This particular ad is of the “Indiana Jones” variety… it spins a yarn of a high-risk adventure, deep in the forbidden jungle, to discover a massive profit opportunity. How can one resist?
Well, we’ll try. And the best way to resist a sales pitch, of course, is to understand it. This spiel is from Ray Blanco for his Penny Pot Profits newsletter ($1,999/year, nonrefundable), and he’s hinting at “The 1 Stock for a Life-Changing Marijuana Payday” … so what is it?
First we’ll slap ourselves in the face a bit, splash on a little cold water, and remind ourselves that no, there is no “one stock” that will change our lives (or if there is, we certainly won’t know which one it’s going to be in advance… diversify!)
But yes, we’ll throw the clues into the Thinkolator for you and get some answers percolating… so what are those clues?
Here’s the final sell on the order page (sometimes we like to work backwards):
“… starting April 1, I believe three very important things will take place:
“1. This company will finally finish construction on their newest processing facility, allowing them the ability to fully harvest and process 5,530,000 kilograms of medicinal grade marijuana.
“2. As soon as they do, they’ll have everything in place to begin commercial sales of their medicinal oil extracts, sending billions rushing onto this company’s balance sheet — a rate never before seen in history for a company this small. As soon as this happens, its share price could explode faster than ever before seen in modern history.
“3. By the time every newspaper, blog and TV show around the world are all left speechless by this company…
“… a select few investors who acted fast on this story could start walking away with more millions than they could ever spend.”
The “Indiana Jones” part of the story is the lead-in…
““When the Armed Guards Confronted Me… I Knew I Was Just Moments Away From the Biggest Stock Discovery of My Career….
“… what I saw hidden behind those gates — deep in the heart of the Andes Mountains — left me convinced…
“This could go down in modern history as the biggest stock market gain ever seen.”
And he includes a photo of what looks like a warehouse under construction, somewhere in the Andes, and says…
“This building may not look like much…
“But it’s hiding one of the biggest secrets of the 21st century.”
What else are we told?
It’s apparently a small company…
“There Isn’t a Single Mainstream Financial Analyst Covering This Tiny Stock…
“… its shares are still trading for just pocket change.”
And the insiders are somehow compelling people, and have been “acquiring” shares (note, that’s often different from buying shares — insider buying is a bullish signal, insiders giving themselves shares… not so much bullish).
“Over the Past Few Weeks, Company Insiders Have Acquired Over 1,815,000 Shares….
“One is a published author and international lecturer. From being a former adviser to the United Nations to helping establish the prestigious World Health Professions Alliance, he‘s quietly becoming one of the most influential people of the 21st century….
“Another has spent the past 27 years building some of the world’s largest companies. Most recently, he helped build a business to over 17,000 employees….
“Another is becoming one of the most celebrated and respected entrepreneurs and investors in the world. He’s on the board of some of the most powerful finance institutions in the world, like JPMorgan Chase Bank and President’s Choice Bank, to name a few. He even founded one of the world’s fastest growing personal finance startups.”
And what’s so special about this company? Apparently it’s a marijuana grower… and something about its location or its technology or techniques means that Blanco thinks it’s going to become the low-cost leader:
“This company has done what John D. Rockefeller and Standard Oil did in 1870.
“Through an innovative harvesting process that involves the use of…
- 5 different reservoirs…
- 12 hours of natural sunlight every day…
- And extremely fertile soil…
“They’ve been able to cut their costs to about 5 cents a gram — a number so low they were almost embarrassed to share it with me.
“On top of that — they created some of the highest quality products on the market.
“In fact, they have over 150 registered strains of medicinal-grade cannabis!”
He also says that the “average grower” pays more than $1 per gram of marijuana, so this is a 95% lower cost. That seems like a number you’d want to double-check, I don’t know what the average cost of marijuana production might be.
And, of course, he throws out the conservative-sounding but completely unsupported numbers about “if the company takes over just a little fraction of the global industry…”
“Just imagine, conservatively speaking, if this tiny company only manages to capture 10% of the legal marijuana market…
“Billions would start flowing into this tiny company!
“Even that would be enough to build some of the fastest fortunes in history.”
Sure, I suppose it’s possible that a little startup that just built its first facility will take over 10% of the global cannabis industry someday… but it ain’t a “conservative” guess.
Any other clues? He does tell us the size of the growing operation…
“This company has over 12.1 hectares (or 1.3 million square feet) of greenhouses to grow their marijuana…
“That means they can grow over 5,530,000 kilograms of marijuana per year!”
That would indeed be dramatically more efficient production than the big Canadian growers — if the stats in this article are correct (I didn’t check), then the largest Canadian growers are on pace, as a group, to have more than 10 million square feet of production space over the next year or two and produce about three million kilograms of marijuana flower per year.
Heck, the Emerald Health/Village Farms partnership has the potential to put almost five million square feet of greenhouse space into marijuana production itself if they wish (they’ve only committed to less than a quarter of that so far, but have the vegetable greenhouse space and extra land they could use)… though at current production estimates that would apparently only provide ~400,000 kg/year.
So if Blanco’s calculations make any sense, then a greenhouse operation near the equator is dramatically more efficient than a greenhouse in Canada. I’ll buy that, but don’t know if it’s anywhere near as dramatic as he says — it seems like 1 million square feet of greenhouse space would be expected to generate something in the range of 100-150,000 kilograms of marijuana flower a year in Canada, could that same space really generate 50X as much in Colombia? Maybe, I guess, I’m no horticulturist, but there’s room for some skepticism.
But anyway, now that we start with a little skepticism… what’s the company? This is the Canadian/Colombian marijuana producer PharmaCielo (PCLO on the Canadian Venture exchange, PHCEF OTC in the US). They went public through a reverse merger with a Canadian blank check company that consummated in January, though also raised money in a private placement last year that was widely covered in the marijuana investment press.
And it’s a fairly big company market cap around C$900 million, with the primary business being a Colombian licensed marijuana grower. There is in fact one sell-side analyst covering the shares, according to the company, from GMP Securities — they have similarly positive things to say about the company in terms of massively globe-leading production yields and potential for low-cost CBD oil production for export…. though the analyst targets C$12 a share (current price is C$9.70), which is, of course, a far more conservative stance than Blanco’s “your small investment will turn into millions next week” pitch. And, one must note for fairness’ sake, GMP Securities is not a disinterested party — they were one of the agents for the private placement last year and presumably enjoy the investment banking business from PharmaCielo.
PharmaCielo aslo has an investor presentation posted here if you’d like to see their plans and strategy (or you can see the pre-listing presentation here from November). They do own a licensed medical marijuana business in Colombia, with retail customers, but their goal seems to be to build a global supplier of cannabis oils for consumer packaged goods.
They do own about 12 hectares of greenhouse space, which they say gives them capacity for about half a million kilograms of flowers per year — which is much more rational than Blanco’s 5+ million… but you can see where he gets that number, that comes from the 10X larger space that’s available to PharmaCielo from contract growers (most of whom are presumably currently growing roses and chrysanthemums, one of Colombia’s largest exports today is cut flowers). They’re building up their industrial capacity to turn that marijuana into cannabis oils, which seems like it’s the real focus of the company.
And, yes, they would like to become a major exporter of cannabis oils — they do have a couple joint ventures now, with partners in Mexico and Italy, though it sounds like that’s still in a pretty early stage. Presumably they’re talking to large customers about becoming a core ingredient supplier, but it’s hard to guess where they are in that process. They are not the only company growing marijuana legally in Colombia, nor are they going to be the first to export (that was Clever Leaves, last month), but they may have other competitive advantages that I don’t know about. There has been substantial interest among the big Canadian players in expanding to South America, too, so both Canopy and Aphria have invested in Colombian companies in the past year or so, and it’s unclear to what extent they might be interested in growing for eventual export to Canada or Europe versus just establishing a bigger global business for non-Canadian consumers.
So that’s where we are, dear friends — a licensed Colombian marijuana producer, with a fair chunk of cash that they raised with their Canadian listing in January that they’ve apparently been using to expand capacity and get their oil processing plant developed. Most of the commentary from them that I’ve seen envisions meaningful export revenue beginning in 2020.
And no, I don’t know of any magical event that we should foresee coming on March 29 that will turn this C$900 million company into a barnburner — their quarter ends at the end of February, I think, so it could be that they’ll have a quarterly update at some point in the next few weeks… but March 29 would be a bit early for that (their MD&A for the year ended November 30 is here if you want to see the previous SEDAR filing… the Filing Statement with the IPO/merger details is here). The only thing that pops up as meaningful in their filings is that March 29 is the date by which they’ll have finalized their agreement and budget for their Italian joint venture… which might get some attention, I suppose, and may become a meaningful business for exporting CBD oils to Italy, but I doubt it will make an overnight difference to the stock’s valuation.
My general qualm about marijuana growing companies is that I have no idea what the market will look like in a couple years — agricultural companies and raw-ingredient suppliers who lack a proprietary product are subject to market forces, so if the massive ramp-up in investment in marijuana production leads to oversupply, or if legal marijuana ends up being price-controlled in an effort to squash the black market, prices may fall substantially. Certainly we’ve seen overproduction and weak prices in some US states, though it’s way to early to have any real understanding of what a mature market might look like — that’s just a risk factor that concerns me… in the case of PharmaCielo, I can see the possibility for them growing into ingredient-supply relationships with major packaged goods or medicinal products companies, but have no idea what kind of pricing that would entail, what regulatory restrictions there might be on international trade in psychoactive cannabis products, or if they’d be a price taker or a price maker.
So for me, lots more questions than answers — but that’s generally always the case when I look at a prospective marijuana stock, which is part of the reason why I’ve managed to avoid making millions of dollars on the current crop of pot favorites… so don’t listen to boring old me when it comes to pot stocks, but do your own research and make your own conclusions. All I can do is tell you is that PharmaCielo is the stock that Blanco is pitching, encourage you to count to ten before subscribing to a nonrefundable newsletter just to get a “secret” stock tip, and suggest you make your own call… it is, after all, your money.
PharmaCielo has been in the press for a couple years, the idea of Colombia becoming a legal drug exporter 25 years after Pablo Escobar’s death is too compelling a story for the media to ignore (my favorite Escobar story is that his estate was turned into a theme park, and that some of his Hippos have become a wild invasive species in Colombia… but I’m kind of odd), and it has also come up in Stock Gumshoe discussions a few times over the years… so if you’ve been following the story or chewing on those numbers, please do jump in and share your thoughts with a comment below. Thanks for reading!
P.S. We do always want to know about what readers think of the newsletters they’ve subscribed to — if you’ve tried Blanco’s Penny Pot Profits, please click here to share your experience with your fellow investors. Thanks again!