Should you “Secure $1 Shares in This Private Vegas Cannabis Deal?”

What's the pre-IPO story about a "$2 Billion Cannabis Deal About to Go Down on the Las Vegas Strip" being teased by Cannabis Venture Syndicate?

By Travis Johnson, Stock Gumshoe, September 23, 2020

This ad has generated some discussion and a few questions on the site, so I thought I’d help to go through it for you and check on the company being teased — even though it’s not actually a publicly traded stock at the moment. I first covered this ad on June 3, 2020, and it was an odd story back then… but it has actually changed substantially in the past few months (though the Cannabis Venture Syndicate ad hasn’t), and we’re getting lots of questions about a big new push for subscriptions for this one, promising a last chance here to get in on the “most valuable property on earth” before its developed, so I’ve gone through and updated this story to incorporate those new developments and the changing story the company is peddling.

The ad is from the National Institute of Cannabis Investors, which is a Money Map Press service focused on marijuana stocks… and what they’re selling is their “higher end” service that they call Cannabis Venture Syndicate, which seems to deal largely with microcaps or private placements. It’s a huge commitment to an extremely risky kind of investing (the subscription is $1,950/yr, nonrefundable), so I thought I’d walk through it for you and hopefully provide a little context before you throw money at the subscription or the investments they’re promoting. Then if you want to subscribe or invest, by all means, it’s your money — but don’t punch in your credit card number just to learn about a “secret” idea.

And yes, as with all ads, this one sounds tantalizing… it’s about a company that wants to build a huge cannabis superstore/wellness center facility for marijuana sales and experiences near the Las Vegas Convention Center. Here’s a taste from the order form to give you the summary:

“Secure $1 Shares in This Private Vegas Cannabis Deal

“And Potentially Turn a Ground-Floor Stake into a $5.5 Million Windfall…

“Michael Robinson here. I want to thank you for joining me and John today to hear about the unique opportunity opening up in Las Vegas….

“… this company has three critical contracts locked and loaded. Once they put pen to paper, it’s off to the races.

“Deal #1 provides the opportunity to multiply revenue six times over – to $25 million – almost overnight.
“When Deal #2 closes, production capacity will triple almost instantly, putting another $35 million in reach.
“Deal #3 – the planned cannabis resort on the Strip with seven million customers on its doorstep – sets this firm up to be the number-one player in Vegas. Once it gets the green light, total revenue could hit $165 million.”

So that’s what’s getting everyone hot and bothered about the “get rich” opportunity… but what are they actually talking about?

Well, it is a private placement — which means it’s a company selling shares in itself, but directly to investors rather than through an exchange (like the Toronto Stock Exchange or the NYSE). And this newsletter/service is essentially setting itself up as a “matchmaker” to connect investors to the company — I don’t know if NICI has a formal marketing relationship with the company or are directly involved, or if they’re just reviewing the offering materials and passing them along to subscribers with a recommendation, but they’re definitely using that “private company” and “pre-IPO” allure to entice subscribers.

And it’s a company that apparently has dispensaries in place, and some deals to expand, but the real focus of the promotion here is that they’re going to build a huge marijuana facility on the Las Vegas Strip…

“This 70,000-Square-Foot Resort Should Have a Virtual Monopoly on the Strip.

“In fact, according to the company…

“This will be the only place to get, experience, or enjoy cannabis on the Strip for years – even decades – to come.

“And right here, right now…

“You Can Own a Piece of This Cannabis Resort Before It’s Developed!”

With some big projections for the sales numbers that might be generated:

“In fact, the Vegas cannabis market could hit $770 million this year alone.

“By 2021, it’s expected to reach $840 million.

“Soon after, $1.6 billion a year.

“And up to $100 million of those sales could happen at this location.

“Making this, perhaps, the largest retail cannabis outlet in the world.”

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I’d say that it’s not technically “on the Strip,” but the location they pitch is across the street from the new expansion wing of the Las Vegas Convention Center, so it’s more or less between the Strip (Las Vegas Boulevard) and the Convention Center, you’d have to walk about half a mile before you were “on the Strip,” near the downtown end between Circus Circus and Wynn.

Casinos are not allowed to have anything to do with the cannabis business in Las Vegas, the marijuana dispensaries are not even allowed to make deliveries to casino hotels, so that might be about as close as a big dispensary could get to the center of the action. The biggest existing dispensary in Las Vegas is Planet 13, which has its “superstore” location on the other side of the strip, fairly nearby (about the same distance away — half a a mile off the Strip in the other direction, near the Trump International Hotel and the Fashion Show mall).

And they make some hugely bold predictions about the company…

“This Little Company Is Set to Take Over the Entire Cannabis Market in Nevada Before It Goes Public.

“Today, we value this company at about $26 million.

“But soon after this company goes public, I expect the market cap to go up to $2.4 billion.”

And while there’s some strain to the logic here, the assertion that they’re going to “take over the cannabis market” but, at the same time, that the optimistic projection from Michael Robinson is that they’ll account for only 6% of the marijuana sales in Las Vegas in a few years ($100 million out of 2025’s projected $1.6 billion), at least the company really exists and already has revenues — they’re apparently supplying “high end” product to other dispensaries in Las Vegas…

“… nearly three out of four dispensaries in Vegas already carry this company’s products.

“One store sells over 6,000 boxes of edibles every month. They can barely keep them in stock.”

And apparently it’s very high quality stuff…

“… the average grower in Nevada loses nearly one-third of their crop due to failed tests.

“But this company’s lab can test down to the microgram level….

“And they’ve never failed a test. Not one time.

“So they don’t have to dump millions of dollars of cannabis in the trash.”

And their edibles are extra tasty…

“The Mastermind Behind Their Popular Edibles Is Actually a Wolfgang Puck Protégé.

“She’s taken her best recipes to make amazing cannabis-infused brownies, gummies, caramels, and rice treats.”

So who is Michael Robinson pitching here? This is the marijuana cultivator and product developer Qualcan, which is selling shares as Mystic Holdings in an Offering Circular that got finalized with the SEC on April 16 (the NICI ad is being recirculated now, but doesn’t seem to have changed since I posted the first version of this article… and is still dated “June 2020”).

So yes, this is a Reg A+ offering, that’s the provision in the JOBS Act a few years back that allows small companies to raise money (up to $50 million, which is what Qualcan is seeking) directly from private investors who are not accredited (“accredited” just means “you can really afford to lose the money” — to oversimplify, you have to have a net worth of at least $1 million outside your primary residence or earn at least $200K a year).

And yes, the company does describe themselves as having a multi-part strategy to expanding the business — they started by building up the Qualcan edibles line of products that are sold through other dispensaries, and over the past year they have made agreements to acquire two dispensaries and their associated licenses from Medifarm/Terra Tech, one in Reno and one in Las Vegas — the two taken together had revenues in 2018 of about $11 million and lost a little bit of money (Reno had a small profit, Las Vegas a larger loss). Neither deal has closed yet still, I don’t think, but they’re not particularly big deals anyway — there are conditions to the sale being completed, so just be mindful that they may not own those dispensaries as of the latest filing or, it appears, the most recent update with the SEC that extended the fundraising deadline.

And this is what they said about their planned dispensary near the Convention Center in one of their initial filings for this private placement offering with the SEC (on January 3, 2020):

Planned Convention Center Drive Dispensary

“We are in the planning stages of building beginning in 2021 and opening in 2022 our flagship retail ‘mega-dispensary’ across the street from the Las Vegas Convention Center. It is estimated that 42 million visitors pass through the Convention Center each year. This planned 70,000 square feet retail project would encompass a two-story dispensary and a multi-level, state-of-the-art parking structure. The facility would include an advanced logistics system that fully utilizes the multi-level floor plan for process isolation and is intended to accommodate the safety of both consumers and dispensary staff. The layout of this facility is designed to promote the control of costs through the minimization of human capital necessary to effectively run each department and use the created bonus headroom to provide consumers with a unique shopping experience and entertainment. This facility would utilize the multi-level design to completely isolate the inventory/cash vault from the day-to-day dispensary operations. This is to ensure that the consumer-facing experience is optimized so that product display, customer interaction, pop-up events and education are the focus. The amount of available surplus square footage also would create an opportunity for hosting a consumption lounge should this become a possibility in the future. This retail space is being designed to provide us the ability to facilitate events, classes and entertainment, giving customers an additional reason to return to the store. While the details for this facility and location were submitted for state approval as part of our 2018 retail license application, the location is still conditioned on state and local licensing approvals.”

And then the SEC responded, on January 22, with a comment about that…

“Please revise to explain where you are in the planning stages for the Convention Center Drive Dispensary. In particular, revise to indicate whether you own or lease the land for the dispensary and discuss the funding needed to build a mega-dispensary. To the extent that you do not have funding or agreements in place to build such facility, please also explain to us why you believe it is appropriate to highlight plans for this dispensary in the Offering Summary.”

Which led to the next update of the offering circular, on February 10, including no mention of the Convention Center Drive Dispensary at all.

There’s more than one way to interpret that — maybe they just didn’t want to deal with changing the language further and thought investors wouldn’t care, maybe they don’t want to put in writing just where they are in terms of leases or permitting or financing for that potential project, or maybe they’re dropping the idea of that superstore dispensary entirely…. I don’t know.

My guess would have been door number two, that they didn’t want to disclose just how early-stage that project is or the extent of the financing they’d require to build it, but, interestingly, in their investor pitch deck back in August of 2019 (yes, they’ve been trying to sell their story for a long time), they highlighted that Convention Center “Concept” and a second large dispensary they were “negotiating to acquire” in Las Vegas… though they didn’t call them “concepts.” The actual text back in 2019 was:

“Qualcan is building a 70,000 sq.ft. cannabis experience complex close to the Las Vegas Convention Center

“$70,000-$100,000 in estimated gross revenue per day

“$2.5M to $3.5M+ estimated revenue per month

“25% estimated revenue growth prior to entering year 2”

They certainly aren’t currently “building” this project in any physical way, and now they don’t mention it at all.

And as of the “current” deck associated with the recruitment of investors (as of April 15), neither that convention center project or another established dispensary they were negotiating to buy is included, having been replaced with a smaller “concept” in a different location (more on that in a minute, there’s been yet more adjustment as of August). So the story has changed quite a lot.

And as for the ‘never failed a test’ bit? That doesn’t seem to be true, they do pop up as failing a test in February, though I confess that I have no idea what that means or if it is common.

The goal for Qualcan/Mystic Holdings, they say, is to use this Regulation A+ offering (which has been in the works since early this year) to raise money to build the business, presumably consummate those acquisitions of two existing dispensary operations, and then apply for and hopefully get a listing on the Canadian Securities Exchange, where many US marijuana stocks are “listed” (that’s a small alternative exchange in Canada, the rules are far less strict than the Toronto exchanges so “technically illegal” businesses like US marijuana companies can get listed there).

There’s no guarantee that they will ever get a listing, of course, or that the stock will trade at over a dollar once they do and make these private placement investments worthwhile (they’ve done three private placements of increasing size over the past year or so of either equity or convertible debentures at roughly 3.6 cents, 30 cents, and 60 cents, and those earlier placements included conditional warrants but this one does not appear to — those two tranches of warrants trigger if the company doesn’t get “public trading status” by May 31 and August 31, so there’s probably at least a little motivation to get listed and avoid a bit of warrant dilution, though the terms may well have been extended with recent delays in the fundraising process).

They’ve so far raised about $22 million, which could theoretically have been adequate to close on the smaller dispensaries they’ve agreed to acquire so far, but they’re also losing money pretty fast — they put that “acquisition of Nevada Dispensaries” in as a $16.5 million cost in the “how we’ll use the proceeds” section of the offering), and are hoping to raise another $50 million in this current offering. If they get people to buy all of those shares, that would be roughly 120 million shares outstanding at a valuation (implied by this private placement, at least) of $120 million.

So far, the fundraising hasn’t gone very well. Which is probably why NICI is out with a new repeat of this ad with a new urgent September deadline — in the latest update that Mystic/Qualcan sent to the SEC, the timing is not so urgent — they announced that they are extending their Reg A+ filing deadline to June of 2021, blaming COVID for the delay in finding investors, and that the money coming in has hit their $5 million minimum to begin closing tranches of the deal, but just barely, and is far short of the $50 million goal:

“Through September 15, 2020, we have received approximately $5,188,000 in cleared subscriptions for this offering. Discussions and marketing efforts with investors are ongoing. To date, no funds have been released to us from the segregated bank account holding such funds.”

So they might well close the first tranche of this particular deal sometime soon, since they’re running out of money and can’t raise capital otherwise, but have no fear — I imagine that they’ll keep raising money after this first tranche closes, presumably on the same terms if they can convince investors, so you’ve got time to think it over.

The other news in their update has been not terribly consequential or surprising, at least as far as I can tell — they sued when they were denied five licenses in a few locations in Nevada, and settled recently with the result that they’ll now have two new licenses to work with for opening new facilities at some point (one in Vegas, one in Carson City), and they also have delayed their acquisitions of existing dispensaries (one in Vegas, one in Reno) because of regulatory and COVID speed bumps, but apparently those deals are still moving and they intend to close them, eventually.

What happens in the future? Well, the delay of the offering until June 2021 means you’ll probably have much longer to wait than originally expected… and for those who are locked in to this first offering, which is presumably irrevocable, the only real way to get “liquidity” if you choose to invest in this private offering… is to hope that they get listed on an exchange where you could easily sell, like the Canadian Securities Exchange. That seems very unlikely to happen anytime soon, not with the weakness of this Reg A+ offering response.

If they do not get listed for any reason, shareholders are probably a bit tied up — I didn’t check the offering details on that front, but private placements typically have rules about not being able to sell your shares for a period of time (6-12 months or so, usually), and restrictions on how much you can sell (and since they’re not listed, you’d have to find a private buyer or hope the company will buy them back).

So if you decide you want to follow up with the company about investing in their private placement, or review the details, I’d start by reading the Final Offering Circular and the September 15 update. You’d be crazy to think about investing in something like this without reading the full filing, including the risk factors. Don’t just limit yourself to the sales pitch deck they put up on their website in April or the updated version in August. Just call me “Mr. Buzz Kill,” but you gotta read the fine print… and that’s especially true with private placements.

Personally, I try to avoid the temptation of investing in private placements and similar private companies… but if I were to be tempted, it probably wouldn’t be in a company trying to build a brand and maybe a “destination” dispensary in Las Vegas right now, just because there are so many marijuana outlets there and I have no particular expertise as an investor in which are the strongest (and I enjoy an occasional trip to Las Vegas, but I’m not a marijuana consumer or student of that market — I did notice, when I was there last year, that there are a lot of big players in town or near the strip, including MedMen, but Planet 13 has its brand everywhere).

The two dispensaries Qualcan has agreed to buy at this point are small and not terribly meaningful (or profitable), and there are dozens of similar dispensaries just in Las Vegas, to say nothing of the gigantic Planet 13 Superstore that’s set up as a “destination” for marijuana and is trying to add nightclubs and restaurants to its business.

The theoretical Convention Center Drive facility “Concept” Qualcan has talked about (and left off their final offering, though it’s still the core of the big NICI sales pitch) did indeed sound impressive as a concept, and those initial “plans” could have ended up making it larger than Planet 13 and in a higher-traffic area, but we also don’t even have any idea whether it’s anything more than a concept, whether they have even a tangential connection to that land, or whether a huge marijuana dispensary across the street from the flagship convention center would be approved. Everything since their initial filing back in February has served to push that Convention Center “concept” and any other large (and probably equally “conceptual”) projects further out of the limelight, and if you were starting with just their actual SEC filing and their most recent investor deck you would never have heard of any of that — according to the latest filings, it’s just those two small dispensaries, the conditional approval for two more licenses in Nevada, and their existing cultivation facility that are worthy of focus, with “Sapphire” the only item in the “future potential projects” column. it’s only this NICI promo that’s still selling the Convention Center Mega-Resort idea.

For me, if I were sucked in to convinced to buy the non-refundable offer from Cannabis Venture Syndicate primarily because of this “Convention Center” story about that “world’s most valuable real estate” project, it would be worrisome that the company, in response to SEC questions, has left any details on that project out of not just the offering circular but also their updated glitzy presentations. The deal that seems to have replaced that in their Spring investor material was a “proposed Sapphire Plan” to open a much smaller dispensary behind the new Resorts World Resort that’s going up next to Circus Circus, where the Stardust casino used to be.

That smaller expansion “plan,” which as I interpreted it meant that they were replacing the idea of a mega-destination 70,000 square foot facility by the Convention Center with a proposed retail dispensary of 10,000 sq.ft. near the Sapphire Club, isn’t in the offering circular, either — it was a “proposal,” which doesn’t sound all that different from a “concept.” That’s still a pretty big dispensary, should it actually come to fruition, (10,000 sq.ft. is about the size of a typical Trader Joe’s), but it’s not likely to massively change the marketplace (Planet 13’s facility is 115,000 square feet, but only 16,000 sq.ft. is actual dispensary space right now, and before that opened the biggest dispensary in Las Vegas was NuWu’s “nearly” 16,000 square foot superstore).

And, as of the August update to their pitch deck, even that smaller Sapphire Plan has been downplayed further in the presentation materials — they no longer talk about the specifics or the estimated $2 million in monthly revenue at Sapphire, or show the location, they just say “EXPANSION — Qualcan is planning: 10,000 sq.ft. cannabis retail space near Sapphire Club and Resort World Las Vegas.”

Which I guess is good, in that the company is not overpromising as much any more… but NICI apparently didn’t get the “don’t overpromise” memo, maybe since they can use the loophole that they’re not the ones actually doing the offering and they didn’t actually name the company in their teaser ad. They are still hitting hard on that “planned cannabis resort on the Strip” project that now exists only as a generic image of a “dispensary concept” in Qualcan’s pitch deck. I’d be curious to hear what Cannabis Venture Syndicate is telling its subscribers about this drastic downgrade in Qualcan’s plans, but when it comes to recruiting new members, at least, they seem to be “full steam ahead.”

So whatever happens with Qualcan, my primary concern with this Cannabis Venture Syndicate ad is that they’re all but promising something that isn’t really even planned anymore, and yet they’re selling it hard, with a $1,950 subscription that offers no possibility of a refund if you decide you’ve been sold a pig in poke.

And yes, the ads are still running hot and heavy — the presentation is still the same one they gave in June of 2020 that led to the first version of this article by yours truly, but the emails about how this deal that “ends tonight” regarding “the most valuable square feet of property on the planet” hit my inbox again today. And this is how that Sapphire “plan” is still referenced on the NICI order form as of September 23:

“This Vegas Cannabis Play Just Got Even Better…

“The CEO just signed a deal to build another resort smack-dab in the middle of the ‘Cannabis Corridor.’

“The new resort will be attached to the largest nightclub in the world – an $80 million property just minutes from the Wynn, Encore, and other major casinos.

“I knew something like this was in the works. The CEO is forward-thinking and ahead of his time. And make no mistake…

“This New Acquisition Could Be a Game Changer.

“The club already draws over 600,000 people every year.

“When the new cannabis resort opens in July 2020, just a month or so from now, that number could skyrocket.

“And this tiny cannabis player could become unstoppable.

“There’s no doubt in my mind:

“This Company Is Positioned to Dominate the Projected $1.6 Billion Vegas Cannabis Market.

“When you add another luxury resort attached to one of the hottest nightclubs in Vegas with 600,000+ people ready to party… and up to $40 million in additional revenue… the competition won’t stand a chance.”

And no, of course, that “new cannabis resort” was never going to open in July 2020, they didn’t even have licenses or own or have leases or options on any of that property according to their filings earlier this year (they do have a couple marijuana licenses now, thanks to their recent legal settlement, but don’t note any other new assets — and presumably a signed deal to open a resort would be an asset)… but, worse, it’s not even something that the company itself is promising to prospective investors any more.

Resorts World itself is getting closer to being finished as the newest Strip casino, with the main hotel tower “topped off” earlier this year, but that Sapphire deal, assuming it actually exists, looks like it would actually be across the street behind Resorts, most likely, built in what is presumably the parking lot of the Sapphire Club, which bills itself as the world’s largest strip club. All we really know is that in one version of the presentation (not the current one),it was “penciled in” in that slot as a “proposed plan” for a dispensary, nothing like a “destination resort” for marijuana lovers. And again, that Convention Center idea over on the other side of the strip is but a daydream now, no longer acknowledged by the company at all.

The idea of a “mega resort” for cannabis in Las Vegas is not brand new, of course — the first really high-profile one was developed by Planet 13, and they still dominate cannabis marketing on the Strip, though I don’t know how their expansion plans are doing with the covid shutdowns. Planet 13 (PLTH on the CSE, PLNHF OTC in the US), in case you’re curious, is publicly traded, and has just about doubled since I posted the first version of this article in June. It now has a market cap of about $450 million, and carries the value of its superstore (and other minor assets) on the books at about $21 million (I don’t know what the capital costs were for the initial build, but that’s buildings, improvements, furniture and equipment, presumably the startup cost was at least in that neighborhood) — they have been booking about $60 million a year in sales, both from products that are distributed to other dispensaries and from their own facility, and have reported some surprisingly strong results in the last couple quarters, as they held up well doing deliveries to local residents while tourism evaporated and “walk up” dispensaries were closed, though they’re not profitable.

I don’t particularly want to invest in any marijuana dispensaries in a competitive environment, personally, but if forced to make a Las Vegas marijuana investment I’d still stick with the words I shared in June: I’d carefully consider the established Planet 13 before I risked money on an uncertain private placement for an unbuilt (and maybe even unplanned now) project. Your mileage may differ, of course, and you may have more of a taste for private investing and risk than I do — if you’ve got thoughts on this cannabis venture, or on other favorite ideas in the space, feel free to share with a comment below. I’ve left all the comments that readers posted to the original version of this article attached, so you can see if your fellow Gumshoe readers had anything helpful to add.

P.S. As always, we’re curious to hear how investment newsletters and services are working for you — and we don’t have any reader feedback on this one yet, so if you happen to have subscribed to that Cannabis Venture Syndicate, please click here to share your experience with your fellow investors — worth it? Not worth it? Did they send good deals your way or make you money? Provide great research or disappoint? Inquiring minds wanna know.

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