THE BEST DD WRITE-UP THAT I'VE EVER READ This company still remains one of the single best investment opportunities within the entire cannabis sector. This is not to say that the big Canadian LPs will not remain the largest companies on a global scale in the future, because they will (as long as they vertically integrate). BUT The Tinley Beverage Company currently offers the most ROI upside available in the sector. Here are 5 reasons why:
1) Location:
Tinley is located in Southern California, which is arguably the #1 distribution hub in all of North America. It is home to the nation's 2 busiest seaports, 6 major commercial airports, and an extensive freeway system and freight rail system. This all may seem somewhat irrelevant in the early days right now, but down the road when marijuana is rescheduled and legalized on a global scale this will be huge. The population of California is bigger than all of Canada (40 million residents and 100s of millions of visitors annually), yet the geographical area is 24 times smaller. Los Angeles County alone is more populous than 42 individual U.S. states. This type of population density makes it a lot easier for companies to efficiently and effectively reach its target market (both from a marketing and supply chain perspective). It also makes these types of operational activities less costly.
California was also the very first economy in North America to legalize medicinal marijuana (1996), which has resulted in the state becoming the largest marijuana market in the entire world. They already have a full-blown retail market that allows for the sale of numerous forms of marijuana, and they have way less stringent restrictions on branding, marketing, and packaging. There are an estimated 1,150 retail dispensaries spread out across the state (many of which, however, are still awaiting their recreational license) and there is also a wide range of product types available to customers, whereas many other markets (like Canada) still only allow herb and oil. Here are some 2017 figures comparing California to Canada:
-Medical marijuana market size: Canada - $400 million CAD, California - $2.8 billion USD
-Medical marijuana users: Canada – 250,000, California – 1,500,000
It’s probably going to take Canada’s recreational market at least a couple of years to even get to the level that California’s medicinal market is currently at. As recreational sales commence in 2018 in both of these jurisdictions, California will continue to be leaps and bounds ahead of the Canadian market (and separate itself even further as the dominant leader).
And it also doesn’t hurt that the people living in California are influencers…
I am talking about the customer base in Southern California, and mainly Los Angeles, and mainly Beverly Hills and mainly Hollywood. Do you catch my drift? Celebrities, stars, and wealthy people. We know that Tinley has put extensive work into getting their formulations right for both Tinley '27/Tinley Cocktails and Hemplify. With the team that we have, connections that have helped along the way, and personal reputations on the line, there is no doubt in my mind that Tinley's products will be the premium option in the market. They have not spent all this time crafting and perfecting drinks that are just going to be “okay” or “average” tasting…they know from firsthand experience that a high-quality product is more important than any and all marketing efforts. If Tinley can get its products into the right hands then we will witness the brand spread as quickly as the wildfires that have taken California by storm over recent months. Do not underestimate the advertising power of word of mouth marketing and social media, especially when famous celebrities and major influencers are involved.
As the 6th largest economy in the world, and the largest marijuana market on the planet, Tinley's management team could not have chosen a better location to do business.
2) Delivery Method:
THC beverages are going to be a transformational product. Drinking is in our DNA. It is part of almost every single social setting whether it’s a business convention, sports game, restaurant, bar, etc...people love to drink and it has become ingrained into many aspects of our lives. Investors need to put more focus on what the long-term marijuana market is going to look like. I am talking 5-10 years down the road, or even more. Marijuana is going to become just as mainstream and widespread as alcohol is right now. In the future, people are going to look back on marijuana prohibition the exact same way that they look back on alcohol prohibition (and probably with even more confusion than alcohol since marijuana actually has medical uses). And there are going to be WAY more people that enjoy marijuana than there is right now. You will eventually see THC drinks in the same places where alcohol is served today. It is inevitable.
Many people who try marijuana today and have a bad experience or don’t like it, are going into it with a bad frame of mind. As any marijuana user knows, this can have a big impact on your experience. The fact that the plant is illegal immediately weighs on someone trying it for the first time. They feel like they are doing something wrong and breaking the law. So right off the bat they have a negative mindset, which is just amplified by the awareness-enhancing affects that marijuana has, and leads to a bad experience. On top of this, as a kid growing up, marijuana is pooled in with every other street drug, so it is made out to be as life destroying as heroin or cocaine. This can linger in people’s minds. Once marijuana is legal, and widely accepted, the majority of society is going to do a 180 and realize that marijuana has more benefits than it does drawbacks. The stigma will be lifted and more and more people will end up having positive experiences with the plant.
With that being said, there are still going to be a large portion of the population who will not want to smoke it. Smoking, in general, has a negative connotation because it is immediately associated with cigarettes, which everyone knows is the best way to slowly kill yourself. Even though smoking marijuana is not anywhere near as harmful as cigarettes, it will still always have that negative perception about it (until officially proven otherwise), which eliminates a very large customer base. There is a MUCH higher percentage of the population that drinks alcohol than there is that smoke cigarettes.
So, how can a company attract as many marijuana customers as possible? How can it reach the mass population where the most money can be made?
BEVERAGES/DRINKS
Not only is it going to become the number one way that users consume marijuana in the future, but it is also going to be the method that provides the easiest transition for first time triers…especially THC drinks that taste like people’s favourite, go-to alcohol beverage, which they are routinely accustomed to drinking.
With the fairly recent Canopy/Constellation Brands deal, the growth potential of marijuana infused beverages has been confirmed. And we will see other companies follow suit. Big alcohol has the money and infrastructure (manufacturing, distribution, marketing, etc.) to push drinks onto consumers. If they can tap into the marijuana market and maintain control of their market share without having to change their 'delivery method' then it is a no brainer. Beverages will not only have a high demand from the consumer side of the equation, but will also be significantly pushed by many big alcohol brands that come onboard. These companies are experts at marketing drinkable products and creating demand from nothing. They can make consumers want something that they never even had a desire for before.
Tinley's management team has gained valuable insight (over the last year and a half) into the ins and outs of creating a premium THC drinkable. At this point in time they are one of the only groups on the planet that has the knowledge and expertise on how to commercially mass produce a technologically advanced (taste, absorption, shelf life) THC beverage using premium alcohol flavours. There isn’t anybody else that has done what they are doing and everybody else, including Constellation and Canopy, will be playing catch-up. And Tinley’s CBD drink brand, Hemplify, should not be underestimated…
First there were sports drinks (Gatorade, Powerade, etc.), and then came energy drinks (Red Bull, Monster, etc.)...and since then there have been a number of smaller drinks that have made their way into the functional beverage market, including Vitamin Water, Coconut Water, and Almond Milk, to name a few. But I believe that hemp/CBD drinks are going to be the biggest craze since energy drinks stormed onto the scene, so I don't believe that Hemplify is getting the attention it deserves.
I will admit that I initially viewed Hemplify as just a stepping-stone for Tinley’s THC drinks, but after further research and analysis, as well as some number crunching, I realized that the potential for Hemplify could be even greater than its counterpart. Obviously, it can already be sold and consumed in all 50 states, which is a huge plus. Secondly, it can be consumed by a much wider range of customers, from kids to the elderly...so right off the bat there is a much larger market. The biggest driver, however, is going to be the huge press that marijuana and hemp get over the next 5-10 years. The cannabis wave isn't going to hit the shores of North America gently...its going to be a massive tidal wave. And with it will come more and more R&D and medical studies on the health benefits of hemp oil, CBD, and many of the other 145 phytocannabinoids found in cannabis.
The vast majority of the population is completely unaware that marijuana and hemp actually have health benefits. They have been programmed like zombies to believe that marijuana and hemp are nothing but damaging, which is obviously ridiculous. As marijuana and hemp continue to become mainstream and each of their respective health benefits start to trickle out into the media, I believe that there is going to be an enormous demand for these types of beverages, and Hemplify has first-mover advantage as one of the pioneers in this market.
3) The Team:
People are quick to forget who is at the helm of this innovative company. It isn't just a group of pot heads who decided to try out an idea, or a group of successful professionals that come from completely different sectors or industries (which many MJ companies have because everybody wants in on the green rush). The team running the show has both experience with marijuana and even more experience working directly in the beverage industry.
Right from the get-go (back in 2015), Jeff Maser spearheaded the development of Tinley's formulas alongside Jeff Pencer, a third-generation beverage executive whose family built the third largest beverage company (Cott) in the world behind Coke and Pepsi. At the time, Jeff Pencer had already been focused on developing formulations for oil-infused beverages, so he was one of the early experts in this area.
Then Tinley brought in Ted Zittell, who previously served as President of Cott's Retail Brands International, where he led the creation and launch of DOZENS of premium retailer brand and marketing programs WORLDWIDE. He has worked with P&G, Nestle, Loblaws and other big names. So now Tinley has a patented formula that enables their drinks to taste delicious, as well as an experienced branding and marketing executive to oversee Tinley's program from a high-level perspective. The only thing missing is a hands-on sales and distribution executive to look after everything on the ground level...
Lo and behold, Tinley brings in Andrew Stodart, a seasoned beverage professional with over 20 years of management, marketing, sales, and brand development experience at the executive level. He launched Crystal Head Vodka and brought it from a concept to NATIONWIDE North American distribution in 18 months and has lead a team that won 5 awards for marketing excellence from the LCBO. At one point, he was also the brand manager for Black Velvet Canadian Whiskey, which he rescued from a declining brand into the third-largest selling brand in its category.
Sales, branding/marketing, and distribution are the 3 most important operational activities for consumer packaged goods, and Tinley has it covered in spades. Couple that with the use of a patent that helps create delicious tasting beverages that hit you within minutes (the same onset time as alcoholic drinks), and I honestly don't know what more you could ask for. This team isn't here to release poor tasting drinks with a lackluster marketing effort with the hopes of making a quick buck off the initial MJ wave. They are here to pave the way in what will become a market disrupting, transformational industry. And right now, the future potential of the company is not being priced into the stock like it is for the Canadian licensed producers.
4) Valuation:
Tinley only has a market cap of roughly $88 million (it will be closer to $100 to $105 million once the recently announced capital raise closes). This is tiny in comparison to the majority of all other companies within this sector. Yes, Tinley's sales are basically non-existent at the moment, but this should change very quickly over the course of 2018 now that they have their licenses. Most investors in this sector are solely focused on the Canadian market, and this has significantly increased demand for shares of the licensed producers. Here are some of the current valuations for Canadian LPs (market caps were sourced in early March from Google Finance, which doesn't always have the up-to-date fully diluted share counts):
Canopy Growth Corp - $5.74 billion
Aurora - $4.99 billion
Aphria - $2.2 billion
Cronos - $1.91 billion
Emerald Health - $601 million
Cannabis Wheaton - $589 million
Organigram - $493 million
Supreme - $467 million
Namaste - $400 million
Hiku Brands - $295 million
ABCann - $270 million
Emblem - $154 million
Invictus MD - $152 million
And all of these valuations are being given to companies who operate in a market that had roughly $400 million in total marijuana sales in 2017 (I do realize that a few of the big names have established contracts internationally with Germany, Australia, etc., which contributes to their value as well). Plus, there are a bunch of other small LPs or PLI's thrown into the mix.
Tinley is being valued at $88 million right now in a market that is roughly 7 times bigger than the Canadian market. Plus, Tinley is a unique company with first mover advantage in the CBD/THC beverage market. Canopy Growth Corp stormed its way to the top of the growing industry because they were the first public marijuana producer...and they didn't even have first mover advantage (there were already growers established in the industry before them - they just had quicker access to capital since they were public, and therefore could expand much more rapidly). Tinley is not only the first "advanced marijuana beverage" company to be publicly traded, but they are also one of the pioneers/first movers in this space.
5) Rescheduling and Legalization in the US:
Many investors have turned a cold shoulder to the U.S. market, crying increased political uncertainty due to Jeff Session’s hatred for marijuana and its current Schedule I classification. But I believe that the political risk surrounding marijuana within the U.S. isn’t as scary as it looks on the surface, and because of this, presents a very attractive investment opportunity. One of the greatest (if not the greatest) investors of all time said that it is wise to be “fearful when others are greedy and greedy when others are fearful”, and I think that now is a perfect time to act on that advice.
The opioid crisis has gained more and more attention over the last couple years, which is helping shed light on the fact that the entire U.S substance control system is an absolute joke. Along with this, cannabis has continued to gain more and more acceptance amongst the general public, now showing that 60% of Americans believe that marijuana should be recreationally legal, and 80% believe that it should be medicinally legal. This is the highest that it has ever been.
Sessions has obviously not been shy about voicing his displeasure for anything related to marijuana and recently took action by rescinding the Cole memo, but he ultimately has to follow whatever drug policy Trump decides on. Trump has always said that he would leave the power in the States’ hands when it comes to medical marijuana regulation, but this has become less clear due to all of the mixed signals coming from his party. Let’s be serious though, medical cannabis has been legal in at least one state (California) since 1996. And it’s now legal and regulated in 29 states (and DC). It’s not going anywhere.
Each day that passes is one step closer to marijuana being federally rescheduled in the US. At this point, it is inevitable. If you still believe that this is a major risk to investing in US marijuana companies then you need to completely re-assess the situation. Both countries to the north and south are pro-marijuana and many more countries worldwide are following suit. On top of this, the majority of Americans have finally realized the benefits of this special plant and have changed their political views. There is power in the polls and the polls are pointing to progression. It's passed its tipping point. Even if Trump isn’t smart enough to recognize this then he has advisors that will. Taking this issue right off the table so that Democrats can’t even use it in their platform would seem to be the smartest political chess move.
In fact, I would argue that there is a higher chance that Trump re-schedules marijuana and legalizes recreational sales than deciding to take a step backwards on both medicinal and recreational cannabis. He is a celebrity and nothing means more to him than popularity. He also has a very big ego. For him to know that he could go down in history as the President that ended the prohibition of marijuana, which helped save lives, create jobs, and substantially boost tax revenue, is an opportunity that will be too hard for him to turn down.
For anyone that is hesitant to invest in Tinley because you are afraid of a Jeff Sessions crackdown on the U.S. market, I think you are making a mistake. If Sessions tries to take steps backwards it would significantly damage Trumps chances of getting re-elected, and he has already said publicly that he plans on running and winning again. Do not overestimate the political risks with marijuana in California and the rest of the U.S. because it will blind you from the explosive returns that Tinley will end up providing for its early shareholders. And yes, it is still very, very early.
When the big announcement of rescheduling takes place in the US, we are going to see one of the biggest influxes of capital into an industry that most of us have ever seen in our lifetime. It will be of epic proportions and will most likely make the Canadian frenzy look small.