Big week in the weed business, with Health Canada creaking open the crypt they keep their facility inspectors in, dusting off the clipboard, and actually making an appointment to go visit someone. After two years of waiting, Supreme Pharmaceuticals (
CSE:SL,
Forum) has
got their inspection date (tomorrow!) and their stock went bananas.
Supreme was a Stockhouse marketing client through much of that wait, and saw more than their fair share of Bullboard bashing while they watched the clock.
I said about six months back that the stock was greatly undervalued, and bought some at $0.16, sparking a mini-rush as others seemed to notice too. Then I said about a month ago that CEO John Fowler was ‘almost suspiciously happy’ in his communications, considering how long the site had been on care and maintenance, and the stock started climbing again. Then came the news and the thing basically doubled in three days.
As I write, C.SL is at $0.37, presenting a nice profit for those who held on and showed faith. Well played, baggies.
Also on the rise is Aurora Cannabis (
CSE:ACB,
Forum), a company I have had little time for over the past year. By all accounts, and there’s a lot of accounts out there as Aurora CEO Terry Booth regularly flies folks out to look at the facility, Aurora’s grow is state of the art.
But is Booth? The big ginger sent me an ‘invitation’ to go check things out several months ago that was so contemptuous, big-noting, dismissive and boastful that I replied with a ‘stick it where the sun don’t shine.’ It was an insulting, vainglorious case study in how not to deal with the media.
Regardless of my personal feelings about Booth’s 2am email sprees, the more important question remains, is ACB a good bet?
Well, they
just got their license to sell, so that’s good. As I understand it, they have debt to deal with, they need a new CEO (and are reportedly looking for one), there’s a bit of a floppy share base ssed in, and an $84.9m market cap is, to me, overvaluing a company that has a lot of work to do to find patients.
If you’re in the ‘recreational use is coming to Canada and all growers will be billionaires’ line of thinking, fair enough, have at it – but Tweed is eating acquisition targets (or was until everyone started quietly claiming to be one, driving up their share price, *cough*Organigram*cough*). Supreme is going to have so much grow space soon they could swamp the market with $3 weed, every other MMPR holder (there’s 26 of them now) has big growth plans of their own to deal with recreational, and once the gates to access are lifted (and honestly, recreational doesn’t happen for at least another six months to a year, maybe two, anyway), you just know big pharma and/or tobacco is going to move in.
In addition – 26 MMPR growers! Imagine if we had 26 phone companies in Canada, or 26 light bulb manufacturers or 26 companies producing Advil. That’s a lot of competition for an industry that has so many restrictions on it.
Not to be forgotten, weed growing is, as it has always been, the least profitable end of the weed business. If you can name one hops or barley farming multinational I’d be surprised, but you can sure name breweries and beer brands, right? The real value in the lifting of prohibition comes with processing, value-adding, branding and retail, not growing the base product that’s going into the still.
Now, if the government allows MMPR companies to market themselves properly, or even lets them open their own dispensaries, then you’re talking billionaire time. Until then, base weed margins are not much better than microgreens or saffron or geoduck. Extractions will be a nice little earner, but settle down, people, let the dust settle and invest with the long term in mind.
Mettrum (
TSXV:MT,
Forum) stock continues to sit. I haven’t written much about them thus far, but while the company is making good jumps in revenue every quarter,
operating costs are killing them and their net loss is not reducing, quarter over quarter. EBITDA loss is almost identical for the last two periods at $1.6m, and though revenue jumped $460k from the previous quarter, operating costs jumped by $410k, making the growth basically a statistical wash. At the current loss-per-share rate, it’ll take another full year of consistent growth to get to break even.
Michael Haines, CEO of Mettrum said of the last financials, “Taking a long term view,
we continued to invest in our facilities to improve
quality, yields and margins,” which is a nice goal, and maybe some of that loss is coming from pumping revs back into the facility for some future return. But, right now Mettrum has 4900 patients, which is decent. But the thought that they need 10k patients to break even? Yoinks.
Golden Leaf (
CSE:GLH,
Forum)
put out financials a week ago that showed 900% year over year growth. Gotta like that. $7.8m in revenues over nine months is nice, but the $3.1m quarterly net loss caused some heart palpitations among the long holders. By my calculations, each of their cannabis extraction machines brings in $200k per month and costs $500k to purchase/install/test. They’re adding two new machines per month, so that’s about $3m per quarter just in capacity growth. Add going public costs and there’s your loss explained.
Interestingly, CEO Don Robinson said of the results, “We continue to make operational improvements and
invest in our facilities and equipment to improve
yields, quality, sales and margins,” which sounds an awful lot like what Haines said two paragraphs up – in fact, it’s almost word for word what he said - so maybe I should cut Mettrum a break.
Dundee has
just started coverage on GLH, setting a $2 BUY target, which is double the current stock price. The analyst says if they break into Washington State, which they’re in discussions regarding right now, it would effectively double their market and worth.
Worth disclosing, I own a buttload of GLH, they’re a Stockhouse client, and I’ve consulted with them. That gives me insight enough to be able to crack the numbers on their financials, but by all means take anything else I say with a grain of due diligence-based salt because, if it goes up, I’m making bank, yo.
Peace Naturals this week became the first MMPR company to be approved to produce AND SELL cannabis oil in Canada. This is big news for the plucky battler, which is currently staring down the barrel of a Tweed-led lawsuit offensive that appears designed to squash a friendly acquisition of PN. I wrote about that a bunch last week, if you’re interested.
You can’t buy PN stock right now – unless you wanted to buy Pharmacan (nope) for a few percentage points. But the oil news was big for Peace. It should have SIGNIFICANTLY raised their value proposition, should lead to an increase in that acquisition price, and may even help them find enough investor dollars to see off Tweed’s pinstripers.
The Oregon crew of Golden Leaf (
CSE:GLH,
Forum), which sells $2.9m in oil per quarter right now and is adding extraction machines at a rate of two per month, have told me they had no plans of doing anything in Canada until the regulatory field was settled, and it’s starting to look like it’s getting there. Totally speculating here, but wouldn’t a Peace/Golden Leaf deal work nicely for both companies?
I’ll be their first customer, either way.
On the Organigram (
TSXV:OGI,
Forum) front – they raised $5.7m in financing this week and notched some sales growth. Stock appears to have settled after the huge increase of last month. Bigger news, they have a new IR person, which means maybe we can all be friends again. Hope to talk to them this week, but haven’t had a returned call from them in over a year, so you never know.
Aphria (
TSXV:APH,
Forum) announced they were
looking to raise $10m last month. Some of that is going to go to keeping the lights on. But not all of it, surely. The rest? I’m hearing extractions (
they announced that move way back in July, with a $1.7m price tag), acquisition war chest, and expansion should recreational show up… Likely all of the above. We’ll know how that raise went on December 11.
Speaking of war chests, Jacob Securities, who you may recall as being the guys who put together Tweed’s market debut and financing, is
putting together a $50m weed fund, starring go-to US media weed darling Cheryl Shuman and former Ontario Deputy Premier George Smitherman as advisors. President and CEO Sasha Jacob took pains to point out to me at the President’s Club conference in the Bahamas last month that he expects many weed companies, even those with licenses, to struggle to scale up, and that his fund will be looking to provide capital and advice to those firms accordingly.
Consider it Pharmacan (
TSXV:MJN,
Forum) without the relentless drive to spend large amounts of money taking a few percentage points of any old rope, and with actual money being invested in growth rather than covering legal and accounting bills.
Naturally Splendid (
TSXV:NSP,
Forum)
completed their acquisition of Chi Hemp Industries Inc., a small hemp products distributor out of Victoria BC, paying an almost comically low $75k for it, considering the company has $300k in revenues in the last year and a growing customer base that NSP products serve well. Pivotal in the deal is a consulting agreement with the founders, who specialize in building ecommerce web traffic and will be applying their skills to NSP’s pet food line, PawsitiveFX.
Stock price has been slumping of late. I still own it, though not as much as I once did, but I’m fairly sure there’ll be a point where I regret profit taking and missing a bigger score on upcoming news.
Their first production client, Laguna Blends (
CSE:LAG,
Forum) is ramping up their affiliate marketing program and receiving product from the manufacturers currently. They have a novel promotional project picking up steam but, if I’m honest, I’m not loving the lack of support the stock is getting news-wise and volume-wise, considering how little stock is out there. Where the share price sits currently, insiders should be chewing it up, but some might argue they’re smarter to let it drift and get it cheaper still.
Either way, I took some off the table to put into GLH and will monitor things to decide when to get back in. I like the business model and the people behind it but it’s time to show the world something, lads.
Lifestyle Delivery Systems (
CSE:LDS,
Forum) - you remember them, right? Cannastrips? There’s a new CFO, which is most definitely a good thing. But who knows what else is going on with that thing, which was at one time supposed to be the hottest weed value-add in town. I hear talk of boardroom issues. I hear excuses and promises. What I don’t see is anything that was promised, like working machines and clients and cash and ‘never going to need to raise money again’.
I’m a consultant to the company and the company doesn’t respond to questions. I was a shareholder of the company but my investment has been almost a total loss. Apparently there’s a plan, but who the hell knows what it is. The biggest disappointment of the last year, by far, and a company that has left a lot of brokers and promoters (and investors and consultants) bleeding on the road.
If you got in because I talked about it, sorry about that. I owe you a beer.
That said, by my calculation, they owe me 2183 beers.
But there’s light at the end of the tunnel. James Pakulis, who was CEO of General Cannabis previously and is also CEO at Wisdom Homes of America Inc, has taken over as President. Pakulis is no zero. Dude’s legit. If there’s light at the end of the tunnel, it’ll be him. Or Wolverton, who are consuming anything that drops on the ask of late.
Volume is up. Stock price is low. If they earn back legitimacy, there’s money to be made. But earning back the legitimacy they’ve burned so far is a big job.
I hear on the grapevine that Worldwide Marijuana (
CSE:WWM,
Forum) is having a boardroom shakeup. No news since they went public in December of last year, but I hear they might have something cooking that’s well worthy. We’ll see.
Lastly, I wrote up Vodis (
CSE:VP,
Forum). It’s worth a read. Because I’m awesome.
Company’s alright too.
UPDATE: Terry Booth is apparently blonde, not ginger. Noted.
UPDATE II: People put a lot of crap on Vancouver stock promoters, but it's useful sometimes to get a reminder of the umitigated bull that is the norm on the OTC:
Let's be clear: If you invest in IPOWorld (
OTC:IPOW,
Forum), you're going to lose every cent you put into it (unless you're shorting it, in which case you're going to make bank), because it's an outrageous and obvious pump and dump.
But check out what $2500 buys you when you desperately need to run up an OTC stock
by clicking here. And enjoy the fine print which more or less says 'they paid us, believe none of it, even we're not buying the stock..'
--Chris Parry
https://www.twitter.com/chrisparry
FULL DISCLOSURE: Vodis, Golden Leaf and Naturally Splendid are Stockhouse Publishing marketing clients. Golden Leaf, Laguna Blends and Lifestyle Delivery Systems have consulting deals with the author. Aurora does not. At all.