corp. $1.86
ATT:CNX; ATTBF:OTC
Shares Outstanding… 47.6M
Market Cap… $88.5M
Abattis remains a top pick out on the West Coast in the Medical
Marijuana scene. I have ATT/ATTBF firmly entrenched in the MMJ sector
and expect Abattis to follow a track similar to PLPL. Yes I have said
PLPL is a top recreation pick, but PLPL is one of the few companies that
I think will transcend both recreation and medical cannabis. Abattis
has methodically developed a plan of attack and is now executing on that
plan.
- Received their controlled substances licence which allows them to
develop extracts, concentrates and oils from the cannabis they grow.
- Expanded into the US markets developing strategic alliances with companies like Transbyte ERBB
- Owns arguably the top one of the top vegetable concentration technologies which can be readily applied to cannabis.
- Own Vertical Designs, a patented vertical growing technology they
plan on licencing to other growers. Vertical Designs growing
technology maximizes space and light efficiencies allowing for the
greatest yields of indoor hydroponics systems.
Abattis has emerged as the market leader out west and is entrenching
themselves as one of the top medical cannabis companies in North
America, let alone Canada.
Tweed Marijuana Inc. $2.55
TWD:TSXV
Shares Out… 33.5M
Market Cap… $88.8M
Tweed IPO’d today at $0.89. I say $0.89 because that is what the price
the insiders paid. Nobody buying on market will ever see those prices.
GMP opened Tweed at $4.60 which has been promptly sold down to $2.50
which seems like a decent entry point for this much anticipated stock.
Typical of finance guys… they open the stock high and clean out all the
retail who bought in the morning, this tactic really irks me. Yeah,
it’s playing the game… but they are playing against players that have no
idea it’s a game or that they are even playing and are losing 50% of
the shirt in 15 minutes.
But what do you expect… finance guys love picking the pockets of the
guys they are supposed to be serving. It happens time and time again
and with a reputation like GMP… are you surprised?
At any rate, I have Tweed pegged as recreation stock. They are
basically born out of a network of compassion clubs back east and they
spent most of their money buying MMAR strains from different patients in
Ontario which I can accept as a good practice. Tweed has 80 strains of
cannabis so yes they are a medical marijuana company, but clearly their
focus is going to be selling dope to the masses. They have a retail
production/distribution strategy that matches compassion clubs with no
clear plan on developing MMJ products or putting millions into R & D
to bring the industry forward. So I have them clearly pegged as a
recreational player. GMP is going up against the likes of Phillip
Morris… it’s a good thing they are early movers in Canada. They are
going to need the head start.
I expect, Tweed to fully grow into its valuation. I believe Tweed will
sell a lot of pot at very high prices to start padding the bottom line,
but this industry will get very cutthroat within 5 years so I wonder how
they will react to all out legalization with Trudeau. Expect a lot
from the income statement and balance sheet of this company being
Canada’s largest marijuana dealer.
At least expect a lot out of the top line from Tweed. We are not
re-inventing the wheel here… no one should beat Tweed in mass pot
sales. Not in the first few years anyway. The ones with the money will
be the winners in the end because if they fail… they just buy their way
out of trouble.
Tweed. Abattis. Plandai. All have major financial backing.
Enertopia Corp. $0.60
TOP:CNX; ENRT:OTC
Shares Out… 84.2M
Market Cap… $50.5M
Enertopia is another BC licenced producer which I value highly.
Clearly what is happening in Canadian medical marijuana is you are
seeing former MMAR members come together and morph into MMPR licenced
producers. This is obviously the most ethical way of bringing together
the two programs while the courts sort out the individual rights of the
patient. ENRT is a collaboration of MMAR growers including partially
owned
‘The World of Marihuana Productions Ltd.’ and ‘The Green Canvas Ltd.’ The
injunction affects these former MMAR growers the least and it actually
allows for a smoother transition for these growers upgrading their
facilities while allowing a legal avenue to sell their pot
immediately. Another ethical investing bonus is that many medical
marijuana patients will have an easy time accepting the transition of
MMAR grower/Compassion Club retail outlet to MMPR producer/distributor
like Enertopia.
ENRT has put together a strong management team including bringing on
Cannabis Science’s Dr. Melamede to the advisory board. The company is a
little weak on the finance side with a $2.75M private placement still
open after almost a month. On the bright side… the company has
exercised several warrants bringing in a good chunk of change into the
till over the last month. So if you want a private placement and are
late to the party… ENRT is a good second tier play behind Abattis and
Tweed in Canada.
That being said… they overspent on Stuart Gray. $5k a month for social media?
Are you kidding me? Maybe I should start up my promotions company
again. At $5k he better be working the phones. I wouldn’t pay more
than $2,500 a month for my own social media service. That is what I
value an SEO at anyway.
Next Gen Metals $0.36
N:CNX; NXTTF:OTC
Shares Out… 22.4M
Market Cap… $8.1M
Next Gen Metals is a company I will give a shot. Harry Barr is what I
call a try hard. He is somewhat honest although the money that backs
him isn’t always and is typical VSE style money. So ye be warned about
Next Gen. It doesn’t mean that Harry Barr won’t succeed.
Again… cannabis is an established industry and is low risk as long as
you have the money and have a plan which Harry Barr and has both.
Next Gen is angling to be the marijuana venture capitalist on the West Coast. If Jimmy had any semblance of family…
this is what I would be doing right now;
but we all do our own thing and he is the only one with the money in
the family so without him nothing on a large scale gets done.
So I present to you… Harry Barr, Vancouver cannabis entrepreneur/venture capitalist.
Coming back to reality… I really like the plan Harry has set forth at
Next Gen so I am on board. They have set up a conference series in
Canada called the ‘Green Rush Conferences’. There is a US conference
that is similar that completely sells out all the time and is in
extremely high demand. It is not as investment oriented though so Green
Rush as very good market niche with developing a format similar to
Cambridge. Once Trudeau legalizes cannabis in Canada, this conference
will be in every major Canadian city for the next decade just like
Cambridge was and still is. Not only that, because Harry is a first
mover, Green Rush will gain international popularity as an investment
oriented cannabis conference.
What a great idea for a Venture Capitalist, eh?
Create the tradeshows and attract the top Cannabis talent across the country so you have your pick of the litter to invest in.
Next Gen is the Canadian version of Mentor Capital MNTR. They have a
slightly different approach with the tradeshow/VC model; but in the end,
basically a great way to get broad exposure to the industry. I expect
really good things out of Next Gen as the industry makes its way
towards outright legalization in the 2 to 3 years.
Affinor Resources $0.385
AFI:CNX
Shares Out… 35.4M
Market Cap… $13.6M
Affinor Resources is the little engine that could. I can’t help myself and have ignored every other Canadian story in the 5
th
spot except for AFI. So what differentiates AFI from the mountain of
other companies that have announced intentions to pursue the cannabis
industry but have not announced anything concrete?
One thing.
Nick Brusatore.
Nick is a mad scientist hands down. He is cowboy who is gung ho. He is
probably one of the best pot growers this side of the Rockies. All of
Abattis growing technology and growing operations were the
responsibility of Nick. ATTBF had the pick of the litter and they went
with Nick and bought out his Vertical Growing technology for 6M shares.
The recent surge in pot stocks has made Nick an overnight marijuana
millionaire. With getting pushed out at Abattis, he has decided he
wants his own little marijuana company and bought 10% of AFI on the open
market.
That is what differentiates AFI from the rest. Nick Brusatore.
They got a freaking gung ho mad scientist overnight marijuana
millionaire hanging on the bid of AFI. Do I think he is done at 10%?
No.
If the folk at AFI can manage to keep a leash on Nick, AFI could become
quite the sleeper pick. Nick is what I refer to as ‘human capital’ and
is my human capital pick of the bunch. I am buying AFI simply based on
Nick Brusatore. He is a little wet behind the ears when it comes to
investing and business, but that is what the folks at AFI are for… to
guide him along in this area.
I would certainly get behind Nick Brusatore before I would ever get
behind ‘Scott Walters’ or ‘Dean Laidlow’. Who are these people? I
don’t know. But I do know Nick, and I do know he is a great ‘talent’ to
have on the team, even if he did muscle his way on board.
Christopher Skidmore
