Well, again Frank Curzio’s Phase 1 Investor wins the prize for “teaser ad most Gumshoe readers are asking about” … so let’s give it a gander for you.

Phase 1 is a premium-priced ($3,500 is the current “on sale” cost) small cap newsletter published by Stansberry, and it tends to be among the most-requested letters for the Gumshoe treatment — no doubt because it’s too expensive for most individual investors to sample, and because they tend to tease intriguing little small-cap stocks in technology, biotech and natural resources… often stocks moset folks haven’t heard of, so curiosity rages.

And what piques it this time around? Marijuana stocks.

Ugh, I know — I can hear you sighing from here. Marijuana stocks are among the most hyped, ridiculous, pumped up names in the market. Every pump-and-dump operation that thought they could create a 3-D printing stock out of nowhere last year, or a gold mine stock with no assets a couple years ago, has now decided to sell itself as a legalized pot story, with dozens of companies doubling, tripling or better in the last year or so. There are no doubt some real companies in the cannabis space, but I’m sure they’re absurdly expensive if they exist… and there are so many scams that it hardly seems worth researching all the hints that fly our way.

But still, Phase 1 isn’t a pump-and-dump operation (though their subscribers may sometimes benefit from new attention brought to the small cap stocks they favor) — whatever stock Curzio is teasing must have at least something “real” to it.

So what is it?

Here’s how he sells the idea, by first introducing a note of caution:

“… until today, we’ve never even considered recommending one of these stocks.

“Why?

“Several reasons…

“First… because most stocks in the marijuana industry are already ridiculously overpriced.

“Like the dotcom boom of the late 1990s, the hype has far exceeded the reality.

“Take Medbox, for example, the company that’s developed a biometric vending machine for legal marijuana. Medbox recently had a market cap of over $1.1 billion.

“Yet, they brought in just $5 million last year.

“That means investors were paying 200 times what the company generated in sales.

“And second… there are a lot of indirect plays on marijuana that may or may not pan out. Like big tobacco companies. Sure, the Altrias and Phillip Morrises of the world might one day dominate this market. But there are a lot of “ifs.” There’s no guarantee they’ll be able to corner the market, for example… or that they’d even want to. And these tobacco giants are so huge – the added business from selling marijuana really wouldn’t move their stock much higher.

“The point is, many direct plays in the marijuana market have already soared. And there are simply too many “ifs” to consider an indirect play right now.”

Then we get the, “but wait!”

“I’ve found an incredible and totally unique way to play the marijuana boom… and capitalize on this explosive, new market – that limits our exposure to these pitfalls…

“It’s THE marijuana investment practically NO ONE is talking about.”

What is this investment?

“this company offers a secret, backdoor way to own one of the most potentially lucrative marijuana investments in the world… which has leapt as high as $45… for less than $10 a share.”

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I love secret backdoors! You’ve got my attention.

“When word spreads about this tiny group… the incredible deal they’ve structured… and how they can essentially “go back in time” and buy one of the most well liked marijuana stocks for dimes on the dollar… it’s likely their shares will soar.”

Hmmm… must be a catch, right? Presumably so — you can look for it in a minute. First let’s make sure we can ID the company, sniffing through a few more clues dropped by Mr. Curzio:

“I believe this is, hands down, the safest, and most potentially lucrative investment in this sector right now… an incredible deal, with a small company that could easily pay us 200% or more… in the coming year….

“… this marijuana company is not really a marijuana company at all.

“You see, what I’ve actually uncovered here is a tale of two stocks.

“One is a marijuana stock,

“The other stock is a small investment firm, which, unbeknownst to most of the investment public, owns a very large stake in this marijuana stock.

“This small investment company has the legal right to exercise a contract that allows it to acquire shares of this tiny marijuana stock at about 70% less than it’s really worth on the market today….

“If the price of the underlying marijuana stock rises 40%, the small investment firm stands to make a profit of $50 million.

“And if the pot stock simply reverts to its 2014 high, they’ll hit the jackpot – and rake in over $100 million… a sum greater than the entire company’s market cap.”

And apparently we don’t even need this marijuana stock to double for our “secret” stock to rise dramatically…

“A mere 10% rise in the value of the marijuana stock could translate to a nearly 50% gain for investors who get in right now….

“Well, if the underlying stock gains 50% from here – which is entirely possible with Washington State coming online – the investment group’s stock could almost DOUBLE.”

So what is this? Thinkolator sez the most likely candidate (not 100% certain this time, but pretty sure) is Full Circle Capital (FULL), a BDC which owns warrants on and has a pending convertible debt offering with Advanced Cannabis Solutions (CANN).

CANN is one of the “picks and shovels” suppliers to the marijuana industry, one of the many companies that is trying to profit from the marijuana business without actually selling pot itself. They seem to be focused on sale/leaseback operations with growing facilities, and on selling stuff like “child-resistant baggies” to the industry. Haven’t really looked at them (or at any other marijuana stocks, frankly), but the companies that try to avoid being actual growers, wholesalers or retailers are essentially trying to reduce their exposure to the parts of the business that are still technically illegal under federal law and are, at the least, very early on in the development of a predictable regulatory environment.

Full Circle Capital is a very small BDC, with a market capitalization around $75 million (at $7 and change per share), and like most BDCs they pay a dividend (approaching 10% in their case) from money they earn by lending cash to mid-market companies — the kinds of companies that are too big for the local bank and too small for Wall Street financing.

And FULL owns warrants on one million shares of CANN stock ($5.50 strike price) that they bought (for $500,000) as part of an agreement to provide $30 million in convertible financing to CANN. That’s obviously worth something now, since CANN shares are up around $18, but the shares attached to that warrant aren’t registered yet and would create dilution so they might not necessarily be worth the full $13+ per share that you’d think they’re valued at today (the company valued them at a little over $10 in their last quarterly report, so $10 millionish… almost all profit).

Which means we’re not looking at doubling FULL shares just because CANN goes up a little bit — but certainly those warrants are valuable and very levered to CANN share price movements. The really big impact for FULL comes if and when the actual funding is supplied under the convertible debt agreement … because the full $30 million will be convertible at various prices depending on when different tranches go into effect, but the very first tranche of $7.5 million of funding from FULL comes at a $5 per share conversion and would be quite valuable instantly at current prices. That would mean they’d effectively be getting 1.5 million shares for their $7.5 million investment, and right now 1.5 million shares are worth over $22 million. So in theory, you could see that just getting this first tranche through in CANN funding and owning those warrants would give FULL access to shares that are worth about $37 million right now in exchange for an $8 million investment.

That’s an exaggeration in lots of ways — but if the marijuana stocks go crazy again FULL could reap larger benefits (again, if the convertible debt deal gets finalized). But basically, if they do the first tranche of this convertible debt (I don’t know whether or not they will), then Full Circle will have effectively gotten 2.5 million shares for $8 million. If CANN stock goes back to $45, then those 2.5 million shares would be worth $112 million… and if you want to pencil in the rest of the convertible debt offering too, well, the math gets more complicated but certainly that would be, um, more.

So you can massage those numbers and make them more or less reasonable — FULL already trades right around book value at $70 million, so if you throw $70 million in profit at them the stock probably at least doubles. And they are only exposed to CANN and the marijuana business to the extent that they lend CANN money from here, so if they don’t complete the convertible funding for whatever reason then they just have the warrants and they’ve only invested $500,000 for something that could be worth upwards of $10 million today and whatever the future return happens to be.

I have no idea whether it will work out, or even whether the seemingly unstoppable wave of marijuana legalization legislation will create any big and profitable companies (as opposed to trade-able speculative stocks without much in the way of “numbers”)… and I’m not buying any of the pot stocks personally at the moment. But this is our best solution to the teaser pitch — I’m rushing out the door, so I’ll let you discuss this one amongst yourselves. For more perspective, you can see an interesting assessment of CANN here by a SeekingAlpha contributor and the latest Full Circle quarterly call transcript here.