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Private Pot: What’s that “San Diego Laboratory” Private Investment being teased by NICI?

Cannabis Venture Syndicate is pitching investments in "this tiny company" that will help it "complete construction of their state-of-the-art facility" and "soar 11,113% in 12 months"

By Travis Johnson, Stock Gumshoe, February 25, 2021

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!

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pbrunovskis
Member
pbrunovskis
February 25, 2021 7:22 pm

I’ve practiced patent law for over 20 years and can tell you that the patent application, by ZenLabs or not, is very unimpressive and unspectular. Data shows minor improvements in preventing plant infections. I doubt anyone wants to go through their elaborate growing/treatment process involving applying of bleach among other steps. They might get a patent that’s pretty worthless.

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Fredrick
Guest
Fredrick
February 25, 2021 7:40 pm

I did not buy into the Cannabis syndicate in order to invest. I always skip trace those in the interview and then reach out to them. Once I have established rapport, I begin vetting the company. I bought the into company. These guys come from 30 plus years of plant nursery growing. I am hoping they succeed.

gthorne
gthorne
February 25, 2021 7:51 pm

Travis, I’m just wondering –all the dozens and dozens of pitches and teases we see almost always is about “this tiny company”, or “one tiny company” and endless variations of how tiny this company is that has all the answers, or the key to this or that thing, or formula or whatever, that the huge companies all need. Is there something in the copy writers manual about how to write full blown teases and hype that you must include the phrase, “tiny company”? What a cliche that has become! But — having said that, they must think it works to perk our interest on getting in on the ground floor of something, because they just keep endlessly saying it.

I am so not interested in this venture, betting on something that may – or more likely, may not come to pass sometime in the future. Especially not with all of the pot companies out there that are proven successes, such as Green Thumb – now there’s a pot company that makes me smile, because it’s way, way up from when I bought it back when it was about $7 or 8 a share.

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aoraccounts
aoraccounts
February 26, 2021 10:54 am
Reply to  gthorne

great insight. also, ‘get in on the ground floor of what will be a major disruptor,’ blah blah. its carnival hype.

I have a subscription to brownstone research ($99/yr) and they are the worst with that. constant pitching via email and always wanting $2 grand more. also videos, like he’s actually an interesting guy who I want to watch. ugh. all of the pitches are basically: if you had bought xyz when I pitched it in 1845 at $3/share, you’d be a bazzilionaire by now.

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Jim
Jim
February 25, 2021 8:06 pm

Until it’s legal at the national level I don’t expect much. I rode the pot wave for two years, to the high and right back to the bottom and only recently sold all that ‘stuff’.

Jeffrey
February 25, 2021 8:15 pm
Reply to  Jim

True but the national level is irrelevant. The problem is es-seh remains too many companies all selling the same product even now patches. There is something amazing out there for pain.
No CBD or hemp or drug. If you have as I do chronic pain that will never stop and it’s from-example major head on collision and you become titanium man or woman I suggest purchasing a nanotechnology patch. Place over even one’s thigh and either use the attachment plastic gummy or just tie a handkerchief over it to keep in place. Pain instantly gone. Wear full time except for shower. Nanotechnology has arrived.

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BJI
Member
BJI
February 26, 2021 5:44 am
Reply to  Jeffrey

Hi Jeffrey! My torn rotator cuff pain wakes me up 2, 3 4 times per night! At my age (82) repair surgery failure rate is up to 40 % so I’ll keep trying to rehab without surgery.
WHERE can I get a “nanotechnology patch” to try so I can POSSIBLY start getting a good night’s sleep?

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oliveira
oliveira
February 26, 2021 10:05 am
Reply to  BJI

Jeffrey, you will get relief from pain and a good night´s sleep from magnesium oil. Guaranteed!!

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1transplant
February 27, 2021 12:21 pm
Reply to  BJI

I had rotator cuff surgery at age79 and it healed nicely and no more pain except with exertion. Of course everyone is different.

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John McGettrick
Guest
John McGettrick
February 25, 2021 9:18 pm

You are not being a downer, my friend has a grow in Colorado and I believe it is something like 95% of the people, that believed the hype that the industry was the next gold rush lost all their money. Unfortunately the industry is full of flakes, many rich people that put in 20, 30 and sometimes 50 million dollars into setting up their grow, the only thing is they know nothing about growing, but the have money and there are a lot of scam artists that will take their money and help set it up the only problem they also don’t have a clue on what they are doing and it all fails. Having a good grower is the most important thing in that business. Everyone I have shown pictures of what my friend is growing are blown away as are all the larger growers that all want to hire him to run their grows. His product is on the top shelf of a lot of the Colorado dispensaries and his product is sold out the day he is done trimming it. He is expanding the business to product 6 times what he is now and within a year or two will expand to 40 time the output. I told him at that point one of the big boys will be showing up wanting to buy him out. He said he is already in talks with two giant corporations as it is.

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WILLIAM Anderson
Member
WILLIAM Anderson
February 25, 2021 11:43 pm

Have you done any evaluations on cryptos? Seems to be the hot thing now.

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cryptos
barkerooney
Member
barkerooney
February 26, 2021 4:09 am

Words of wisdom as always, thank you Travis.

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flybeaux
February 26, 2021 7:52 am

I always enjoy reading your clear headed reviews. For those old enough to remember Travis is very much like Sgt Joe Friday on Dragnet, “just the facts ma’am”.

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TREASURBEACH
Member
TREASURBEACH
February 26, 2021 10:47 am

Yes, Travis this could be a long slog, and who knows which of these small companies will ever be profitable. Someone said to stake a position with HEMP (HEMP). At .01 a share, could be throwing it against the wall and seeing if it sticks, grows and buds!

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Dee Dee
Member
Dee Dee
February 26, 2021 5:00 pm
Reply to  TREASURBEACH

Are you recommending purchasing shares in HEMP?

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aoraccounts
aoraccounts
February 26, 2021 10:55 am

Yes, Travis is a breath of fresh air amidst a sea of carnival barkers.

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rdimand
Member
February 26, 2021 5:49 pm

When big tobacco and US farming get into legal cannabis, the whole overpriced industry will tank. California ag can devote a few thousand acres and crush all the high flying growers. Same with tobacco companies. Prohibition all over again. I’m staying out, way to volatile and short lived.

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Kev
Guest
Kev
February 27, 2021 10:59 am

My first Gumshoe Report was the Las Vegas Dispensary report last year. I’ve been reading the Gumshoe reports ever since. At the time, Travis mentioned Planet 13 as established already in Las Vegas, trading at $ 1.00; similar to the hyped offering. Today they’re close to $ 7.00.
I was new to investing, and now wish I had bought it. Thanks Travis, for your level headed reports.

wck
Guest
wck
February 27, 2021 6:50 pm

With the success or failure of the growers themselves being at the heart of the whole pot industry, I urge you to be aware of a Canadian grower named Village Farms International VFF. This successful 30 year old grower is one of few major US greenhouse produce providers with vast plant experience and 10 million square feet of facilities located both in Canada,US and Mexico. In the recent past, the much greater profit potential in pot versus their vast vegetable production had Village
Farms switch a significant amount of their green house facility for pot growth purpose. With their
expertise growing vast quantities of produce at the least cost ,their justifiable aim is to be the lowest cost pot grower in Canada and the US. Having started this venture in partnership with a skilled pot grower whom they recently bought out, they are on their way to achieving their objective.The increase in their stock value since their new growth direction is indicative of the potential success being accorded Village Farms. This is one pot investment that really has merit.

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The Canadian Grower To Be Reckoned
rooransr
February 28, 2021 3:42 pm

I brought mmnff….and. Jushf….. they are both distributors. it just seems to me the people that are selling are the ones going to make the money$$…
They both done well…mmnff was .17 cents when i brought it…. I read some on it it seems to have bought out another company and has a lot of stores distributors …jushf is also strong… I would like to find some more Distributors that have stock but I’m having trouble finding any.

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Steve
Member
Steve
March 1, 2021 1:15 pm

Travis, thanks for your research and insight into these “Pot Stocks”. It’s somewhat of an infant industry and there’s a lot of hype out there. I’m a member of NICI and they put out some good info, but I get frustrated with their long winded presentations on a stock that end up being nothing more than a hype for their latest service. I watched their presentation on this company and didn’t buy it. Glad I didn’t. Once again, thanks for all you do.

getdastock
Member
March 1, 2021 2:34 pm

For what it’s worth I have a business acquaintance that has a state of the art indoor growing and processing facility just down the road from this company’s proposed site, in Vista, Ca. He’s owned the facility for 4 years and it’s been nothing but a struggle to keep a long term tenant. Every occupant has had great intentions to succeed in the industry and found out it’s not easy. If this Zen Labs truly has an edge I would personally wait to see it shown in the market.

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devhyfes
March 3, 2021 12:54 am

Yeah that is the thing that is killing me with MJ stocks. Anyone with some lamps and water can grow, and trademarking in this industry is very difficult- many of the “premium” strains were developed back in the day when people didn’t exactly rush to register with the government, and so attempts to do the same today seem like they would be met with “Prior art” challenges. So it is difficult for me to see how producers will effectively develop a brand that gives them more pricing lattitude.

On the other hand, I feel like a good area to INVESTigate(har har) is compliance. I was living in Colorado when the first decriminalization amendments were passed. At a dinner in Loveland, my wife and I ended up sitting next to a guy whose daily life was ensuring that all the tailings from weed production (stems, etc) were transported to an incinerator. It turns out that this part of the distribution is fraught with regulatory peril, and his company- populated with ex MPs from Iraq- was pretty good at making sure that this material was disposed of in a proper way.

IMHO, the growers have largely been priced in. But as the Federal Government goes through the process of reworking this landscape with an eye towards getting their pound of flesh, I feel like looking towards these regulatory specialists may be a way to get into the industry at a lower level. The waste from MJ processing is still a drug. And while the government may work to decriminalize it, the idea that kids would get ahold of this waste for a cheap hit may lead to over-correction from the government.

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outsider
March 3, 2021 12:19 am
Reply to  getdastock

so many companies growing, i would check juvaf for distribution

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marcelblanchette1090
Member
March 4, 2021 5:22 pm

The expansion involves an new greenhouse that will be 550,000 sq. ft. on a 10 acre parcel. 10 acres is only 436, 500 sq. ft. ??? Yeah, ok!

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