Carr’s teased “America’s #1 Pot Stock”

What's the best stock for U.S. marijuana legalization being hinted at in ads for Strategic Trends Investor?

By Travis Johnson, Stock Gumshoe, March 26, 2019

Matthew Carr at the Oxford Club is pitching a new marijuana stock in ads for his Strategic Trends Investor ($79/yr), and a new pot stock idea pretty much always drives Gumshoe readers into paroxysms of money lust and FOMO lamentations… after all, we’ve all heard of someone who made 500% or 10,000% on some crazy little pot stock, or who bought in to giants like Canopy Growth early and rode the wild ups and downs to big profits, and we want ours… right?

Well, these surges of fantastical gains often end badly, particularly when it’s somewhere between difficult and impossible to guess at the eventual market size and profit margins that we’ll see in the legal marijuana space (let alone the shifting sands of law and regulation in the US), but, still, curiosity demands that we sniff around each idea that comes through the gate.

So what is this? Well, here’s a little taste of the ad:

“‘I Helped People Make a Fortune on Canada’s #1 Pot Stock… and Now I’ve Identified America’s #1 Pot Stock’….

“Pot stocks are exploding across America….

“Every single election brings more states into the fold…

“Adding millions of new buyers and creating electric jolts of profits for marijuana investors….

“Yet the marijuana industry in America still has its biggest moment out in front of it….

“I’ve identified the No. 1 Pot Stock in America.

“And it’s not even close.

“This company offers BY FAR the most upside potential you can find in a pot stock that still trades for just $3.”

So what else do we learn about this “no. 1 in America” pot stock? Here are our clues…

“It now has 19 locations in five states with 1,100 employees in total… and flagship stores in Beverly Hills, the Las Vegas Strip and Fifth Avenue in New York City….

“… this pot company… is banking $6,541 per square foot in its stores…. revenue multiplied 1,094% in the first fiscal quarter of 2019 over the previous year.”

OK, that narrows it down a bit. What else do we learn? It’s expanding quickly:

“In Arizona – one of the largest marijuana markets, with more than 172,000 buyers – it’s now licensed to operate a 20,000-square-foot cultivation facility, which will distribute to more than 60 stores.

“In Florida – which is expected to be a $1 billion annual market – it’s acquired an enormous 217,800-square-foot cultivation facility and the right to operate 25 stores.

“And it’s in the midst of a merger that would help it develop another 32 stores and multiple grow operations in states like Illinois… Maryland… Massachusetts… Michigan… and Ohio.”

And we’re told that the “customer base” has grown to 339,000 people, whatever that means, with Carr certain they’ll be over a million by the end of 2019.

Other clues?

“… the company CEO says, it’s on the path to becoming “the largest U.S. cannabis company in the world’s largest cannabis market.”

“And as one prominent media outlet put it, it will soon be ‘the Starbucks of weed.’

“In short, if you were to pick one pot stock to invest in… or any stock, for that matter… this is without a doubt the very best.”

We like to keep an eye on the forecasts these teaser pitchmen make, too, if only so we have something to come back and check against reality in a few years… this is what Carr says:

“I believe my No. 1 Pot Stock in America has SO MUCH MORE upside than even Canopy that it could be the best-performing stock I ever recommend.

“Based on what we saw with Canopy, my new No. 1 U.S. pot stock could go from $3 all the way to $128.

“It’s a chance to earn 42 times your money….

“Everything is in place for this stock to become – at minimum – twice as valuable as Canopy.

“Which is why my price forecast of $128 is 100% achievable.”

So that’s a little odd — I guess we should be used to misleading comparisons, but he’s pitching this as if the price per share of Canopy has any connection to the price per share of this secret company, and implying that if the company is twice as valuable as Canopy, it will reach double Canopy’s stock price of $64 (it was recently at C$64, though the all-time high in US trading was about $59).

That would only be the case if the two had the same number of shares outstanding, of course, if you want to compare two companies you need to look at their total valuation (market cap, or even enterprise value) not just the price per share. Amazon is not 10X more successful or valuable than Apple just because the price per share is roughly 10X higher, the two companies are almost exactly equal in current value (both have market capitalizations of within a percent or two of each other $875 billion and $890 billion, respectively)… they just have a different number of shares outstanding.

If you think this secret stock is going to be worth roughly twice what Canopy is worth today at some point, that would mean you’re looking for roughly a $30 billion valuation (Canopy has a market cap right now of about US$15 billion)… whatever the price per share of that should be depends on how many shares are outstanding right now and, if you want to get a little more complicated, how many shares they’re going to have to sell, if any, to raise money to grow to that size.

And it’s a little bit ‘secret’ or ‘complicated’ — which always makes people feel a little better about buying a newsletter, they hate to buy a newsletter and find that the “secret” stock is something ordinary that anyone can buy, we all want to feel a little bit special. More from teh ad:

“Right now, the company doesn’t trade on the NYSE, Nasdaq, AMEX or any of the regular American exchanges.

“Instead, there’s a special way to get in on this $3 stock, which I’d like to show you today.”

Ahh, it feels so good to be SPECIAL! Wait ’til I tell the guys down at the driving range. Woohoo!

Sorry, just got caught up in the excitement. So what’s the stock? I’ve got an answer for you, but want to make sure we get to some more of the clues first. Here’s some of the rest of the story from the ad:

“Their goal was to become the world’s most professional marijuana company.

“‘We do not run pot shops. We manage class-leading retail stores that happen to sell marijuana and marijuana products,’ the company says….

“In order to ensure the highest-quality product, it decided to create a fully integrated business model.

“It does everything from start to finish…

“Growing the cannabis, extracting it, distributing it to stores and then selling it.”

So that also gives some room for them to find efficiencies and improve operating margins, though I doubt they’re really being valued based on that yet — pot companies are not being traded based on their current or near-term earnings or even revenue potential, they’re being traded, for the most part, based on guesses about future market dominance and what kind of profitability that might bring.

Any other details?

“In December 2015, the company opened its first store in California….

“As legalization started coming to states like Nevada, New York, Colorado and Washington…

“The company decided it was time to expand beyond its first store.

“So it opened five more stores in the Los Angeles area… including in Beverly Hills, Venice, West LA, Santa Ana and downtown.

“It expanded into San Diego…

“And then into Nevada, where it opened a store on the Las Vegas Strip.

“And it also made the jump to the East Coast… opening three stores in New York, including one on Fifth Avenue….

“States are going to turn to our No. 1 pot stock because it’s quite simply the most professional marijuana company in the world.

“And as it expands nationwide, it has the chance to go from fewer than two dozen stores… to hundreds of stores in virtually every state.”

It apparently has been opening growing facilities, too, with a 45,000 square foot operation outside of Reno and new ones going up in Desert Hot Springs, CA and Utica, NY. He thinks that those three facilities will grow enough weed to create $192 million in sales at their retail stores, and that is fueling their push to open more stores… including a big new acquisition:

“In its biggest move, the company recently made a massive push into multiple markets all at once.

“It’s in the midst of an acquisition that would give it the rights to add another 32 retail stores. And it would also increase its total production facility permits to 16 in 12 states.

“This include several of the most prized markets, including Illinois… Maryland… Massachusetts… Michigan… and Ohio.”

OK, fine, so we’re getting into an embarrassment of riches on the clue front here… I’ll take you out of your misery, Thinkolator sez this is: MedMen (MMEN on the CSE in Canada, MMNFF OTC in the US).

And interestingly enough, today MedMen is trading at almost exactly the same price as it was in its IPO on the Canadian Stock Exchange (that’s where many US pot stocks went public, since they don’t have the listing rules of the Toronto or NY exchanges… they don’t require that your business be legal in the country where it operates, which is key since marijuana is still technically illegal under US federal law, and, frankly, my impression is that they don’t seem place much in the way of restrictions on their listed companies at all). That’s C$4.40 or so, which means it’s trading slightly over US$3 at the moment ($3.33 last time I checked), but that’s close enough for our clue-matching purposes.

The big acquisition MedMen has made was of the medical marijuana company PharmaCann, though that planned deal hasn’t closed yet, and they are indeed aggressively expanding their operating base — particularly focused on building out the stores they already have licensed, including 30 locations in Florida, and on building up their branded marijuana products. PharmaCann is a private company, though the acquisition valued the deal at $682 million at the time it was announced and would lead to PharmaCann shareholders owning 25% of the combined company.

Which is where figuring out the value for MedMen gets a little hinky, because MedMen itself boasts of having completed $975 million in M&A transactions (before PharmaCann, I assume) but appears, on the surface, to have a market cap of only C$420 million. That’s because there are huge tranches of unlisted and other-class shares or “to be issued” shares, to say nothing of warrants, that should also be accounted for. The CSE listing notes that the real number to consider should be 475,817,041 shares as of January 31, which presumably doesn’t include the shares that will be issued for the PharmaCann acquisition, so that would mean the market cap is somewhere in the $1.5 billion neighborhood, presumably soon to go to $2+ billion with PharmaCann.

They are also getting some additional funding through both asset sale/leaseback deals and convertible notes, which aren’t in those numbers. The biggest lately is their deal announced recently for up to $250 million in funding from Gotham Green Partners — that funding seems to be on fairly decent terms for a pot stock, so I guess that’s an endorsement of their brand value and strategy, though it will be substantially dilutive eventually (part of it can convert into equity at almost any price, the balance once it gets above $7-8 a share, and they’re paying LIBOR plus 6%). The asset sales are with their semi-captive REIT Treehouse, which did a sale/leaseback with them for a couple buildings just recently and will probably do more, though they do also have, through PharmaCann once that deal closes, a relationship with the only listed marijuana REIT (that’s IIPR, which I own).

So we’ll think of this as a company that’s valued at somewhere between $1.5-2.5 billion, including debt and lease obligations. Is that fair?

Well, to answer that you have to figure out what their growing footprint is worth… and whether their brand is going to become nationally important, which might make marketing more effective and, combined with other possible economies of scale, allow for good profit margins. So far, they do have some phenomenal stores… they really do have massive sales per square foot at their best stores in California, and they believe that California buildout (leaking into Nevada) has built the leading US cannabis brand. If that’s true, then there’s some hope that the really successful launch they’ve had in California (they say their CA stores have 7X the revenue of competitors) could give them a great foundation as they build out in other huge states (primarily Florida and New York, though NY laws are apparently more restrictive).

But at this point, no, of course it’s not worth $2 billion, not for 32 stores and some growing facilities to support them.

It might be, if they reach the goals they talk about in their presentation. We’re talking about 32 stores and almost no revenue yet, though if we credit them for their forecast of $20 million in revenue per store for recreational markets that would be $640 in potential revenue for their existing footprint and $960 million for the stores they hope to have operational by the end of 2019 (though some of those are medicinal-only which means revenues will be substantially lower). If they’re right about being able to earn a 30% EBITDA margin, that’s $288 million in EBITDA possible next year. So that might be an EV/EBITDA ratio of 10 or even a little lower if all works out well.

That’s a lot of “If” though — assuming $20 million per store in revenue could well be wildly optimistic. Right now they have nine stores in California and reported only $23.7 million in CA revenue for their most recent quarter ($29.9 million for the quarter for the full 32-store portfolio), so if you take just their best state (California) the sales from last quarter would annualize out to just a hair over $10 million per store. I don’t know if pot sales are likely to be seasonal, but I don’t see why they would be… and we have no real way of knowing whether going beyond a couple key huge destination shops in a tourist area to open up more local stores will help overall profitability or hurt per-store numbers. It’s just awfully early, their high touch and expensive-looking stores are, in fact, expensive to open and operate, and they’ve been chewing up wheelbarrows full of cash as they build the company.

The risks run all the way through those investor presentation projections… they might not succeed in going from 5% own-branded products in the stores to 50% to drive their EBITDA margin up to 30% (they say their last quarter had a 17% retail EBITDA margin). Their costs could be much higher than are implied in the presentation. They might have trouble rolling out their new store footprint or distribution in Florida. Other states might end up with stores that pale in comparison with California, especially once the first frenzy of customers washes through. Competitors might succeed in establishing competing brands that take away some of their shine. Etcetera, etcetera, this is obviously an early state rollout story and either the strategy or execution might fail, though they are, at least, not without ambition.

So I see some reason to think positively about MedMen — I agree that a strong retail focus and branding is likely to be what eventually determines the market leaders in marijuana, there’s not likely to be any great profit in providing an agricultural product unless you own the brand and can charge more for your processed version of that same commodity (we all know Marlboro and Corona, but don’t know who grows the barley or tobacco for them), and I also think the US market has, of course, much more potential than Canada once legalization runs its course here.

But I don’t know the market well enough to place a bet on whether MedMen’s brand will be profitable enough to justify the money they’re spending or the valuation the stock carries. I guess I need to hang out more with the pot smokers, or wander down to my own dispensary and check it out, since evaluating branding and product position is, in the end, a very personal judgement in those early days (I didn’t see any appeal in Monster’s energy drink early on, which didn’t stop that stock from going up 10,000%). And, of course, there’s still the lingering risk that they could be shut down or hampered in their operations by federal law enforcement or regulatory changes, though I think that’s a relatively low-probability risk.

Which means I’m still mostly the boring guy on the sidelines when it comes to marijuana investing or speculation, though I am still holding my Innovative Industrial Properties (IIPR) shares. Which means, as always, that I’d always urge caution and skepticism in this space, and keeping speculative positions small, but you shouldn’t just listen to me — I’m sure those of you who dabble in a lot of pot stocks know MedMen and their promotional nature and brand focus well, is it strong enough to get past the challenging valuation? Worth the risk to get in early on a possible future brand leader, or is it too early to chase a story like this? Think that other brands in the space are as powerful or more so? Let us know with a comment below.

Disclosure: Among the stocks mentioned above I own shares in Amazon, Apple, Starbucks and Innovative Industrial Properties. I will not trade in any covered stocks for at least three days, per Stock Gumshoe’s trading rules.


Irregulars Quick Take Paid members get a quick summary of the stocks teased and our thoughts here. Join as a Stock Gumshoe Irregular today (already a member? Log in)

Share your thoughts...

40 Comments on "Carr’s teased “America’s #1 Pot Stock”"

Notify of
avatar

This site uses Akismet to reduce spam. Learn how your comment data is processed.

bbuckley340
Irregular
11

This is the very first pot stock I ever purchased (I own about 7 very diversified types now). My sister visited them and brought back products. They are the boutique, high end brand that everyone wants. They are not only normalizing it, they are making it prestigious. This is a long-term hold for me, but I think it’s going to do incredibly well in its market. It’s like walking into a high end boutique of makeup, perfume, etc. Packaging is key. Quality is great too!

Add a Topic
6433
bagels88
Member
12

Much more upside than downside here

Add a Topic
1278
Sylvia Rognstad
Guest
0

following

Deborah
Guest
0

Pump and dump. Maybe he’s been smoking some of the product

Add a Topic
6433
Deborah
Guest
0

Pump and dump. Smoking his own product too much

Add a Topic
6433
gayle reynish
Guest
0

acb

Add a Topic
6237
oliveira
Member
8

Is anyone following Green Growth Brands – GGBXF? It´s currently being pushed by Seeking Alpha. I would be interested in your views.

Add a Topic
3551
jeffrey
Guest
0

I have some Green Growth Brands GGBXF I think it will do good but lately it has been dropping and I am not sure why. They seem to have a lot of bases covered but still won’t go up.

jsr1972
Member
24
GGBXF’s stock is not performing well at this time however, their leadership is of a high (retail) pedigree plus they have the backing of an exceedingly wealthy “American family”. High potential in short summary so I have a small position and am obviously curious to monitor their progress. You may wish to review Sproutly, Inc. (SRUTF) due to their unique science-based Cannabis technologies which could very well lead to them being a major disruptor in the food and beverage market globally. Still a “penny stock” which gained 23.82% today and closed at a price of USD 0.39 High risk reward… Read more »
Add a Topic
6438
jsr1972
Guest
0

This link is a worthy read. The sales spiel is not lost on me. Regardless, I am going in biggish as would so love to ‘retire’ from the corporate tech world. Out of 21 “Cannabis” stocks I currently own, this is the one I am genuinely most excited about. See below for a somewhat informative overview:
https://seekingalpha.com/article/4227781-sproutlys-water-soluble-cannabis-technology-making-waves-marijuana-industry

jsr1972
Guest
0

As an FYI to those thinking of reviewing Sproutly, Inc. (SRUTF), it has another gain of approx. 8.52% so far today. This lone but very welcome green is among of sea of red!

Add a Topic
6438
msully56
Irregular
4

They have a pretty good review and rating from NICI, and I have been eyeing them as well…
Hard to say who is going to be a good investment, but you could do a lot worse IMO…
Cheers…

socr
Guest
0

GGBXF is extreme overvalued ,I would maybe buy it for 40 cents,they made a hostile take over bid for APHA but dont have the money to do so,lots of hype in pot stocks but MedMEN is quiet promising and am tiptowing into this one,it doesn’t look to be extremely overpriced with its probable bright futur for US pot bussines.

Add a Topic
6433
roberthebel
Member
113

G you would buy at . 40 cents would be nice to make up ridiculous low prices on any stock awesome input thanks for sharing the 1000s of hours of your research what a guy

Pvo
Guest
0

There is one major reason why this pot stock has fallen way behind others like Canopy, Aurora, iAnthus etc. (to name just a few) and that is because there are a serious number of law suits pending. They have been brought to court by their major shareholder, a bunch of employees and their ex-CFO. If you think MMEN can come out of this intact than there is a lot of upside, if not…..better invest in other pot stocks with focus on US like iAnthus for example.

quincy adams
Guest
0

As an old codger, I am a bit dismayed by the growing use of weed, having through the years watched a few people close to me become unproductive after habitual use of the stuff. That said, I’m not averse to profiting from the mania. I’ve limited my investment to IIPR, which has easily been my most lucrative investment over the past 3 months. Now at 60 times sales, I suspect the day of reckoning is just around the corner.

Add a Topic
5951
macrobody
Guest
0

At least 113 different cannabinoids have been isolated from the Cannabis plant. THC is one of them (the one that makes you high). I don’t smoke and I am no user but I am definitely interested in the health benefits of the other 112.

Robert
Guest
0

I believe they have a number of lawsuits against them and that the founders are paying themselves very big salaries.

frofro
Member
20

Thank you for another great stock review 🙂

jsr1972
Member
24
thank you for posting this interesting article, Travis. MedMen’s share price has not significantly moved since the Gotham announcement and my sense is that a significant portion of the potential investor population is still on the fence at this point in time. Multiple potential reasons e.g. allegedly there was a key leader displaying a lack of integrity on a behavioral level quite recently..which left somewhat of a sour taste in my mouth and I’m quite sure others’, a law suit, talk of huge share dilution, even suggestions of MedMen displaying unattractive, arrogant flare…I bought a few shares recently however, have… Read more »
Add a Topic
6433
mykie76
Irregular
30

I’m not a fan of MMEN and have stayed away, even if there’s money to be made. I visited twice and was underwhelmed twice and offended once, so retailing doesn’t seem to be their strength imho. Additionally, their prices are very high. And the battle for customers will be in the retail shops in the USA and once there’s sufficient competition, I don’t see this management team changing the corporate culture much. Diluted, iffy management character, arrogant retail presence, etc is enough for me to look in another direction.

nbv
Guest
0

Dang, I dumped medmen a few weeks back due to allegations of CEO living like a king burning through shareholders cash like there’s no tomorrow! Bought C21 Investments though-been on fire since I bought in so who knows. (C21 only trades in Canada- was a top pick of Bruce Campbell on BNN TV a few weeks ago, so far so good- don’t know much about it though).

Add a Topic
6433
Add a Topic
1515
Judi S
Guest
0
I bought this stock back when it went legal in Canada, based it on its up and coming presence in Nevada and my knowledge of pot users both medicinal and recreational. Pot is not a street drug that only the underprivileged will partake in anymore. The recreational usage is going to be most profitable among the elite. Volume vs price will also play a part. They definitely have recognizable presence in the elite market. I should point out that my daughter was an accountant for a cannabis company in Vegas (not Medmen) so she did understand the numbers and the… Read more »
Add a Topic
1515
Add a Topic
6433
jeffreyl
Member
2

Well Trav, I don’t like to admit it but I bought some IIPR only because you own it. Don’t worry it’s only 3% of one of my portfolios. I liked you take on the dividend so I’m going to try to hold for a year, or a hit on my 25% trailing stop. (Yes I’m an Oxford guy)This is ver interesting. I’m also holding some Cronos.A guy can dream, right?? Thank you everyone for your views,Jeff

Add a Topic
5951
sschechter
Member
52

I was just in their store in Las Vegas. They have very solid red branding (no green) that stands out, and the layout of their store had an Apple-esque feel to it. I have also seen their billboards around Southern California. Added to my watch list

Add a Topic
6433
Simon Parry
Guest
0
Excellent analysis. I came to the same conclusion that it’s MedMen, but I absolutely loathe the long-drawn-out video presentation with Mathew Carr saying the same thing over and over and over. I always try to multi-task but this time I could have done my laundry while he burbled on – these presentations are all very long-winded but they probably work with punters buying subscriptions to the newsletter. There seems to quite a lot of negativity from customers at MM’s 5th Ave. store but I suppose that’s to be expected – there are always going to be SNAFU’s especially in retail.… Read more »
Add a Topic
6433
hunter007
Member
67

Goin g to MedMen is like going to an Apple Store. Sleek showcases allow you to see, sniff and buy based on what you’re looking for. The first time I visited the store in WEHO, CA, I asked if it was a privately held company, and low and behold, here we are seeing it teased from a newsletter. I’d be inclined to throw a few dollars at this company. Kind of a wait and see.

Add a Topic
6433
steveflick
Irregular
627

Once again I think the Thinkolator is spot on with MMNFF MedMen solution to Carr’s teaser. June 2018 I bought $2k & Oct 2018 another $1k; sold early Feb 2019 at a 26.27% loss – I sold due to the multiple lawsuits. Reading more, early March 2019 I bought $2k and am +8.45% as of closing 3-27-2019.
Since this article is on U.S. pot stocks, doing your DD Due Diligence, readers might consider ACRGF, CURLF, CWBHF, GTBIF, HRVSF, IIPR, SNNVF, TCNNF, TGIFF, TLRY.
With today’s Cannacord advisory to Sell CRON, many marijuana stocks are down.

Add a Topic
4091
Add a Topic
6433
Add a Topic
5951
steveflick
Irregular
627

Top 12 MSO Multi-State Operators (Cannabis) from March 20 Green Market Report https://www.greenmarketreport.com/the-cannabis-industrys-top-12-u-s-multi-state-operators/
greenmarketreport.com offers a free weekly enewsletter

Add a Topic
4091
Add a Topic
6433
microcapwiz
Guest
0

its all about brands – MSO’s will buy them along with food co’s Plus Products is the clear winner (PLUS:CSE, PLPRF. medmen will buy them – they have to

Nick
Guest
0

Anyone have experience of Chemesis International Inc. (OTC:CADMF) (CSI:CSE) touted in The Trading Letter?

cyberguy
Member
29
As long as we are asking about some stocks… Can anyone point me to information for this company and somewhere to determine how it’s warrants work? I’m talking about The Hydropothecary Corporation. They have warrants being traded as The Hydropothecary Corporation WT EXP 013020 (HYYWF) that trade for 2.5192 but how do you find out what they can convert into if you buy them? Isn’t the company a subsidiary of HEXO and that is really what you have an opportunity to buy cheaper this way than buying it on an exchange? Also now that HEXO is on the NYSE and… Read more »
Add a Topic
3229
Add a Topic
570
iruneek1
Irregular
2

Well I just joined this great group and I own both IIPR and MMNNFF. I just want to say I have followed your leads. Your sense of humor in your articles is great Keep up the good work. Look forward to more comments

Add a Topic
5951
bonzobear
Member
0

I cant thank you enough for debunking these so called millionare makers. Greed is not a good thing,it clouds the mind. I believe that slow and steady wins the race. Its way to early to predict which mj company will rise to the top. Maybe we should all go out and buy a crystal ball and charge others 1900.00 to let them know what we see in it. It`ll be cheaper!

cookingallday
Irregular
2

I’m seeing another Medmen stock ticker MMNWF, can anyone tell what this stock is and how it differs from MMNFF?

Add a Topic
6433
wpDiscuz