Famous families and historical fortunes fascinate investors — the idea that these families you know and (sometimes) worship created vast fortune because of one wily speculator way back in the family tree is almost irresistibly interesting. It gives us the feeling that any family can rise up and make a big bet on the way to riches… hey, maybe if we try that speculation when there’s “blood in the streets,” my grandchildren will be a staple in People Magazine in 20 years as speculation stirs about who will marry into the golden [insert your name here] family.
We’ve seen lots of different family fortunes teased as a “what if” for potential newsletter subscribers over the years — from the Rothschilds and their forebears’ savvy bets on gold coins, to the families who gave their money to a young Warren Buffett to manage when he started his first partnership, and this latest one pitches a family fortune that’s a bit older than Buffett’s, a lot younger than the Rothschilds or the Rockefellers, and a family still often thought of American royalty: the Kennedys:
“The Kennedy Story You Were Never Told
“A Surprising Income Stream of the Famed Kennedy Family Fortune. This Secret Could Actually Make You A Small Fortune Over The Next Few Years.”
Larsen Kusick writes the ad letter this time around, he’s a Stansberry analyst and is apparently working for Frank Curzio on his Small Cap Specialist, because that’s the newsletter they’re flogging with this pitch.
So what’s this “story you were never told?”
Well, it’s mostly about how the Kennedy fortune really started to build almost 100 years ago, when Joe Kennedy was speculating on distillers and related alcohol companies just as prohibition was starting to weaken. It’s a long spiel and I’ll share a couple key points from it so we’re all on the same page (you can see it here if you prefer), but the basic pitch from the Small Stock Specialist folks is that the marijuana industry is going to have a surge much like (or even better than) the profit surge of the distillers, brewers, suppliers and other booze companies. And that they have the right strategy for investing in the three “Waves” of the coming marijuana boom.
The comparison has some logic to it — marijuana legalization does seem to be proceeding apace, though I think we’re probably going to hit some more hiccups along the way to more recreational legalization if there’s any kind of backlash from Colorado and Washington (state) after their first months with legal recreational marijuana industries. Legalization of marijuana for medical use is, I think, probably already past the point of no return, and I’d guess that full federal legalization will come to us within a decade or two… particularly for communities who would much rather be spending their money on fighting the (much more cruelly addictive) heroin and prescription painkiller trafficking that seem, from my perspective, to do a lot more harm than recreational pot smoking (not to the smoker’s lungs, perhaps, but to society at large).
That doesn’t mean marijuana companies are guaranteed winners, it’s still generally a commoditized business without any real leading brands that have taken hold (that’s one substantial difference with prohibition), and there are always big losers in big transitions too — and smaller companies or more speculative companies trying to take advantage of legal loosening are not always well-financed enough to get through the volatile early years even if their strategy ends up being the right one over the long term. And, of course, the excitement of a new industry brings the rats out of the cellar, too — there are dozens of publicly traded penny stocks that profess a marijuana connection and have gone on wild 1,000% rides, and it’s quite possible that none of those companies will exist in a year or two. I can’t imagine Curzio is touting the real “pennies” in this sector, but let’s see how Kusick teases us today.
First, the basic argument from Kusick:
“The way I see it, marijuana has the perfect trifecta…
- People want it (based on Gallop polls)
- Governments need it (for revenue)
- And now doctors are for it…”
And the comparison to prohibition’s end, in their words:
“The parallels are uncanny.
“Stunning Parallel #1: During alcohol prohibition, whiskey could be purchased legally with a doctor’s prescription even though it was illegal at the federal level. Medicinal whiskey was one of the most popular painkillers of the day.
“Sounds like what’s going on today with marijuana, right?
“Stunning Parallel #2: During prohibition individual States began taking steps to legalize alcohol BEFORE the federal government did. Voters in New York, Illinois, and Wisconsin, for example, voted in favor of legalizing alcohol before it was legalized at the federal level.
“Sounds similar to what’s going on in Colorado and Washington today, doesn’t it?
“Stunning Parallel #3: One of the key reasons for legalizing alcohol in 1933 was to increase government tax revenue. Remember, this was during the Great Depression and the government was essentially broke and DESPERATE for cash.
“Again… sounds eerily similar to what is happening today, right?
“My point is: The path to legalizing marijuana in America is following – almost exactly – the same path alcohol followed in the early 1930s.”
OK, so we’ve got the basics. What stock is Frank Curzio recommending? There are actually two, plus a “look out for this third thing” future idea. We’ll sniff ’em out one by one:
“The First Wave of New Marijuana Wealth
“The first way is with my favorite marijuana company.
“This small company – which I guarantee most investors have never heard of – is setting itself up to become one of the leading medical marijuana pharmaceutical companies not just in the U.S., but on the entire planet.
“This is not some ‘fly-by-night’ penny stock operation, either. This company has been in business since 1998…
“In fact, this was the first company in the world to seriously investigate the therapeutic benefits of cannabis-based medicine.
“For the past 15 years, this small firm has been quietly researching, developing, and cultivating various high-end, health-related strains of marijuana extract for use in a highly sought after medical drug for sale in the U.S. and several other countries throughout the rest of the world.
“Its technologies and inventions are protected by a portfolio of over 209 patents, with several others in progress – access to its highly regulated controlled substances is protected by 24-hour surveillance.”
That’s probably enough for many of you to “name that stock” — it has been touted and teased a few times over the years, and is pretty unique for its pharmaceutical focus on marijuana. But let me throw a couple more of Kusick’s clues on the pile just in case…
“This small firm has even set up licensing and distribution deals with companies in Canada, the UK, and the U.S. to get its products into consumer hands as quickly as possible….
“there are still as many as 30 states without a medical marijuana industry… and 48 states without a legal marijuana industry.
“We are at the beginning of something very, very big. And this small company is standing at the forefront….
“in April, Morgan Stanley published a 29-page research report dedicated solely to this small company… and even forecasted shares could go as high as 126% by April 2015.”
This one is far from being a “secret” stock, as you’ve probably already noticed — here Kusick is teasing GW Pharmaceuticals (GWPH), and it has indeed been around for a long time… and has been trying to turn the active chemicals in marijuana into prescription drugs for most of that time. It has been endorsed by Jim Cramer a few times on CNBC, and does indeed have several analysts covering the stock (including Morgan Stanley, as teased, which touted the potential back in April and has also helped GW Pharma sell stock in the past — though their price target of a bit over $100 seems less exciting now, with the stock in the $80s, then it did when the shares dipped briefly to the mid-$40s in April).
We first looked at it about three years ago when it was being teased by a UK newsletter, back before they got a US listing. The stock has just about quadrupled since then… though it was also cut in half a couple times along the way, kind of what you’d expect for a speculative biotech stock (it’s also up about 10X in value since it listed in the US at $9 a year ago). The latest dip came when they did a secondary offering at the end of June, which is no great surprise, but it has also had upward surges as their drugs have progressed through clinical trials or hit commercial milestones.
And that’s what this really is — an emerging pharmaceutical company. If they can turn their particular expertise at growing the rights strains of marijuana and getting optimal medicinal impact then perhaps legalized marijuana will be a boon for them if they are able to be a leading “brand” provider of medical marijuana… but that’s really not what they’re focused on in any way, as far as I can tell, they’re focused on developing prescription drugs with cannibinoid active ingredients. Frankly, medical marijuana might be a problem for them because a cancer patient who can smoke weed for pain might be a bit less likely to get a prescription for a branded pharmaceutical drug that promises to offer the same benefit in a more purified or concentrated form. That’s just spitballing, we’re a ways from knowing how the growing marijuana industry would impact a marijuana-derived pharmaceutical product. I haven’t looked at the company’s filings closely enough to see if they’re positioning themselves to be anything more than what they are, which is a drugmaker who happens to use marijuana for active ingredients in their medications, I’d guess that’s very speculative (they have a lot on their plate with the core business right now).
The business is proceeding pretty well on the traditional pharmaceutical front, they have an approved drug in Europe, Sativex for spastivity in MS patients, and they’re in Phase III trials as they try to get Sativex approved in the US for both that indication and for advanced cancer pain, and their second drug in the approval process is Epidiolex for certain forms of epilepsy, which has orphan drug designation from the FDA. Epilepsy, MS and cancer pain are all obviously large markets, and Sativex sales are apparently growing — they don’t actually market the drug, it is partnered out in every country and it looks like they receive some sort of royalty and provide the raw materials, so it looks like they should be able to keep costs under control with their partners bearing a lot of the expense of the clinical trials. They are losing money, but they’re currently on pace for about $50 million a year in revenues, presumably mostly from Sativex in Europe, so that cuts into the cash burn quite a bit. You can tell it’s a biotech stock because they don’t use dollar figures all that often, except when they’re raising money — the focus is all on clinical trials and pipeline (not that there’s anything wrong with that).
And that’s about all I know on this one — you can see their investor presentation here, which has nothing to do with medical marijuana legalization. Dr. KSS chimed in on GW Pharma a while back, by the way, in response to a question from our own Blind Squirrel, Jim Skelton, who has ridden his way to some profits on that one. I’ve got no skin in this game at the moment, it looks like the company has quite a few important dates coming up over the next year as regards clinical trials in progress and FDA decisions so it might well be a bumpy ride… even if the stock isn’t driven, as it probably sometimes has been, by general marijuana speculation.
So that’s the “First Wave” for marijuana, according to the Small Stock Specialist folks … what’s the “Second Wave?”
“Did you know that during the repeal of prohibition in the 1930s some of the biggest gains in the alcohol markets came from businesses that never produced or sold a drop of alcohol?
“Check this out…
- A beer bottle maker called Owens Illinois Glass, for example, went up 705%
- An aluminum can maker called Crown Cork and Seal soared 1,180%
- A yeast supplier called Standard Brands went up 258%
- A cork manufacturer called Armstrong Cork skyrocketed 2,250%
- A sugar supplier called American Crystal Sugar went up 1,100%
- A carbonation company called Liquid Carbonic increased 455%
- A corn supplier called Corn Products Refining soared 266%”
So, as you can guess, they’re hinting at some company that doesn’t actually grow or sell marijuana … but someone who provides some other service or ingredient for that industry. He gives an example of a family owned business that’s getting an early position in the packaging needs of the industry in Colorado, but that’s not a publicly traded one — so then we move on to some clues about a stock that is publicly traded:
“Cultivation facilities in Denver now occupy about 4.5 million square feet – the equivalent of 78 football fields – and demand for pot is still not being met!
“There is so little space, in fact, that grow space lease rates have quadrupled in price in recent months, according to the Denver Post.
“Well, I recently found a company that buys properties, legally zones them to grow marijuana, and then leases the space to cannabis growers.
“It’s an awesome business model.
“This company does not grow or sell pot. It simply rents out what is probably the most valuable real estate in the entire industry.
“Among this company’s recent purchases: An 83,000 square-foot growing facility… and an approved site for medical marijuana dispensary.”
The ad doesn’t specifically say that they’re recommending this one, so I can’t tell if this is just an example or if it’s in the Small Stock Specialist portfolio — but the match for those specific clues is a teensy weensy stock that trades on the OTCQX called Zoned Properties (ZDPY). It calls itself a specialist in properties with “zoning challenges” (people don’t always like having marijuana dispensaries in their neighborhood, and it’s hard to get zoning for something that’s of questionable legality under Federal law). I have to imagine that this is just an example, then, because there’s no way Frank Curzio can recommend an illiquid $5 million stock even if it did get a mention in the Wall Street Journal a few months ago. It’s stupid that this company is publicly traded at this point, and if he suggested it to even a hundred of his closest friends they would just be selling the stock back and forth amongst each other and driving it up — which wouldn’t make his tens of thousands of subscribers very happy. So it must just be an example.
That said, there is a somewhat more established business, though one that’s also had lots of questions surrounding it, which is also in the “leasing to marijuana growers” business, and that’s Advanced Cannabis Solutions (CANN). Frankly, it would be a little hard to see him suggesting such a stock to this fairly large newsletter audience, too, but he DID recommend one of CANN’s financiers to his much smaller Phase 1 Investor audience a few months ago (that was the BDC Full Circle Capital, FULL, we covered it in May here).
So really, it looks like he didn’t throw out any good hints for the “picks and shovels” business he might be suggesting — he gave some examples, but my guess is that those are not stocks he could really recommend. Maybe he’s got some other idea that he’s keeping under wraps more thoroughly, but I didn’t see any other hints in the ad.
And how about “Phase Three?” That’s apparently something bigger than legalized medical or recreational marijuana, here’s how they spin that at the end of the ad:
“The Revolution Wave
“This is an industry directly related to marijuana that is going to be completely transformed as the legalization process inevitably continues.
“This third wave is where the truly astronomical gains could be seen.
“Because this wave will affect not only the marijuana smoking, but also the manufacturing, transportation, and energy industries in America as well.
“What I’m talking about specifically is a closely-related cousin of the marijuana plant, prized for extreme strength and durability…
A single acre of this miracle plant, for example, produces as much paper pulp as 4 acres of mature trees. What’s more, it takes just 4 months for this plant to mature, whereas trees used in paper production can take 20 years or more! This miracle plant also produces a fabric that can be sewn as soft as silk… a naturally fire-retardant material that is stronger than cotton. One acre of this plant produces as much fabric as 3 acres of cotton!
“And get this…
“This plant can even be used to make a plastic that is stronger and safer than its petrochemical counterpart. And unlike plastic from oil, this new plastic is chemical-free and 100% biodegradable.”
OK, so that’s hemp. And it sounds like the argument is… once marijuana is more fully legalized, there will be no reason not to go back to using hemp in many more ways, and growing and producing hemp products in the US. Which is largely illegal now (though there are plenty of hemp products sold now, we’ve got a hemp clothing store in town, no one’s growing big fields of it in the Midwest or South like they do wheat or cotton because it’s too similar to marijuana and therefore remains illegal to cultivate… though that has changed in some states already). Fine logic, I suppose, though I don’t know if he’s recommending someone who would actually grow hemp if they were given a chance.
Any more clues?
“Now that it’s becoming legal again, we think the industry around this miracle plant could realistically become bigger than the recreational and medical marijuana markets COMBINED!
“In fact, Financial Advisor magazine recently said just that… predicting this new industry could become 10-TIMES the size of the legalized marijuana market.
“This new miracle plant even has the backing of President Obama (who signed a bill allowing it to be grown in the U.S. for the first time in decades) and Senate Minority Leader Mitch McConnell.
“I know I’m being a bit vague about it here, but when we show you the details of what I’m talking about, I know you’ll agree that this could be completely revolutionary over the next few years.”
Well, that’s not enough to be definitive, to be sure. The two hemp companies I most often hear about are Hemp, Inc. (HEMP), which is laughably small, and CannaVest (CANV), which looks like it is a real company but carries a truly absurd valuation even after falling about 95% from its marijuana-stoked highs a few months ago (at about $6 it still trades for 55X sales… it briefly touched $200 a share back in February). Both are trying to ride the wave of marijuana but stay off to the side a bit, working on hemp products that are not psychoactive. It may well be that hemp oils and hemp fibers and seeds become bigger industrial ingredients or food/cosmetic ingredients in the US again at some point, though it’s hard to see a spectacular impact on the stock price of either of these names or a reason why these would become super-lucrative industries — I don’t know that hemp is unavailable globally as an ingredient, it’s just that we haven’t grown much of it in this country, and using imported raw materials hasn’t necessarily been a huge detriment to other US industries.
So that’s about all I’ve got for you today — I’m quite sure Curzio is touting GW Pharmaceuticals as a pick of his newsletter, but that’s about as far as I go from the clues they provided. I can’t be very definitive about the “second or third wave” stocks in marijuana that he seems to be hinting about, and he doesn’t so much come out and say that he wants to buy all these possible “next wave” stocks. The marijuana stocks have pretty much all collapsed, whether they are actual companies that were horrifically overvalued or just shell pink sheet “pump and dump” ideas to tantalize investors, but I’d be surprised if we’d seen the end of them — some will no doubt be aggressively promoted again and rise from the ashes with the next legalization votes in the next wave of states.
And there may well be a real investment case for some marijuana stocks that can be made someday, with a straight face and without a lung full of smoke, but the few that I’ve glanced at are all still ludicrous. GWPH is not a marijuana stock, really, and it hasn’t collapsed as much, and neither is FULL, but the others all mostly seem to move together as investors either salivate over a “new industry” or panic that they’ve been misled in a “pump and dump.” If there are some sustainable “Kennedy Fortunes” that rise from marijuana legalization, my guess is that they’d come after someone really starts to build up a company that controls a lot of distribution and has some branding power, which is probably quite a ways off in the future if it happens at all (Joe Kennedy was already wealthy in the 1920s, but became far wealthier in part by becoming the sole US distributor of Gordons and Dewars as prohibition broke)… or, of course, they could be the fortunes built by the shady folks who are on the right side of the marijuana stock “pump and dump” promotions (no, not Curzio and the newsletter people — the actual “pump and dump” offshore crowd who create empty shell stocks, change the name from “Richest Gold Mine Ever, Inc.” to “Fast Times Weed, inc.” and get trend-chasers to buy the stock from them).
Me, I get burned by plenty of real companies whose financial prospects I can understand … I don’t feel the need to be on the leading edge of the recreational marijuana industry. What about you? Think I’m wrong and missing something big? Interested in any of these pot stocks or others that I haven’t mentioned? Let us know with a comment below.