The latest pitch from Cannabis Venture Syndicate is actually dated January 2021, but I haven’t gotten around to covering it yet… and questions keep rolling in, and it’s for a private share offering so the price wouldn’t have changed in the interim, so things ought to still be relatively “fresh” on that front.
And today, with the market going bonkers in lots of ways, a nice little private deal that hasn’t changed in price sounds downright calming, no? Even if you’re not smoking anything.
What they’re pitching with the Cannabis Venture Syndicate is that they’ll give you access to “private” deals to invest in pre-public companies, and they’ll provide the pitch decks for those companies and guide you through the various deal details and provide a community to discuss those deals, so you can effectively become a venture capital investor with training wheels. That doesn’t mean they’re taking any risk away, or providing any deals that are really exclusive to this “syndicate,” but I guess it does make it a little easier to do your research and find deal flow.
Whether those are deals you want to be involved with, of course, I can’t say — the one private deal I remember looking at was the Las Vegas dispensary pitch last year, and that one was rife with overpromising and ridiculous assertions about huge and immediate gains, so I confess that I’m going into this with a healthy dose of skepticism.
There’s a long interview presentation about this deal, with “Mike” and their lab director “Ian” talking up the ways in which they are doing something unique in cannabis cultivation, and what they’ll do with the $20 million they’re hoping to raise with this private offering, but, in the interest of time, I’ll skip right ahead and look at the clues they drop on their order form… this is the basic promise:
“This startup already invented cannabis plants each capable of generating $1.1 million in annual revenue
“Once this tiny company completes construction of their state-of-the-art facility, their valuation could soar 11,113% in 12 months
“Today, you can get in on the ground floor”
It’s all about a better way to propagate attractive varietals of cannabis that have the most desirable properties… with 150 custom strains of cannabis. More from the pitch:
“From their San Diego laboratory, this startup has developed special cannabis plants known as “elite mothers,” which are highly coveted by cultivators.
“Their process is so effective, it can fend off over 1,000 dangerous pathogens that attack cannabis.
“These predators are currently causing the industry billions of dollars a year in damages.
“This startup can solve this problem naturally, without the use of pesticides.”
And we’re told that this startup is on a path to go from $8 million to $136 million in revenue as they finish their expansion, which will include 550,000 square feet of greenhouse space on a 10-acre property, and that you can “secure shares in this private company for only $1.20 apiece,” which the pitch says values this company at $53 million.
The huge promise from NICI is that this expansion could send their valuation to $5.94 billion within one year, for an 11,113% gain. which is ridiculous, of course, but that’s how they tempt investors (and it’s part of their “guarantee” — they say that if the startup doesn’t reach it’s valuation target of $5.94 billion within one year of completing their expansion… whenever that might be, there are no promises on that front… you’ll get another year of Cannabis Venture Syndicate for free).
So… what is it? This is a pitch for the private fundraising being done by Zenlabs Holdings. They’ve been trying to raise money for their expansion project for a year or so, and apparently have attracted NICI’s attention to try to raise the profile of the effort.
If you’re interested in learning more about the deal, you should start with the offering circular that they filed with the SEC — the offering is for Units at $1.20 each, with each unit consisting of one subordinate share (the insiders have control through multiple-vote shares) and one warrant, with the warrant term being that you can buy one share for $3 for three years from the date of issuance. They have filed to raise up to $20.4 million, and since this filing has been active for almost a year now I assume they haven’t reached that level of interest. There is a $2,500 minimum for investment, though they can waive that if they want to — this is a Reg A+ offering, which is a relatively new set of rules that make it easier for small private companies to raise money, which mostly means that pretty much any US investors can take part as long as they don’t invest more than 10% of their capital (you don’t have to be an “accredited investor,” in other words).
In reality, of course, what you’re willing to invest in these kinds of deals, particularly if you are not personally involved in the business or intimately expert in what they are doing, should be some amount that is in line with the amount you are willing to spend playing roulette. (Sorry, a little cynical opinion slipping in there.)
This is a private company, and they say they intend to get listed on the Canadian Securities Exchange and perhaps also get clearance to trade OTC in the US at some point, but there’s no indication of when that might happen or any guarantee that it will happen. There is no “out” for investors, so that is something that should be very clear up front — as with most private investments, you’re stuck without any liquidity because there’s no market to sell your shares, and indeed, for private shares you generally can’t even sell your shares to someone else informally without permission from the company.
That SEC offering filing gives the facts of the company and the offering, and then the updated filing of their annual report (for the year ending September 2020) clarifies that as of the date of that filing (February 16, so last week) they had received a total of about $1 million of the $20 million they hope to raise ($1,069,907, to be precise). So you can see why they’re putting on a strong pitch to get this equity raise some more attention.
After you’ve read those SEC filings, and you should read those first because they can’t push or exaggerate as much in that format, you can move on and check out the investor slide deck and other more promotional investor recruitment materials on their InvestZenLabs.com website.
There are a couple things I would try to think about as you go:
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First of all, is this idea that they can propagate plants from the equivalent of stem cells at all unique to them? There is a patent application for something that sounds very similar, though it involves two named people who aren’t listed in ZenLabs’ materials, it’s just an application, and I’m no expert… maybe ZenLabs has a special technique or procedure they use and it’s not patented, maybe there are dozens of companies who do the same thing in California, I have no idea.
And second, how long do you think it will take them to raise the money required, get listed, and build up to capacity at their California locations to begin producing plants, either to sell their own marijuana or to sell plant cultivars to growers? Are you convinced that their product will be markedly better, and sell for a premium price? There’s a lot of marijuana growing going on in California, and plant propagation is a big business — I’d want to understand the uniqueness of this company’s work on some level beyond “they say so.”
Finally, of course, if you ever participate in a private offering for a startup company, whether this one or any other, make sure to go into it with the honest assessment that you are perfectly OK with not seeing that money again. A startup can be honest, and be making a genuine effort to grow and become sustainable and eventually get listed on an exchange, but even if they make a genuine effort there’s a very good chance that they will fail — there are no “stop losses” or exits for private investors, you place your bet and wait, sometimes for months but more commonly for years, before you have a chance to sell those shares again if you choose… and there’s absolutely never any guarantee that the company will be more valuable on a per-share basis than the price they’re raising money at today, so it’s quite possible that if it does get a listing in a year or two and begin trading, the offer you get to buy your shares is much lower than the price you paid.
I don’t want to be a complete downer here, but the world of private investing is a lot less glamorous than the daydreams of “I’ll be the next Peter Thiel and buy Facebook for fifty cents” might have us believe. There is a chance for tremendous returns if the business is excellent and grows well, the management is smart and trustworthy, and if it begins to be seen as having a strong future and is able to get listed and provide some liquidity for early investors, but even the best venture capital firms fund more failures than successes. You need to go into these kinds of investments knowing that the odds are long, particularly for little “bootstrap” operations like this where there is no big venture capital firm supporting and mentoring a little startup, and the price at which they’re raising capital was determined arbitrarily by the company.
And yes, of course, I tend toward the “downer” side because that’s our job here at Stock Gumshoe — the promos and presentations light the fire and get the juices flowing, we try to pour a little water on that so you can balance the hype and think for yourself. If you’ve got a thought on ZenLabs, enjoy the world of high-risk startups, or think I’m wrong to be a bit cautious (or have other reports of great successes you’ve had with Cannabis Venture Syndicate ideas), by all means, let us know with a comment below. Thanks for reading!