“Warren Buffett’s Secret Marijuana Stash” — what are the picks teased by Jimmy Mengel?

By Travis Johnson, Stock Gumshoe, April 6, 2016

This article was originally published on December 17, it has not been edited or revised. The ad from Jimmy Mengel’s The Crow’s Nest is apparently circulating heavily again, because questions are percolating through to me about these “secret marijuana stocks” again… so we’re moving it to the top of the list today for your edutainment.

The current version of the ad teases exactly the same stocks as the original did, and the stocks mentioned below are still relatively close to where they were in December. We’ve left the original comments appended so you can follow the reader feedback if you’re interested.

—from 12/17/15—

It was just about a year ago that we looked into Jimmy Mengel’s “Delta-9” pitch about marijuana stocks, and today he’s got a new ad out that teases several marijuana stocks (different ones, it appears) that he likes today.

And in a delightful ploy to get our attention, he titles the ad “Warren Buffett’s Secret Marijuana Stash” … which, as we’ll explain in a moment, is highly misleading — but which does conjure up fantastic images of Uncle Warren firing up a bong with Charlie Munger at the Berkshire Hathaway Annual Meeting and giggling about Coke and peanut brittle. That I’d like to see, for sure — I’ll be headed to the meeting again next year, and I’ll sneak in a camera in case that happens.

So what’s Mengel teasing in trying to get us to subscribe to The Crow’s Nest? Let’s dig in and see what he’s saying.

Here’s the Warren Buffett bit…

“Exposed: Warren Buffett’s Secret Marijuana Stash

“Why is the ‘world’s greatest investor’ stockpiling barrels of weed?

“And could this daring move result in an explosive wave of $200 billion in marijuana profits for savvy investors?”

Really? No, not so much. Buffett’s not actively investing in Marijuana (more on that in a moment), and $200 billion is an absurdly huge number… that’s roughly the size of the alcoholic beverages market in the US — as in that’s how much beer, wine and spirits in total is sold here each year, not the profit generated.

There is an underlying reality of significant growth in the legal marijuana business, of course, as states gradually decriminalize both medical and recreational marijuana use and as the trend pretty clearly is headed toward increasing that liberalization and beginning to treat marijuana as a legally regulated drug. It’s not clear yet whether that will mean it gets treated like a pharmaceutical or like alcohol or cigarettes, but it’s moving in that direction.

Which means that there’s demand both for marijuana, and for the products and services that supply the marijuana production, distribution and retailing businesses. This is where most “marijuana stocks” come in, they’re either distributors or drug developers or facility financiers or developers or otherwise support the industry… a few of them even actually produce or sell marijuana, but most of them seem to draw at least a thin line between themselves and the actual product because of the continuing uncertainty of marijuana’s legal status, particularly at the federal level.

You’ve probably seen lots of articles about the “boom” potential in the marijuana business, and most of those articles will compare it to the end of prohibition and the fortunes that were made by those (like Joe Kennedy) who “got in early” as alcohol started legal trade again and those who had locked up distribution deals, production capacity, or control of important brands made barrels of money. It’s an appealing comparison, and it makes some sense, though I don’t know to what extent those predictions that compare marijuana legalization to the end of prohibition will come to pass — I think it’s still pretty unclear what the growth rate will be in legal marijuana outside the medical market, and it’s also unclear what brands or dominant companies might emerge (if any).

Which doesn’t stop newsletter pundits from dreaming, of course — predicting big markets and looking for the profit is what these folks do, so marijuana is a compelling sector in which to sniff around for big potential winners.

I won’t go through the whole ad from Mengel, you can see it here if you want more of his buildup and his comparison to prohibition and promise of riches, but we’ll see if we can identify the three “secret” stocks he picks for this “Green Rush” of marijuana profits.

“Green Rush Play #1: “Canada’s $1.3 Billion Marijuana Monopoly”

“Gains Potential: 2,900%

“My first pick is a Vancouver-based company I call the ‘New King of Pot Stocks’ because it’s positioned as the future monopoly of Canada’s marijuana industry.

“The Canadian market for medical marijuana is growing fast.

“Industry experts project the market will grow from 40,000 individuals to 1 million in just a few years.

“And this firm is THE number one way to cash in on Canada’s explosive market — hands down.”

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OK, so how about some specific clues we can toss into the Thinkolator?

“… the company is Canada’s first licensed marijuana distributer and manufacturer, so it has considerable first-mover advantage.

“… a recent acquisition of its biggest competitor…

“A combination that analysts hail as “a cannabis superpower”….

“The company doubled its revenue each month in 2014.

“In 2015, its revenues have grown six-fold.

“In just two short years, its revenues are projected to explode 2,900%… even as expenses decline!

“No surprise, then, that it recently booked positive profits… AND free cash flow.

“I’m telling you… in an infant industry like this, where many of the companies are emerging players, it’s incredibly rare to find a company sitting on extra cash.

“In fact, right now it’s the ONLY player in the Canadian market to generate free cash flow….

“… this stock has more than doubled investors’ money in just ONE month. Take a look…”

OK, that’s pretty impressive — anything else? Mengel says there’s another catalyst for this stock:

“Recently, the Canadian government legalized cannabis oil and edibles — a law that takes effect near the end of the year… opening up a whole new billion-dollar space for this marijuana giant.

“Right now, its shares trade around $3…”

So who is it? There’s one decent company that’s a match: Canopy Gr