Hello, Gumshoe friends! I’ve been off the grid for a little while, but it’s good to be back — and it’s nice to see the pile of hot, steaming teaser pitches that have larded up my inbox over the past couple weeks.
So… which one to look at first? I’ve had a lot of requests for an answer to Matt McCall’s “Royal Gold of Marijuana” pitch, so I guess we’ll get things going there… after all, if there’s one thing I love it’s a nice royalty investment, the best of them can become a perfect passive income stream for a lazy investor (the worst of them, not so much… but lets be open to some optimism to begin the week, shall we?)
Here’s how McCall tries to get us excited in his pitch for his new service called Early Stage Investor ($1,999/year “on sale” at the moment):
“Few chances like this will ever come along in your investing lifetime… and if you act before July 18th you could watch a small stake grow into a massive fortune.”
And he gets us on his side by admitting that looking for the next huge penny stock boom in pot is a loser’s game…
“The odds of you finding the next marijuana penny stock that goes from $1 to $30…or building a big pot business from scratch are pretty slim, and very risky.
“So I’ve got a much better idea for you…
“A third type of investment has just opened up in the red-hot marijuana markets…”
That is, of course, royalties… the notion that you pay up front for a perpetual share in something. Here’s more from McCall…
“You see, what I’m about to share with you is an incredibly rare phenomenon. It’s only occurred a small handful of times in the past few decades, in other industries….
“But on many occasions, it’s resulted in an explosion of wealth so incredible, the numbers almost seem made up:
“The first time we saw it was in 1983 when it returned early investors as much as 45,300% gains.
“The next time it happened was in 1992 when it showed early investors a whopping 297,900% gain.
“Then it happened again in 2004 for 1,700% gains.”
Then he gets more specific about the Royal Gold (RGLD) connection, which started with a failed explorer run by a guy named Stanley Dempsey… who had an oil and gas company that faltered in the early 1980s when oil prices collapsed, then switched to gold exploration, and then, after the market crash in October 1987, turned to partnering off its gold projects… which ended up being the mostly passive, royalty-receiving business that ended up working for them, much as it did for Franco-Nevada (FNV), the other early pioneer of royalty-based financing in the gold market. Here’s a bit of McCall’s spin on that story…
“You see, Dempsey took what little money he had left… and rather than spend it to have his own company explore for more gold… he offered it to other, more knowledgeable and experienced folks in the gold mining industry…so they could explore. And in return… Dempsey’s company would receive a percentage of whatever gold the mining companies found and sold… in the form of huge royalty payouts.
“In other words, his new company didn’t explore or produce gold. They didn’t own drills, or trucks, or any of the other incredibly expensive trappings of the mining business either.
“They simply paid other folks to find gold for them and took a percentage of the profits in return.”
So that’s pretty much true — though it took decades for the huge riches to build and compound, and there were certainly hiccups along the way for Royal Gold (and the other precious metals royalty companies)… but what does this have to do with marijuana?
McCall says Dempsey had a couple key strategies that made Royal Gold work…
“Dempsey knew the key to making this work was to stack the odds in his favor.
“First, he only worked with the most knowledgeable and experienced miners in the industry — in short, the guys who knew where the gold was.
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just click here...“And second, he spread his capital across a wide variety of projects…
“This way he maximized the probability of finding a ‘winner’ — if even one of the mining operations he funded discovered gold, he’d receive royalty payments for years.”
Those are both “duh” strategies, of course — at least for a financier. It’s obviously key to work with companies and people who you trust, and to diversify. And certainly royalties on a few good mines make up for all the money you lost by buying royalties on properties that never had a real discovery or on mines that never got built.
Royalties are by far my favorite way to invest in mining… but compared to a lot of other industries, investing in gold mining royalties is still a very high-risk business that requires you to guess about the future not only when it comes to things no one can control (gold prices, drilling results, geological surprises) but also about management acumen in managing a massive permitting, construction and development project. That’s why these deals make a lot of money when they work out, because a lot of the time they don’t work out.
OK, so now we get into more specifics about this “Royal Gold of Marijuana” … here’s a bit of a sum-up from McCall…
“You see, the key to making a fortune in royalty companies is to get in at the very beginning… you want to be there first.
“As you’ve probably guessed, a brand-new royalty opportunity has just opened up… only this time it’s in one of the newest and fastest-growing industries in the world today…
“I’m talking, of course, about the red-hot marijuana industry.
“Right now, you have the rare opportunity to get in at the early-stages of this brand-new royalty opportunity… what I’m calling the ‘Royal Gold of Marijuana.'”
What makes gold royalties work? Mostly two things: Finding and producting more gold than was initially expected, and than was predicted in the models you used to judge the price of the royalty, which happens pretty often (there’s no financial incentive to “define” reserves beyond what is required to make the mine feasible enough to get financing, but mines often expand dramatically and produce for more than twice as long as the initial assessments predicted); or enjoying leveraged exposure to higher gold prices. You can make a lot of money either by producing gold for many years beyond the “break even” point (when the money you invested for the royalty is paid back), or by seeing the price of gold soar far higher and thereby speeding up the repayment of that initial investment and getting to those “profit” years.
That’s pretty much it — there’s no magic, and since you’re not exposed to operating costs you don’t care how profitable the mine is as long as it is profitable enough to keep operating… all you care about is whether your share of the production can be bigger than expected or continue for longer than expected, or whether the produced volume of whatever the commodity is will be more valuable because the prices in the future are higher. It looks like magic when it works well, partly because, when it comes to gold, higher prices also meant that the mines produced for longer because it was worth producing the lower grade stuff, or allowed miners to invest heavily in expanding the mines, so you got a bit of double leverage that way… but it’s not magic.
Why does McCall see riches for this royalty-style company in the marijuana space?
“… according to Business Insider 85% of marijuana consumers haven’t moved into the legal market yet.
“That means a huge underground demand is just waiting to be unleashed in the legalized world.
“Gold, on the other hand, has been around for centuries. By the time Royal Gold began mining, there was already an established market…and they still handed investors a fortune.”
Unlike gold, of course, marijuana production is not at all constrained in any physical way — it doesn’t have to be found, it just has to be grown, and with hydroponics you can build a plant in a year and produce several harvests a year soon after. Gold production does not respond nearly as quickly to increased demand, which is part of what helps prices to rise (and what has historically made gold a pretty good currency, given the naturally limited supply).
And we’re told that this market has made some huge royalty deals possible…
“Gold royalty businesses often typically receive about 2-5% of revenues from gold extracted from a mine…
“Compare that to the ‘Royal Gold of Marijuana’ which already has deals in place that deliver 30-50% of the total cannabis sales from several different growers.
“Bigger royalty deals in a much more profitable industry? Add it all up and it’s not hard to believe how this tiny marijuana company could ultimately outperform even Royal Gold’s outstanding returns.”
The flip side of that, of course, is that if things turn out to be less exciting on the income statement than a marijuana company predicts, then having 30-50% of their top line committed to a royalty company could be a major drag on the company’s operations, endangering their ability to survive a downturn. Royalties that are too big to handle and screw up the economics of the underlying business aren’t good for anyone.
But I’m putting the cart before the horse here again, that 30-50% could be a significant exaggeration… so let’s see what this company actually is, shall we?
“… these larger royalty percentages mean it has the potential to receive tens even hundreds of millions each year from several royalty partners.
“That’s a far cry from Dempsey’s most lucrative royalty stream that paid out around $10 million annually.
“Of course, the truth is, even if this marijuana royalty stock only does half as well… or even 1/4 as well as Royal Gold, it could still turn an investment of just $1,000 into $100,000 or more.”
And we’re also told that these can be very long-term royalties… which is certainly good news, it’s often after that first 5-10 years that a royalty really starts to generate dramatic profits.
“In the gold business, royalty deals typically last for the life of the gold mine… which is usually around 10-25 years.
“With cannabis, it’s a completely different story.
“As a renewable resource… it can never ‘run out.’ Because of this, the ‘Royal Gold of Marijuana’ has multiple deals set up that pay out lucrative royalty streams for up to 99 years!”
And the pitch says that these are also very good deals, with some examples:
“For example, this company has a royalty stake in what will soon become the single largest marijuana indoor grow facility on the planet.
“It’s a former KRAFT food manufacturing plant. Currently under renovation, this state-of-the-art facility will be the size of more than TEN football fields.
“With more than 600,000 square feet of grow space, it’s going to be the Madison Square Garden of the pot industry.
“When completed, this gargantuan facility will churn out more than 40,000 pounds of marijuana per year.
“And the best part? The ‘Royal Gold of Marijuana’ gets a cut of the revenue. And I’m not talking table scraps, either. They’ve negotiated a massive 50% royalty deal on all the pot produced at this facility — for — get this — up to the next 99 years!”
And sums that up…
“That means, when completed and at full production, this tiny royalty firm could rake in as much as $220 million per year for multiple decades… all from a one-time $120 million initial investment.”
And he says they’ve got lots of other deals in place as well, including one with a pharmacy chain…
“… this ‘Royal Gold of Marijuana’ has landed the deal of a lifetime — think CVS or Walgreen’s, only the Canadian version.
“In short, it’s secured the rights to the sales of high-quality medical-grade pot, with the potential to be sold in 40 pharmacies, with as many as 1,500 locations across Canada.”
So we’re getting an abundance of clues here… and I’ll throw just one more on the pile to make sure the Thinkolator has plenty to work with — the ad cites the connected leadership team as one of the reasons why marijuana companies will want to make royalty deals with this little firm:
“… the CEO of this company is a veteran of the marijuana industry…
“He’s already founded another hugely successful cannabis company, called Canopy Growth Corp (which I mentioned earlier this presentation)…
“He took that company public in 2014 for just $3 a share…
“Today, it’s the largest pot stock in the world, in terms of marijuana produced.”
McCall also throws out a couple catalysts to entice possible subscribers — one, of course, being the impending recreational legalization of marijuana in Canada, which has been on the lips of every marijuana investor for over a year now as the turning point that will bring massive fortunes (and, of course, that’s also the reason that all the big marijuana companies in Canada are investing heavily in increased production).
And the other is that their first royalty will soon start paying, so they’ll actually have some revenue to get people excited. Here’s how he puts it:
“… as early as July 20th this tiny company is looking to receive its first major royalty stream—as much as $1.7 million—is scheduled to come online, according to our more conservative estimates.
“And this is just the beginning…right after that another royalty payout is lined up.
“This one is even bigger—roughly $3 million.
“Again, when these big revenue streams start pouring in, big institutional investors could take notice and begin to pour billions into this tiny stock…”
And then next year more royalties start pouring in…
“2019 is when this company will really start to cash in on their deals. During the first half of the year, our analysis shows royalty streams of $5 million, $7.5 million, and even a big delivery of $40 million are scheduled to come in….
“All told, over the next 18 months, this tiny company is expecting to reap the benefits of over 90,000 lbs of marijuana …an amount which could exceed $90 million.”
So who is it? Well, part of the reason why it may still be somewhat “secret” is that they keep changing their dang name, but the Mighty, Mighty Thinkolator says the company being touted is Auxly Cannabis, formerly Cannabis Wheaton (XLY.V in Canada, CBWTF OTC in the US).
Auxly was started last year as a streaming company for marijuana, which is where the “Wheaton” name came in (Wheaton Precious Metals, previously Silver Wheaton, was the pioneer of the “streaming” business model, where companies were paid up front and the streaming company received a large chunk of ongoing production, usually at an ongoing price far below the current market price), but apparently this name change to Auxly is meant to emphasize the fact that they’re going beyond streaming to be “immersed in all aspects of the cannabis value chain” — so it sounds like they’ve at least hired some more MBAs to get their business gobbledygook-speak up to par.
Why is this a match? Well, the CEO and founder of Auxly, Chuck Rifici, was indeed a founder of Tweed, which later became Canopy Growth… so that’s a match. As are a couple of the specific deals, including that “single largest” grow facility in a former KRAFT plant (that’s a deal with FV Pharma, which does indeed give them 50% of all cannabis cultivation, excluding the existing cultivation, for 99 years), and the $55 million they’ve invested in ABcann to get 50% of production from a newly constructed indoor cultivation space for 99 years, starting late this year.
So I’m convinced that the Thinkolator is right on this one… but is Auxly a great investment? For that we have to look beyond the ad pitch and think for ourselves.
So far, it’s been a disappointment if you bought during the initial enthusiasm, when lots of talk about what was then Cannabis Wheaton becoming the first great royalty company in Cannabis drove the shares up for a little while in the Spring of 2017 to about $1.50, then more dramatically back in December, when the stock surged to over $2.50 (Canadian) on the impending “legalization” news that sent pretty much all Canadian pot stocks bonkers over the winter. Now it’s around $1.10, though the market cap has surged to close to C$600 million now because they’ve raised so much money (the share count has gone from about 50 million when they were first becoming a “streaming company” early in 2017, to about 566 million shares outstanding now according to the Toronto Exchange numbers).
And that, really, was my primary concern about Auxly when I first started looking at them a little over a year ago. I love royalty companies and streaming companies, the business model takes a lot of the risk off the table and provides for possible long-tail returns that can be phenomenal… but they are also primarily financing companies, which means that they have to first raise the money to fund these deals they’re making, and should be valued at something like the amount they’ve invested in those deals. There can be valued added by a great management team, and it’s certainly possible for a financier to make great deals that are worth twice what they paid — but if you’re assuming the company is worth more than twice what they’ve invested in future income streams, then you’re making a huge leap of faith.
Of course, leaps of faith are nothing strange in the marijuana space, which has been fighting it out with the blockchain sector when it comes to attracting speculative capital and providing bubblicious daydreams to individual investors. The folks who dreamed about the next big gold mine a decade ago are now dreaming about the next huge cannabis brand.
Here’s what I wrote to the Irregulars about Cannabis Wheaton when it was facing a bit of selling pressure last Summer…
“The streaming deals they have so far look terrible, honestly — the ones I’ve looked at where they’ve provided some specifics are based not on current economics, but on some hypothetical world where prices rise dramatically for legal marijuana in Canada. That might come, but this is going to be a regulated market that might even have strong price controls, and I suspect a bank wouldn’t lend based on those estimates… a streaming company trying to expand quickly apparently will, and perhaps that’s why the streaming company hasn’t raised the $500 million they need to fulfill their end of the streaming deals they’ve made… and, it seems, is having some trouble raising even a tenth of that amount. Which, in turn, could mean that some of their streaming deals won’t close, because the deals that I saw described in detail were contingent on Cannabis Wheaton raising money.
“I do kind of hope that this one hits a rational price as disenchantment continues, and they did bring in a new executive this week, presumably with some hope of righting the ship and restoring some credibility, but we’ll see — it’s quite possible that they missed their chance now. If you intend to build a long-term successful business, it’s short-sighted to be raising this money with junky convertible debt and warrants when there’s a lot of interest in marijuana equities, they could perhaps have set themselves up for a much healthier business if they had just sold a big slug of equity right away and kept expectations a little more in check… but, of course, that would have driven the price down a bit more, at least in the short term, and it seems to me that many of the marijuana market participants who are starting or listing companies in the public markets seem to be quite enthusiastic about getting their windfall profits quick before the story or sentiment changes. That’s probably a word to the wise for us all: Investors can obsess over share prices and have wild mood swings, but when companies themselves are focused on the short term stock price movement instead of on building a sustainable business, things can get ugly quickly.”
So if you had listened to me back then, you would have missed that 150%+ run into late December, but also avoided the belly ache of the 60%+ drop since the highs early this year. The price per share of Auxly is now within about 5% of where it was back in early June of 2017, when I wrote those words, though the market cap has risen 300% and they’ve also added about $90 million of debt.
But that’s all in the past… what’s the story now? Is Auxly now appealing after this long drop in 2018?
It’s certainly not an unknown stock, it has been profiled by lots of the free pundits out there (including the Motley Fool here), and it’s been teased a few times by various newsletters (including Jimmy Mengel starting last year, and the Casey folks this year).
They do have more deals now — you can see some of them outlined on their “Partners” page here, though they don’t talk much about what they paid for these deals or what their ongoing obligations are (my concern a year ago was that Auxly, then Cannabis Wheaton, was being valued as if they had already paid for the deals they had made, when in reality they hadn’t even raised the money to pay for those deals yet). The total production is indeed impressive, more than 200,000kg of marijuana is due to Auxly from its partners when all the operators are producing at full tilt, though that could be many years into the future.
As of last quarter, Auxly reported that they have sufficient capital (about $200 million) to cover their obligations over the next twelve months — so that’s good (the money came from their accelerated warrant conversion process once the stock hit its highs over the winter, plus $100 million in convertible debt sold this year). That means these deals that are currently in progress, the growing facilities being built, etc., can actually be paid for… a good starting point.
The share count will likely continue to balloon, even if they don’t raise more money, because they’ve been aggressively using their shares to acquire more companies — including several relatively small acquisitions made just since the end of the March quarter, which could serve to dilute the impact of any near-term cash flow from their streaming deals that are expected to start generating revenue… so that’s a concern, as is their continuing predilection to act like a junior mining company and issue lots of warrants and convertible debt instead of plain old equity.
There is actually one sell-side analyst with estimates out for Auxly, predicting two cents of earnings per share in 2019 and 18 cents in 2020, based on the dramatic rampup from $7 million in revenue this year to $570 million in 2020. We shouldn’t base much on the estimates of a single analyst, particularly because it’s probably a company that’s doing business with Auxly (there’s not much other reason for an analyst to cover a company this small), but it’s a start.
So I am forced to stick with accounting on this one, given my lack of interest in reading the details of each of the deals Auxly has made with royalty or other partners, and the accounting says that as of March they had $206 million in cash, $14 million in product receivables (marijuana they’ll be paid in exchange for money lent), $19 million in long term investments, $4 million in property, plant and equipment, and $30 million in “intangible assets”. That totals up to C$273 million, not including another $4.5 million in “goodwill,” which is what they’ve paid for some assets in excess of their value.
They’ve made a few deals since then, but they don’t change the makeup of the company dramatically — so that’s what the accountants believe that Auxly is worth, they have about $200 million in cash and they’ve bought stuff that’s worth about $70 million so far. We can argue about whether they’re valuing those assets fairly or not, but since it was all acquired during the past year I assume there shouldn’t be major differences between what they paid and what the assets are worth — these aren’t hidden assets that have been depreciated over the years, or brand names that are worth far more than the price paid, these are business deals that they made in a competitive environment.
So my base case assumption, having not scoured through the details recently but having been generally unimpressed with the early streaming deals last year, is that a well-connected management team is worth a premium price when managing deals in a nascent sector like this — but since it’s a commodity business still, without clear brand leadership and without any clarity on regulatory pricing, I wouldn’t want to pay more than a 100% premium.
I don’t like the idea of betting on higher marijuana prices, because I don’t think there’s much to be gained by betting on the price per gram of marijuana rising dramatically over the next couple years — part of the reason for legalization is to squeeze out the black market, and if prices are much higher than the $7-10 per gram that Canadians currently pay the black market can undercut the regulated and legal market… particularly since it would be almost impossible to identify whether a person is carrying legal or illegal marijuana.
The continued existence of a large global black market and the massive increase in regulated and legal production in Canada will do plenty to keep prices in check, I think, and I suspect that Canada will have price controls that keep the legal stuff pretty cheap — though once edibles and drinks are legalized, anticipated next year, it will get a lot tougher to control prices as the variety of products explodes. I could be wrong on that, but that’s my base assumption that gives me caution about Canadian marijuana stocks — it will be a booming market in terms of revenue and production, but I’m not sure whether it will boom in terms of profits because I think per-gram pricing will probably fall.
So in that environment, with Auxly’s odd web of distribution and production deals and partnerships and streaming/royalty agreements, I’d be willing to consider paying a price that assumes their deals are worth twice what they paid for them. To get to that number we double all the assets other than cash, and add in the cash, and that gets us to just under C$350 million. That’s the price where I’d start thinking that I can invest in Auxly without making wildly optimistic assumptions — perhaps if I knew the deals or the marketplace better in Canada I’d be willing to pay more, I don’t know, but I don’t find a C$566 million valuation all that compelling.
That doesn’t mean the stock won’t rise, of course — it is a great business model in the abstract, though we will have to wait to see how it plays out given Auxly’s costs and assumptions (the company is not just a passive partner, and these are not primarily passive royalties but are mostly streaming deals that give them a share of production at a cost — either a fixed cost, or a joint venture obligation to help with marketing, development, distribution or other expenses… more like joint venture deals).
And it’s certainly possible that the stock will rise again in a manic spike when marijuana headlines about the first legal recreational sales hit newspapers… I just don’t want to speculate on that happening, so I’ll hang back and will wait to see if this risky but interesting stock gets cheap enough to consider buying. I love royalties, and I have some general appreciation for the way Auxly is developing a large financing operation that’s sort of like a royalty business for cannabis, but I don’t like the price investors are asking me to pay for the shares right now.
I must close by also stating that I could just be a boring old fuddy-duddy, and I have problems with the valuations of pretty much all the marijuana stocks I’ve looked at — so perhaps I’ll just miss the fun, and I can live with that. So I’ll turn it back over to you, dear friends and readers: Think I’m missing out? See a great future ahead for Auxly (or your own favorite marijuana stock)? Let us know with a comment below.
Disclosure: I own shares of Franco-Nevada, which is mentioned above. I don’t own any of the other stocks mentioned, and will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.
I just looked up the price of CBWTF. It is .83. What is a reasonable price to buy?
Given my quick look at the financials, I’d start to look at it about 40% lower. Don’t know if it will get there or not, but being willing to miss opportunities is an important part of price discipline.
CBWTF is .79 today, about what it was in March of ’17. I’m sure there’s a way to make money on a plant that nearly anyone could grow on their own, but…
I purchased a little taste of Auxley @ $0.60
Just 500 shares, to see what it does. Will it take off like options blowing past it’s strike price or fizzle & fall?? It has some recent Grow Capacity streams, lately, one with ABcann for 50%/99 years on the Facilities being constructed//expanded.and 15% of another company’s stocks//warrernts. I guess $300 is the price of the “Curiousity//FOMO”.
There was enough in his teaser, with references to Royal Gold. I’m familiar with several PM Streamers, such as Wheaton Precious Metals (Formerly Silver Wheaton) so Cannabis Wheaton came right to mind. It went from about $0.74 to $2.40+ many months ago. IF it goes to $1.80+, I sell 1/3 for a risk free ride–I have my originsal $$ back.
I’m a believer in Auxly. I like it up to about 1.25. Stock is coming out of a nice bottoming formation – not a perfect cup ‘n handle, but a solid one. I think they could take out the old 52 week high of around 2.25 in the next 12 months. Longer term, it’s hard to say, but we’re in the top of the 2nd inning in this nascent space. I added more to my position at 0.90 just recently.
I just sent Gumshoe an update on Benitec Biopharma, the stock I recommended which was dissed by Dr. KS on this site. It doubled today so I thought maybe I can boast a bit. Is the anonymous doctor still writing here? I cannot tell.
While on the subject of drugs I learned about marijuana when I was in high school here in NYC, calss of 1958 (we just celebrated our 60th reunion where no pot was scented.) All you folks from the heartland are only beginning to catch up with me.
The next time I ran into freely available pot was when I worked for the Senate Foreign Relations Committee on Capitol Hill, Washington DC, in the 1970s. We got books delivered from the Library of Congress along with paid tokes for making it easier to study them for our Senators.
That guys doesn’t write here anymore
I have owned the stock and its value has declined so far since their name change. It will be interesting to see how it performs after October 17, 2018. I see potential in the concept; thats why I am staying in and will buy more to offset my initial buy in price.
Thanks for your observations, Travis. Much appreciated.
Methinks that I would prefer to invest in companies that process or sell materials that are necessary
Thanks Travis, I am one of the folks that asked about this teaser. I think you are spot on about Auxly/Wheaton; and do not plan on investing in them, nor Matt McCall’s new service. I am 65, retired, and can not wait years for royalties. I am invested, small $2k speculative each, in 14 cannabis grow or cannabis industry related companies. Readers – don’t be concerned about McCall’s July 18 deadline – public held companies stock prices will probably be sideways all summer, and hopefully start rising after Labor Day, as Canada’s October 17th legalization date approaches …..giving you time for due diligence studies on specific stocks.
What are some of the cannabis stocks you’re involved in?
I started with Travis’ talked about IIPR Innovative Industries REIT and IIPR.PA Innovative Industries preferred. Mid-April and June 1 I added
CGC Canopy Growth
CNTTF CannTrust Holdings
CRON Cronos Group
GTBIF Green Thumb Industries
GWPH GW Pharmaceuticals
HYDDF Hydropothecary
KHRNF Kihron Life Sciences
LXRP Lexaria
MMNFF Medmen Enterprises
OGRMF Organigram
SNNVF Sunniva
TGODF The Green Organic Dutchman
Between mid April and June 1 I held & sold Aphria, Aurora & MedReLeaf. I am awaiting Acreage Holdings, of U.S., to go public.
As part of your due diligence, I suggest 3 weekly (free) enewsletters.
1. Let’s Toke Business Newsletter by Ted Ohashi. Send an email to Ted tedohashi@gmail.com and ask to be added to his newsletter and what country you are from.
2. http://www.newcannabisventures.com by Alan Brochstein
3. http://www.greenmarketreport.com
Happy Investing!
I researched heavily and put quite a bit of capital to work. I own about 18 names, some spec plays, some takeout plays, and some picks and shovels (that I don’t really recommend). Most of my allocation is in the top 8. I’ll try not to duplicate what the other poster provided.
The Big Boys are Canopy CGC, Aurora ACBDD, and Aphria APHQF. Canopy is my biggest position. I think Aurora and Aphria are still buys right here (Sept, 2018). I wouldn’t touch Tilray TLRY here. It’s in outer space, and likely due to US listing. Aurora and Aphria are not US listed yet. Aurora has one strategy – global domination at any cost, and through acquisition.
My top two takeout targets are Organigram OGRMF (the organics play – nice chart), and Emerald Health EMHTF (the sleeper, but executing).
CannTrust CNTTF is another mid-sized company that could be a buyout (for Bev or Pharma), or a buyer. But a pretty big name and rumored to have US listing almost complete.
My top US pure play position right now is Liberty Health Sciences, LHSIF which has excellent management and is tightly aligned to Aphria. They are a medical play in Florida, Ohio, and Mass, and will be recreational in Mass – so far. Others like Sunniva, MedMen, and there are others. I’m not in those.
Auxly CBWTF is another interesting one. A “streaming” cannabis company that is also building a vertically integrated “ecosystem” of partnerships. They are quite unique in the space, and being touted by quite a few newsletters. So that can be like a natural “put” I believe.
KushCo KSHB is a bottling, packaging, labeling and regulatory compliance play that also sells vaporizer equipment to retailers. Expanding globally, and also in many newsletters.
There is a new marijuana stock that trades on the CSE exchange that has the symbol crop. c r o p. It acts as a royalty stock as well as a REIT in a sense. I’m wondering if anyone has looked at this stock and may be able to comment on it. I own a small amount from the initial public offering, and am not sure how this will turn out. It does seem to have garnered a fair bit of Interest based on the volume that it has been trading recently. Had a huge short interest that has made for some extreme volatility.
the 50 day av dropped below the 200 day average in march and it has been on a down road path since. closing price on 20/7/18 is $32.33 US
It may also be HUGE
XLY invested $55 Mill.??
When I stopped by Wheaton Silver’s booth at the pdac conference last march they said that their lawyers were taking action to force a name change for Cannabis Wheaton.
Another thing to consider; a lot of investors don’t realize that the building of most of the growing facilities has been at inflated prices. As a greenhouse owner (not in the cannabis business… sigh) I have a good idea about what the facilities should cost and I believe most facilities have been built for a 20 to 50 percent premium on the materials used. Understandable given the circumstances but it means that you should have a closer look when evaluating assets. Companies that transitioned from the greenhouse business have in general managed to build their facilities for significantly less due to past relationships with suppliers. Companies that built before the build craze started also have an edge.
The marijuana stocks that have made the most money for me are Canopy Growth and Medrelief.
mypanama2 would you buy Canopy Growth and / or Medrelief today?
My investment newsletter says to hold MedRelief (neither buy nor sell) and buy Canopy Growth up to $50/share. It is now $29.61, so buy.
MedReleaf was purchased by Aurora for a substantial premium. That was my biggest holding, but now Canopy is, followed by Aurora, Aphria, Organigram, Liberty Health Science, Auxly.
I personally think Canopy will continue to go up more slowly over time. Some think it’s due for a big pullback, but I think there will be buyers below 50. I think Aurora and Aphria, Aurora, Liberty, and Auxly are buys right here.
I have never smoked weed, but I rode Canopy Growth(WEED TSX) from $8 CDN to $43 . Now that was a HIGH!
When rejecting most other companies you simply pass. This one you want a 40% further discount yet in the write up state maybe a 100% premium. So no comment on the fact they have $200M+ and money to invest? Admittedly no interest in reading about their deals? I’m for the first time disappointed in a Gumshoe response, maybe I’m a sore loser, but at least not an old fuddy with a bias
Since October 2017, I am up 9% on Auxly Cannabis. I know that is not a lot, but I think it will definitely be a winner in the future.
warderwill – you’re a non-paying Irregular, like me. First, give a thought to all the work that Gumshoe put into writing this article. Second, before you criticize, have the decency to do a tiny little bit of thinking. Less than 1% of what Gumshoe did. Read the article. His 40% price discount takes into account the cash and asset position (which Co. admits they overpaid). Third, don’t call Gumshoe names. It suggests that you know better, which insults everyone, including yourself.
I’m looking at it as a financial company, since it’s the streaming deals that interest me — for a financial
company it’s hard to stomach valuing them at more than twice the current value of their funded deals in place, so if I take that value and then add the cash I get a price about 40% below today’s market price.
If you think their industry connections or possible future deals are worth more than that, you might be right. I’m just not convinced just yet, perhaps because I don’t like a lot of the deals they made last year when I looked at them more closely.
The keyword is that it is a financial company with no product to sell. They are as good as their money is but otherwise it is just an office with a bank account. To value them 2x the value of the deals is really the ceiling here – already a stretch in real life. This is like making tea twice from the same bag, you may as well invest in the underlying companies that have factories and products to sell.
one of the mj stocks with no revenue, many much better
https://www.angelnexus.com/o/web/165728
Hello, did anyone notice that the above company is pumping In Med Pharmaceuticals / IMLFF, claiming it can climb 63 fold in value from here ?
Might be a much better deal here than Auxley.
They are also asking new subscribers to pay $1,999 for a subscription, before they will tell people that the company pumped is IMLFF.
They are making some claims that InMed has found a component that can cure breast cancer although breast cancer is not very high on their list of priorities.
IMLFF is the company that claims they can synthetically reproduce the 80 to 90 medicinal components found in the marijuana plant.
Among other things, the CEO of In Med claims their technology is more valuable than the current market cap of GWPH …
and I do believe another Gummie suggested that our Prime minister had his mitts i this one but I have heard no such comments since that one time on another thread.
First of all, let us have a look at Chuck Rifici’s corporative surrounding (ousted from Canopy), his strange taste for the red (web page, Canada Liberal Party…), and where does he go strategicaly from Nesta Holding Co? adding to the risk?
my brokerage does not allow me to trade stocks ending in
” F “;which probably Canadian or foreign. Any recommendations would be greatly appreciated. TYVM
Those are the OTC symbols used by brokerages to trade shares of a company without a US listing or official ADR. Almost all full-service US brokers can trade in Canada for you if you wish, sometimes at higher cost or requiring a phone call, and a lot of brokers will usually allow customers to trade these “pink sheet” or OTC shares. Many of them are extremely risky and small, though, and the OTC markets are home to a lot of junk (as well as plenty of real companies), so some brokerages protect their customers by blocking them all.
Best option, if you’re interested in investing in companies that aren’t listed in the US, is to get a brokerage account with some international access — most of the big ones like Fidelity and Etrade offer that as a separate service, and Interactive Brokers is my favorite for wide access to foreign markets.
Travis as always is spot on. I trade at Fidelity. If an OTC fund is newly listed, there may be an additional international trading fee, $50 with Canada listed funds.
oops, forgot to sign in – Travis as always is spot on. I trade at Fidelity. Some new listed OTC funds also incur an international trading fee, $50 for Canadian listed funds.
I trade on my own with Charles Schwab. Their fee is only $4.95 and they have excellent customer service.
To the above…I had the same problem, since I don’t live in Canada (the ‘F’ ending stocks). So, I went to a broker who could help me with those…Fidelity. I am not trying to promote this broker, just throwing it out there as an alternative. Good luck with those MJ stocks (I guess I came in late and got nowhere with any profits).
Marijuana is having growing pains. For one thing 85% of the market is still underground, and the users are reluctant to pay high prices for taxes and fees when they can da kine for less from their old dealers or grow their own. I believe these things will work out in time, but it’s not going to be a gold rush for awhile.
The following stock might be a real big winner-Has anyone here heard anything about it besides me? Cannabix Technologies -BLOZF The Product-a handheld marijuana
detecter in the prototype testing stage.Every police dept. Canada & Us is a potential account. The item itself is very difficult technically to miniaturize and the obvious need is already manifest.
Too late? – check this out with google translate: https://www.nzz.ch/zuerich/aktuell/zuercher-polizei-fuehrt-schnelltest-fuer-cannabis-definitiv-ein-ld.1340487
Such a product is already in use here in Switzerland. And I bet that other police Departments around the world know about this.
Travis
Great Synopsis of Auxly! I currently own (CRON) based primarily upon their current
Worldwide Distribution Contracts and I would Certainly Appreciate your Personal
Analyses on this company’s prospects and projections over the next 3-5 years?
Thanks Much.
What’s up mr gumshoe!!
I think there is a little confusion when it comes to Wheaton/auxly
When they first came on the scene it was a complete mess. The long and the short of it is that employees of co-lead agents Eight Capital and Cannacord Genuity owned approximately 8% of Cannabis Wheaton, which drew red flags. Cannabis Wheaton “mutually agreed to terminate” the agreements with both companies. Eight Capital removed and replaced its CEO Mark Attanasio over the debacle.
This obviously had me concerned. But thankfully, the company was able to engage Mackie Research Capital Corp. to act as lead agent to lead a new $50 million private placement. As you may remember, Cannabis Wheaton had only had an initial target of $50 million when they started .after that whole mess cleared up and the whole mining switch cane thre along with their private placement.group of private investors with the face of the company chuck rifici who floated around the early cannabis business as well when the whole Minning company turned into Wheaton for quite awile and was asked by main stream tech companies executives that decided and came up with this (streaming )method as its referred to why they find a need to give them nick names from other companies makes it sound ridicules which back in the beginning when it was done that way to keep names out of the dirty business of pot. There First 5 deal where public ally announced the most susussful to date is abcan which they didn’t do a complete turnkey deal with them but allowed them the option to pat of Dept with crazy interest plus a 5 Pct stake in the company which was one of the last public ally announced deals due to the effect of the turnkey business they fundedwith iron clad contracts backed by calaterial ( Sorry spelling and typing with sausage fingers isn’t easy for me) but it was greatly effecting the companies stock prices when it’s made known that 30-50 Pct of the first 3 -5 years profits were being paid off to wheaton the companies that are listed on there website were the companies prior to a change in the contract making that info private to protect the share prices there are still approx. 12 large size companies from growers to greenhouse ,lighting and extraction companies you name it they basically started up companies to suite their needs as well since they always had the choice to receive payments in cash or product and when it costs you nothing for say 1000 lbs of pot not even the lowest priced per gram company can compete they are very far ahead of the necessary seed to sale tracking because when it comes to their 30-50 Pct of the profit along the length of the deal they made sure from the root to the top of the flower was accounted for. With their political ties and quality of cannabis and price were able to grave a few lucrative providence monthly supply agreements which now had added up to more then they could comfortably meet so they got roped in smack in the middle of the normal hype gains caused by all the important votes were even companies that never turned a profit doubled in price around the date passing vote. So they were forced into the dreaded private placement deal where even the underwriter gets paid in shares as well as cash causing the dip from 1.25 low after the Jan 1st vote that crashed on feb1st and second for every body hitting all time lows for even bigger companies like alphria . However being bright down to low 70 cent range after there 5 separate stock give away deals to make them basically a lot more than just a streaming company now that they get their hands dirty. They truly made some very good moves only bringing there stock pice down to the oct 2017 days when their streaming business was January’s vote that gave most of us solid 300 Pct gains before selling and now they stand at about 3 times the size of just the streaming model and the oct17th delay became a blessing for them to not just keep up the pace but using all the land they own a Pct of and access threw there streaming partners gave them free greenhouses lighting and pretty much anything they needed to expand with minium cost on top of the up and running companies they purchased in full or 50 Pct of the company puts them at the closer to the top of the list for what they own and collect profit from for the prime first years of fully legal giving everyone a chance to buy share at or below 70 cents closer to 60 when 5.00 is a complete reality at the peak of the oct 17run and with the November primaries back to back with their under the reader buying into bits and PCs in the USA also 5.00 will be very realistic durning the run and not the advertised 5000 Pct gains that flashed for 10 minutes where few people couldn’t even come close to filling their sales order. I’ve held the big company earlier buy in prices selling of the usual smaller companies and later buy Ins on the biggest and baddest waiting for this Canadian money give away to dump what needs dumping which is everything until big new of big company money comes in making it easy to decide which to dump and the few to hang on a bit and in no way shape or form is there going to be a marijuana based company holding a price like a real stock like micro soft so for the guys that sat there holding canopy till it gets to 100 bucks I wish you all the best . But buy in at the bottom of Wheaton when there purchases are all in place and it levels off hold tight and expect a whole lot of nothing in early August to early sept except for Molsen and others picking who to invest in but I believe holding Wheaton threw the 60-70 cent mark will make 5.00 or better a nice payday especially once the old school Vegas skimming stops now that the govt will be expecting what they have been waiting and basically looked the other way with stuff with any other market would be called insider trading but it’s pot right now it doesn’t apply ! As always best of luck to all in the game which has been kind to so many.
Stay well hold on carful always wait on the under 300 million companies they will still be coming down to maximize but right all the current prices down off the 200 ish pot stocks and none that don’t get bought out won’t reward you very hard to loose money as long as your buying at the lull inbeteeen laws passing never chase and god bless America
Robert, I would dearly love to know your opinion on the various things you posted on but your post is SO DIFFICULT to read with 5 sentences all looped together into one. You need to stop and put some periods in between thoughts, my love. Just take a breath in between thoughts. Just a polite request for the future.
Oh, thank you Astrovel, I thought I was the only one out there who still knows how to spell and write! My pet peeve is that I now see these mistakes written on companies public signs and that frightens me (these are mainly promoted less schooled workers). Blame it on our fast computerized nation and people who don’t believe in organized and proper classroom English (also just plain street talking doesn’t help).
I guess I’m susceptible to the notion that there’ll be a lot of money flowing into the MJ business and wonder if there is someway I can get some of it.
Brian Hicks the founder and president of Angel Publishing is hyping a mystery stock that he claims has been identified by BRITON RYLE (and he hypes the track record of Briton), a REIT that specializes in renting land to growers of MJ.
“It provides one thing and one thing only: the land for companies like these to build their grow facilities and botanical laboratories.The demand for real estate is so incredibly high that our REIT has more than doubled in size since its inception in December 2016.And with 10 more U.S. states as well as the entire nation of Canada poised for legalization, demand for its services has nowhere to go but up.”
His piece is at https://www.angelnexus.com/o/web/166829?utm_source=email-article&identifier=e8d52b33512acd76a936db3ed32e1e05&utm_referrer
The hints are numerous and are probable easy grist for the Thinkolater.
Anyone have any thoughts on this
CROP INFRASTRUCTURE CORP – This one is fairly new and is essentially a REIT that leases their properties to producers.
CROP:CANADIAN SECURITIES EXCHANGE – CROP (ticker on the CSE) CRXPF on the OTC PINK
The REIT structure seems like a greaat business model that might reduce risk in this sector. Not sure about the company in question, but would welcome any opinions and/or analysis of CROP and similar type MJ stocks that are in the business of leasing real estate to producers.
I am ahead on I bought on 10/26/17 IIPR
I subscribed. 6 month money back guarantee for $49.
The company is IIPR – Comments?
making me a profit