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Medical Marijuana Update: The Satori case study

Chris Parry Chris Parry, Stockhouse.com
7 Comments| August 12, 2014

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(I've placed this in the opinion section rather than news because it goes deep on a company in way that varies from the usual medical marijuana update format)

For the last few weeks, whenever I talk to a broker or a weed company exec, and I've talked to a ton of those types of late, I'm asked the same question; “What’s with you and Satori Resources (TSX:V.BUD, Stock Forum)?”

Why have I stopped booting that company in the temple and actively taken an interest in what they're doing? Why have I referred one of the best agri-COOs around to them as a consultant? Why, of all the companies around that could use a little guidance (and I get requests for such every day), am I actually providing some advice to crumbly little broke-ass ‘Sadstori’ Satori?

The answer isn’t, as some on the Bullboards seem to opine, that I’m making bank from them. For one, they’re not exactly rich, and for two, that’s not how I roll.

To me, you're a reporter when you talk about a company failing. You're a journalist when you chronicle why they'll fail. But you're fully freaking gonzo if you go in and help them fix it, and talk about the process after the fact.

And as someone who proudly called the legendary Hunter S. Thompson a friend (albeit an infrequent and slightly paranoid one) I like to consider myself to be a gonzo man.

Of course, this whole weed commentary gig has been good to me over the last six months, and so there are a lot of companies that I could put my name behind, and I have done so for several I’ve believed in in the past. I’ve given a little shoulder to Cannabis Technology, which I still think is one of the best plays in the space and supremely undervalued. I cheerleaded Chlormet before the stock halt from hell, and Naturally Splendid, and Papuan Precious Metals (before they too got the TSX facepalm and went on radio silence), and Abattis and Affinor (who I believe will someday soon engage in a rumble before either hugging and figuring out a deal, or bleeding to death in the street).

All of those I put my name behind because they had an interesting story that was getting more and more interesting. I believed they were (and in many cases, still are) companies worth looking at as an investor.

But I don’t tell people to buy. That’s not my gig, and it crosses a line both personally and with Stockhouse. You buy if you feel it’s worth your time, but it’s not my job to push you into that action. My job is to expose ick and highlight quality, if and when I find it.

To be clear: I have not – ever – said Satori is one of my top 5 must-watch companies. It still isn’t.

Satori, for the last six months, has been languishing. A first mover in the mining-to-weed stakes, Satori management fell too far in love with living life on the Venture exchange and thus they missed the medical marijuana hype spike, refusing to talk about weed strategies for fear the TSX would trade halt them until they’d officially ‘changed business.’. The company stock ran a little early, but then moved backward as nothing came of their opportunities.

They’re not alone. There are a lot of ‘whatever happened to’ stories out there. But my thinking has been, as I watched company after company streak and die off quickly, that the whole damn space contained companies that needed one simple thing to break out – one simple thing that has been in ridiculously short supply: legitimacy.

You think there’s a lot of money in weed right now? Trust me, there’s twenty times that amount still out there, waiting for a legitimate home, refusing to take part in the current crop of companies because they haven’t actually become companies yet.

My plan, therefore, was to find a blank slate company that I could really legitimize. Not by writing nice things and making gullible investors believe that it would be the next big thing and everyone would run to a ten-bagger, but by actively sticking an oar in the pond and bringing an outsider, non-promotional perspective to a play.

I could have jumped in with any number of nice companies. I’ve met with dozens of them and I’ve been offered everything from CEO to Chairman to Director to Advisory roles, and those offers continue to roll in. In fact, I started a consultancy specifically to handle those offers.

But before I worked with anyone, I wanted to prove out my theories, and so I chose to sling my hook – at least initially - into Satori. And I’ve chosen to stay on the outside of the company, rather than take a big stake, so that I can chronicle it for readers.

Obviously, this has been a terrible mistake, at least if I listen to the dozens of friends and associates who have slapped their foreheads and yelled “WHY?!” while spilling their Manhattans and checking their Blackberrys at Joe Fortes. I’ve heard a lot of patronizing talk about how I’ll learn eventually and one day wake up to myself and move with the big dogs.

But I think they’re all wrong, and here’s why: Conventional wisdom is bullshit.

I’m a Moneyball guy. I think the weed sector is one giant market inefficiency where companies are competing to build the biggest possible, most expensive and shiny facility that will never actually function well and likely always struggle to make money, and that all you really need to win this sector is a small, smart play with serious revenue potential in the short term and growth potential in the long term. I think institutions will dig on that. I think retail investors will put their RRSPs into it. And I think daytraders will curse it because it won’t lead them to riches by breakfast.

A true Moneyballer looks at this market and says, what thing does everyone need, even if they don’t know it yet?

In this market, that thing is growing assistance. That’s the real medical marijuana market blind spot. We’ve got huge growers making massive financial outlays on massive spaces to grow pharmaceutical grade product, but their weed is coming out tasting like ass because of several factors that nobody seems to be able to eliminate.

That presents an opportunity: How can we create a product or system that every grower could use to keep their plants exactly where they need to be, for each growth cycle, limiting the damage done through overwatering or bugs or mold or mildew or stupid user overload? It needs to be simple. It needs to be dumbass-proof. It needs to be inexpensive. And it needs to hit the market quick.

To me, making weed growth easier, less hands on, is the holy grail. And it just happens to be a really cheap way in with limited competition.

So why Satori? Because if you join the New York Yankees and they win a World Series, it's not your World Series because they probably could have done it without you anyway. But if you join the Kansas City Royals and get them to a pennant, that's all you, baby. That’s a controlled environment in which you can see the effect of the changes you brought.

Satori is a controlled environment in that it had nothing going on. Not a lot of cash. Share structure a little blown out. Small team. Barely enough directors to keep things together. Lots of bad press (thanks to me, admittedly, but still).

Satori, for the last six months, has been the Royals. And that made them the perfect lab for my ideas on how to create something out of the scraps of other things.

So I’ve been talking to them for the last month or so. Advised them to stay away from some projects. Steered them to some others. Focused on putting together a core unit of people that can deliver a real company. They were already in the agri-minerals space, so there was a good base to work from. The team was happy for the help, and the personalities are such that I can work with them happily because, frankly, I want them to succeed.

So how do you put together a strong hitting lineup with no money? Moneyball it.

The major league Oakland Athletics lead the American League West this year with one of the smallest salary totals around. In fact, they don’t just lead the AL West, they have the best record in all of baseball. And they’re doing this with a team of retreads, throwaways, rookies and unwanted veterans, each picked up because they have some unvalued quality that the market has missed, and that quality is needed by the team, and yes - they’ll work cheap.

So with that in mind, I had set about helping Satori become the A’s by helping them scout potential roster additions.

The starting lineup had many holes before I came along. Basically the company had a 50% stake in a phosphate project, a 100% stake in a historic gold mine in Flin Flon, a securities lawyer as a CEO and a hard working IR pro. And that was it. Not much to work with.

So the first element they needed was an operations expert who could do due diligence on projects and make sure that everything brought aboard would fit with everything else. In former Affinor COO Tegan Adams, with whom I’ve started the This is a Test consultancy firm, I brought them a young phenom operational expert with an abundance of real world business, government and agri knowledge but not a lot of runs on the board. I’ve seen firsthand that she can get on base at will and turn opportunities into runs batted in. As a lead-off hitter, she’s my first choice – and though she’s had other offers, she’s down for a little experimentation.

So who can hit at number two? My pick there is Alex Rea, of fertilizer and growth medium manufacturer and retailer Homegrown Hydroponics. In Rea, Satori has a five-tool brain who can drive projects home and has created a ridiculous number of opportunities through this career with Homegrown. He’s the guy you find at try-outs who has been hitting wiffleballs in the yard for twenty years and had no idea how good he could be until you stuck him in a batting cage. More on him later.

Jennifer Boyle, the CEO of the company, is a deal machine. Admittedly, some of those deals are swings and misses, but when she connects, it’s going out of the park. She’s done it in mining several times, and not by accident. She’s not polished, but we’re not selling jeans here. There’s your number three hitter as we get to the meat of the lineup.

What’s missing? The heavy bat and a savvy late-career clean-up hitter.

The heavy bat is out there somewhere. Boyle has been searching for the right fit – a true agri-chemical-dealmaker type who can lead the charge and drop some big deals – for some time. She thought she had one lined up a few weeks ago, a guy I thought would be perfect moving forward, but the dotted line never got signed.

The clean-up guy is interesting, in Bill Christie. You won’t have heard of him, but he’s a marketing guy who has been in the public company frame for a long time, having worked for companies like Corriente Resources and Rotary Power Inc., and is coming out of effective retirement because he believes in what Satori is doing.

Christie was diagnosed with multiple myeloma in 2012, an aggressive bone marrow cancer that required stem cell treatment. To counter the effects of chemotherapy, Christie got a license to grow and high CBD cannabis, and he felt like that treatment was what got him through. Christie is literally writing the book on weed as medicine, and is bringing a network of contacts with him in as Satori’s (thus far unofficial) marketing and business plan guy.

It’s early, admittedly, but this starting to look like the beginnings of a nice rebuild. Certainly Satori is not pushing for a pennant yet, but there’s definitely some interesting elements being added, and every piece of advice they've received and acted upon has nudged them forward over the last few weeks. Brokers have gone from not answering their calls to hearing them out, giving advice, and even joining the current private placement. Even the exchange, which has been killing V.BUD for six months by refusing to let it even announce an MOU in the weedspace without consequences, has agreed to let that placement period extend in view of increased interest in the company.

But I still needed to see things for myself at the pointy end, so this past Friday I went out to Toronto with Adams to get walked through every project, half-project, sniff of a project and notion of a project Satori has. It was a very long day.

Tegan and I have called our consultancy This is a Test both because this is a fairly radical departure from what we're both used to doing for a living, but also because we plan to put companies we work with through all manner of stress tests, product tests, strategy tests, market tests and more, in a bid to get public companies out of the 'we have a dream' mindset and into the 'we're on a road' mindset. Satori is our out of the box case study.

To help allow this to happen, Stockhouse has promoted me to Director of Editorial and provided me with a little time off each week to work with such companies - both those who are already Stockhouse clients (wearing my Stockhouse hat) and those yet to make that jump (wearing my Test hat).

Satori is too small to make the Stockhouse jump, at least for now. But the mission at Test is to change that.

So dateline: Toronto.

Upon landing, the first order of business was to figure out if what V.BUD already had was worth anything. So we drove out to Jourdan Resources to see Mike Dehn, CEO and Satori partner. He has the Picnic Phosphate Property out in Quebec, which Satori has a 50% stake in, and he walked us through the basics.

There’s likely some titanium there, some iron, but the bottom line is it’s all about phosphates. To get the mine to a full tilt graphite production scenario, you're looking for a lot of zeroes with a number in front of them. More zeroes than will realistically come near the property in this market.

But Dehn says it can be brought to a quarry production state, with rock sent elsewhere for crushing, for around $2m. Satori gets little value out of their stake in the play until that $2m materializes, but once it does, assuming it does, the phosphate that comes out will be in demand.

China produces a lot of phosphate but a need for local supply has it now importing the commodity and sitting on its own. The US gets a lot of phosphate from Morocco, which isn't necessarily the best place to be doing business. South America has phosphate but is exporting more than it should, grabbing a good price while local farmers struggle.

Dehn sees this property as a golden opportunity to meet a growing need for local phosphate, and he's not alone; there are some six or seven other companies not far from Jourdan's plot hoping to work the same magic.

When I hypothetically asked if Dehn would take the $2m-valued Tartan Lake gold project from Satori for the rest of his phosphate stake, Dehn turned down the prospect cold. A gold bug from way back, he's no longer doing any deals except for those involving agri-minerals. This is where he thinks the big resources money is going to be coming back, when it comes back.

Noted.

Jourdan will likely see a name change soon (that's already been announced and voted on) – they were talking about including the phrase 'agri-minerals' but I pointed out nobody really wants to put their money in agriculture or minerals right now. 'Bio-chemicals' has such a better ring to it, don't you think?

Satori take note..

Anyway, phosphate is nothing if you don't have a commercial growth product to stick it in, and so we moved on to the headquarters of Homegrown Hydroponics, a privately held supplier of fertilizer products, growth medium, lighting, chemicals etc with 15 retail outlets in Canada and the United States, and deep distribution chains that go worldwide, and have done for most of the 28 years the company has been in business.

If you’re looking for a mad plant scientist to brew up a concoction of chemicals and fertilizers and delivery systems and nutrients for a specific kind of plant, Homegrown is where you’d find it. We toured through one of their warehouse/retail outlets and it was filled to the brim with the company's own creations and products. Working on its own IP, the company has built brands, built distribution chains, and built strong sales on customer relationships both on an individual retail basis, and commercially.

But what struck me most about Homegrown was the aforementioned Alex Rea, the son of the family that started the business, and one of those guys who has a deep deep base of knowledge in what he does.

Quietly, I suggested to Satori CEO Jen Boyle that Rea should have a real stake in Satori as an officer, not just as a partner, because he's a genuine find; the kind of guy someone is going to pay a lot of money to one day, but right now just needs a launchpad to show what he can do. Put him in charge of product development, or in an advisory board spot - whatever you need to do to have that knowledge on tap and to be able to give it what it needs to flourish. I don’t think I was the only one who felt that way.

But the product will have to be tested, and tested hard. And before that even happens, Satori needs someone who can facilitate deals, research what growers are doing now and what they can truly use, prepare testing strategies, pound out a strong business plan, technology plan, and partnership plan and make all of those pieces come together into one singular strategy document.

Well, that's Tegan. Over the course of our trip, again and again, when I didn't know the answer to a question, Tegan had it down, and had six more questions to follow. She sparred with growers, quizzed executives, talked shop with academics, impressed brokers, befriended lawyers and, for mine, established herself as an operational force of nature in a business not known for paying heed to women.

So, over the course of the day, which ended with oh so much wine and tequila, (I think it was tequila - head's still a bit muddy, to be honest), Satori's team grew significantly and the fertilizer project went from 'that thing they do to keep the TSX at bay' to a real product push with long term revenue potential.

Phosphate supply: In.
Fertilizer designer: In.
Slow release delivery tech: Working on it.
Operations guru to tie it all together: In – at least for the short term.

Now, obviously none of what you've just read includes the words 'has a grow op license', and so some investors will be snoring. Get over it.

Before the end of the day that we were out there, the relevant players had managed to locate up to ten private grow operations that could serve as testing centres for fertilizer and grow medium tech (including two literally a stone’s throw from Homegrown), and I had provided a lead on four more facilities south of the border that could, for a small amount of money, see the company producing its own licensed, recreational supply inside three months – if it chooses to do so (and in the knowledge that doing so would involve a switch to the CSE).

There have been more approaches in the days since.

Meanwhile, there's a private placement going on for $0.05 that closes Thursday and isn’t far from being fully subscribed.

With many of our questions answered, the time came for the new Satori program to be rolled out to some brokers that we trust, so Tegan worked with Andrea Hill, a Toronto lawyer with Wildeboer Dellelce who has been slamming together some big weed deals, to introduce folks from Paradigm, Haywood and Jacob, and to PI Financial guys once we got back home in Van City. General consensus is that building legitimacy in the space is really the only truly likely-to-be-successful strategy out there right now, and there was seeming agreement that this is an interesting way to play it.

In the grow world, let’s face it, nobody has their crops where they need them to be. There's a massive shortage of medical marijuana supply because mega-grow facilities are much tougher to work than suburban basements, and Health Canada rules make things tougher than they should be. There is bad weed being burned across Canada as mildew and mold and bugs and the like take hold in poorly planned grow facilities staffed by people who figured chives want the same stuff weed wants.

Satori's challenge is not to sell ten dollar bags of dirt. It's to create a product that disperses the good stuff into the soil while removing the bad stuff, limiting mold, bugs, over-watering and the like, at a good price, from local ingredients, supplying the organic market as well as the mega-grow market, and the hemp market down the line, with a delivery system that nobody else can replicate. We’re talking chemicals and technology, not baggies of weed.

Build a better grow medium and you get a piece of every commercial weed deal in North America, without having to worry about Health Canada and border guards and Hell’s Angels and background checks and massive hydro bills and recruiting patients when you’re not allowed to advertise. Right now, that's the Satori plan. A patented, vertically integrated, grow media system that allows lettuce growers and black-thumbed marketers to grow good weed despite themselves.

They’re not there yet. If you’re a daytrader, I’m sorry, but I’m not here to help you make ten grand before the close promising you that Satori will be the biggest player in the space. There are others who will make that claim about other companies, and you’re probably smart enough to know that anyone who does is lying to you.

But I am happy to say, week one of the Satori test case has been completed: Level Up achieved.

In other weed news:
Tweed (TSX:V.TWD, Stock Forum) stock fell a little today after a nice rise yesterday on news the company had received MMPR approval for some 30k of grow space on its news greenhouse facility. Lots of non-Tweed types wondering how that happened so quickly, and before other companies who have been waiting forever. The simple answer is: connections.

I heard from several people in Toronto last week that the Tweed MMPR was coming and I straight up disbelieved them all. I figured the industry would grab for pitchforks and torches if the MMPR came before others had been given the go-ahead, but the limited size of the approval has tempered enthusiasm on the Tweed supporter side, and anger on the competition side.

What’s clear: The company sees the facility as a chance to rectify some issues, and if they can bring a crop to production quickly, it will change the Tweed narrative right as it needed to be changed most.

Calyx Bio-Ventures (TSX:V.CYX, Stock Forum) has been a stock that rode around the edge of the weed game for a while under previous management. I’ve just talked to some players from that story and expect news in the next week or two that will clarify their play. Some moving parts are still moving, but keep an eye out.

I’ll be talking to Chlormet Technologies (CSE:C.PUF, Stock Forum) next week, if everything lines up okay. Interested to see what’s going on with that story.

Affinor (CSE:C.AFI, Stock Forum) picked up 10.6% today after a video live stream from its new rooftop grow facility, reversing a recent downward trend.

THE MOVERS:
Pacific North West Capital... 0.060 +0.010 +20.00% 19k
Affinor Growers Inc. 0.520 +0.050 +10.64% 598.54k
West Point Resources Inc. 0.150 +0.010 +7.14% 65.5k
Crailar Technologies Inc. 0.460 +0.020 +4.55% 58.62k
Cannabis Technologies Inc 0.320 +0.010 +3.23% 45k
Verde Science 0.014 +0.000 +1.41% 547.38k
EASTON PHARMS INC 0.014 +0.000 +0.71% 1.47m
88 Capital Corp. 0.130 0.000 0.00% 0
Alchemist Mining Inc. 0.050 0.000 0.00% 0
Ansell Capital Corp. 0.050 0.000 0.00% 0
Enertopia Corp. 0.130 0.000 0.00% 56.5k
Cinaport Acquisition Corp. 0.010 0.000 0.00% 0
Satori Resources Inc. 0.065 0.000 0.00% 406.35k
Seaway Energy Services Inc. 0.340 0.000 0.00% 0
Thelon Capital Ltd. 0.045 0.000 0.00% 0
GREEN AND HILL INDUS INC 0.245 0.000 0.00% 0
Terra Firma Resources Inc. 0.010 0.000 0.00% 0
Senator Minerals Inc. 0.090 0.000 0.00% 0
Windfire Capital Corp. 0.165 0.000 0.00% 0
Prominex Resource Corp. 0.020 0.000 0.00% 212k
Maple Leaf Green World Inc. 0.065 0.000 0.00% 600
Chlormet Technologies Inc 0.115 0.000 0.00% 3.5k
GeoNovus Minerals Corp. 0.050 0.000 0.00% 0
Jourdan Resources Inc. 0.020 0.000 0.00% 0
Papuan Precious Metals Corp. 0.060 0.000 0.00% 24k
Spearmint Resources Inc. 0.035 0.000 0.00% 0
Arrowhead Gold Corp. 0.050 0.000 0.00% 0
Totally Hip Technologies Inc. 0.125 0.000 0.00% 10k
AXE Exploration Inc. 0.025 0.000 0.00% 0
Matica Enterprises Inc 0.090 0.000 0.00% 788.5k
Victory Ventures Inc. 0.015 0.000 0.00% 998k
Prescient Mining Corp 0.600 0.000 0.00% 51k
Anexco Resources Ltd. H 0.230 0.000 0.00% 0
Lexaria Corp. 0.140 0.000 0.00% 10k
Next Generation Management... 0.016 0.000 -0.62% 308.46k
Naturally Splendid Enterpr... 0.280 -0.005 -1.75% 87.27k
CREATIVE EDGE NTRTN INC 0.055 -0.001 -2.48% 9.11m
Tweed Marijuana Inc. 2.680 -0.070 -2.55% 76.18k
Supreme Pharmaceuticals Inc 0.300 -0.010 -3.23% 181.12k
ROSTOCK VENTURES CORP 0.013 -0.001 -5.30% 40k
Abattis Bioceuticals Corp. 0.430 -0.025 -5.49% 165.56k
MODERN MOBILITY AIDS INC 0.065 -0.005 -7.00% 352.4k
Calyx Bio-Ventures Inc. 0.065 -0.005 -7.14% 73k
Green Swan Capital Corp. 0.075 -0.010 -11.76% 290k
Global Hemp Group Inc 0.070 -0.010 -12.50% 11.15k
Cavan Ventures Inc. 0.035 -0.005 -12.50% 334.5k
Weststar Resources Corp. 0.035 -0.005 -12.50% 4.38k
Next Gen Metals Inc. 0.085 -0.015 -15.00% 6k
PMX COMMUNITIES INC 0.011 -0.002 -18.46% 9.23k
Growlife Inc 0.060 -0.014 -18.92% 1.43m
Majescor Resources Inc. 0.045 -0.015 -25.00% 102.5k
--Chris Parry
https://www.twitter.com/chrisparry


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Comments

Where is BUD now?
(12)
February 20, 2015

What happend with this case study? What is the next chapter?
(10)
October 9, 2014

How about a follow-up article on the satori experiment?
(10)
October 1, 2014

Players play....coaches coach....reporters report....which one are you? You seem to be trying to be all of the above which will inevitably end up with you being none of the above. Pick one and hope that you end up being good enough at it to earn the respect of your peers.
(0)
August 12, 2014

Not always the Yankees make it. Sometimes when you have all the money or assets in the world, but not the right people managing the team or company, it goes no where. Money can't buy knowledge, that is why having the right people in place at a company is a perquisite for success. The team that Satori Resources has is well vs-ed and experienced. BUD will be making big moves in the MMJ space and has LOW RISK but VERY HIGH REWARDS.
(8)
August 12, 2014

Yup! Chris and Jen having late night drinks by the fire and long walks on the beach...twinkle twinkle haha! Tell us more about V.CYX chris it looks like a great play!
(0)
August 12, 2014

I know why your drawn to this story. I met Jennifer Boyle at the Next Gen Green Rush conference myself. She has a way of drawing you in and making you feel like your opinion is is of real importance to her. You can't help but want to see her succeed. Not to mention she has the smarts to make it all happen. That, and of course, Chris has a weakness for the ladies LOL. Definitely you have contributed to helping them building out their team, kudos to you. Let's hope it makes all us investors very h
(56)
August 12, 2014

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