Sniffing out “America’s Top 4 Marijuana Moonshot Stocks”

What's been teased by Matt McCall? Thinkolating on hints about "Walmart of Weed," a big royalty payer, an operator of one of the largest greenhouses, and more...

By Travis Johnson, Stock Gumshoe, September 16, 2019

Those of you who’ve been aboard the good ship Gumshoe for a while know that I’m not exactly a marijuana stock enthusiast… but still, when folks keep asking me to ID the pot stocks being teased by various newsletters, I do aim to please.

So this time we’re looking at Matt McCall’s pitch, which looks like it’s probably a few months old but is still in very heavy circulation (I get questions every day)… and it’s headlined with the exiting news:

“U.S. Government Expected to Legalize Marijuana NATIONALLY by December 31!?!”

I guess we can expect anything we like, but no, I don’t expect that. I expect gradual legalization to move state by state, and the Feds will probably decriminalize it or remove it from the DEA’s Schedule 1 at some point, but expecting the federal government to lead in anything, or agree on anything at all controversial, seems quite foolish at the moment.

The ad is a pitch for Matt McCall’s Investment Opportunities ($99/yr), and the big picture promise is that “The Trump administration is gearing up to finally end the decades-long war on pot!”

What I’m interested in, though, is not the political forecasting… it’s the investment he pitches for those seeking marijuana riches.

Here’s mroe from McCall…

“…all you need to potentially amass a small fortune are two things:

“No. 1: A single $20 bill.

“No. 2: The unprecedented December 31 announcement from the Trump administration that could easily deliver legalized pot on the national level….

“Once the federal government publicly announces plans for nationwide legalization (which could potentially happen anytime between today and December 31), America’s marijuana penny stocks could easily turn into big, expensive stocks like Walmart or Coca-Cola….”

So which stocks are we looking for? McCall starts with a few generic hints…

“I’m looking for the ‘blue chip’ stocks of tomorrow.

“In other words, I’m looking for companies with an economic moat around their business….

“They must offer a unique form of innovation… with a true leader (like Bill Gates or Elon Musk).”

OK, that’s a tough criteria for a sector that has been (though it’s improving, to be fair) replete with scam artists and fiscal incompetence.

What else?

“I need to be sure that the stock is still cheap enough to have 1,000% or more upside potential…

“I also need to determine that the momentum of the stock is headed in a positive direction…

“Are share prices starting to heat up, or are they in a downward spiral?”

That’s part of the reason I assume the ad is a few months old, because there aren’t many marijuana stocks that are “heating up” these days.

I’m getting a bit bored with those big picture points, though, so let’s jump straight to the actual investments he hints at… as usual, he starts with his favorite:

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“… this small, publicly traded marijuana firm is my top recommendation right now.

“It’s quickly becoming the leader in U.S. cannabis extraction…

“It dominated the extraction markets in its home state of Oregon… and is planning on expanding into California, Nevada, and other “pot friendly” states.

“And its profits have been off-the-charts amazing.

“In fact, in January 2019, it announced record revenue figures with roughly $2.4 million in sales.

“That’s just one month…”

OK, so someone needs to remember that “revenue” and “profit” are two different things. “Revenue” is sales, the amount of cash coming in the door… “profit” is how much of that you get to keep after covering all your expenses. Almost no pot companies are profitable, and I’m sure this one is no exception.

Other hints?

“You can pick up shares of my favorite American pot stock today for just $0.51!

“I fully expect shares to explode by 300% or more in the short term.

“And when the U.S. government announces nationwide legalization, this company is perfectly positioned to dominate the extraction market across the entire country.”

I wouldn’t hold your breath on “nationwide legalization” being right around the corner, but Thinkolator sez this favorite pick is… Halo Labs (HALO on the NEO exchange in Canada, AGEEF on the OTCQX in the US).

You can see their Investor Presentation from last month here, but this is how they describe themselves:

“Halo is a cannabis extraction company that develops and manufactures quality cannabis oils and concentrates, which are the fastest growing segments in the cannabis industry. Halo is a global leader in cannabis oil and concentrates, having produced over 4 million grams of oils and concentrates since inception. The Company has expertise across all major cannabis manufacturing processes, leveraging a variety of proprietary processes and products. The forward-thinking company is led by a strong management team with deep industry knowledge and blue-chip experience. The Company is currently operating in California and Oregon, as well as in Nevada with our partner Just Quality, LLC, and in Lesotho with the Bophelo strategic partnership. With a consumer-centric focus, Halo will continue to market innovative, branded, and private label products across multiple product categories.”

The stock has made a round trip this year (doubling and then halving, so the price is about where it was in January), is really tiny (market cap around $40 million now), and is listed on the almost invisible NEO exchange in Canada.

The positive? It’s cheap on a price/sales basis, and it’s in what is likely to be the most profitable part of the cannabis business, the extracts that can command higher pricing than regular old dried flower and will probably be the basis for whatever large-volume branded products are eventually developed (I’m guessing that the eventual national brands in marijuana will be edibles or beverages, not cigarettes or vaping products, given the growing social distaste for smoke and vapor… though that’s a guess). They seem to specialize in extract oil, which is used for vaping and edibles and all kinds of other stuff, but also in resins.

The negative? They have plenty of revenue but are not anywhere near profitable, the resin business is arguably more at