September 13 Investor NoteHere's what I'm thinking today and what I sent out to my investor friends:
Two things to note today:
1. Manhattan DA’s office drops more than 3,000 open marijuana cases dating back to; get this….1978 (see article below). The wording they use is, “the action would serve justice and address racial disparities in the prosecution of marijuana offences.” Guys, as we know the prohibition of alcohol ended when the US court system could not get a jury of 12 men and women to find anyone guilty of alcohol crimes. And when no one was willing to say guilty anymore the Feds changed the rules because they were being openly flouted. And with this announcement and others we are again seeing that the Federal rule of the land is being at this point completely ignored. And guys if you don’t invest any money into the US focussed pot stocks the good thing is that you are not going to lose any of your money. And the bad news is that the window of opportunity before the States Act or Hemp Act or a random Trump tweet or a Federal Court decision on unconstitutionality or a combination of these things signals the final end of US prohibition and the stock market goes bonkers. That said I would think Canopy and a couple of other Canadian LPs will go up on good US news because people will think they have a shot of entering the market…although its going to cost them a bundle to enter the US market at this point. Just so you guys know I have reduced my exposure to Canadian LPs and it is now below 10% of the overall. I’ve trimmed Aphria (APH), CannTrust (TRTC), Organigram (OGI) and Hydropothecary (HEXO) to each represent only 2.5% each which means my Canadian LP exposure is now only 10% of the whole. The money has been allocated primarily to Green Thumb Industries (GTII), Charlotte’s Web (CWEB and to bring some of the other players like MPX, CRZ, LHS and IAN to levels that I think will result in jaw droopingly good returns :). I will also be buying Acreage as soon as it IPOs this fall and I will also be buying Cresco when available. I believe I will trim the Canadian LPs further and the money will go into Acreage and Cresco when available. Canadian LPs will probably be trimmed to 5% of the whole within the next 30 days meaning US focussed companies will be 95% because:
A). The margins for Canadian LPs are not going to be very good for some time. The Provincial governments have been to greedy and Canadian LPs are essentially getting wholesale prices because of the enormous government middle man. Old Dougie Ford is back in the drug trafficking business and he wants the same cut he used to get when he was a teenager selling dope to minors. F@ck me its a crazy goddam world and getting crazier all the time. Politics is so bad right now you have to be a complete f@cko to want to enter the arena and deal with the sh*te these a$$holes deal with;
B). Canada has too many producers and a supply glut is coming by mid 2019 at the latest;
C). International deals are not going anywhere and revenues from them are very far out at this point;
D). Canada is out of catalysts to spur further market cap appreciation.
2. In other news in the past two days two companies have announced plans to join forces with biotech companies to begin synthesizing cannabinoids (see article below on what Organigram is trying to cook up in the lab…this really is Breaking Bad kind of chemistry they are trying to get involved with to get the cost of manufacturing cannabinoids lower). Cronos is the other company announcing plans to produce Frankenstein cannabinoids. We have discussed this before and what they are doing is growing THC and CBD from yeast rather than plant cells. They inject yeast cells with cannabis genes and the yeast cells start producing THC or CBD or other minor cannabinoids. The question is how much cheaper is it to produce cannabinoids this way rather than growing plants? And the answer is that it is apparently a hell of a lot cheaper when you get the formulation and production efficiencies going. In terms of next steps this biosynthesis thing is interesting, but a bit further out in terms of how it is going to effect the market so I’m not too worried about it right now, but will be monitoring it closely because it is a disruptive technology that could negatively effect companies that have invested in huge greenhouses to grow plants.