Medical marijuana update: Cambridge House goes green

Chris Parry Chris Parry, Stockhouse.com
15 Comments| June 3, 2014


It’s been a week since I’ve posted an MMJ update, largely because of the preparation time needed to prepare for and run my medical marijuana panel at this week’s Cambridge House Canadian Investor Conference.

I've missed you all. But it doesn't appear that I missed much on the news front.
 
For those that have never attended a Cambridge House event, it’s traditionally the place to find grey-hairs perusing what’s being pushed to investors in the mining space. If you’re a happening rock-finder, it’s the place to be.
 
But hey, mining isn’t exactly what it used to be right now, so much so that I considered tossing a handful of singles to the floor and making bets on which resources CEO would kill the most of his compadres with a sharpened lanyard to get it. 

Even the pension investors are beginning to realize sector diversity is a smart rule for your portfolio, so this week’s show gave over a hefty amount of floor space to the tech world, some more to a Deloittes-driven green energy section, a little Bitcoin, some 3D printing, and four companies in the marijuana space.
 
Let’s talk about those.
 
First on the floor, both in your hearts and your scoresheets, was Naturally Splendid (TSX:V.NSP, Stock Forum). These guys, who share top level management with Canada Carbon (TSX:V.CCB, Stock Forum) (who I’ll say nothing negative about because they have lawyers on around-the-clock shifts and paper the walls of the executive restroom with mea culpas of the fallen) have a range of hemp-based health snacks, seed products and protein drinks.

(NOTE: Naturally Splendid shares office space with CCB, not management: My apologies for the error)
 
I’ve said it before; I like what the NatSplen folks are doing. Their packaging is superb, their product was in the hands of every second conference attendee, they’re doing what I’d consider to be a hard slog in pushing into the retail space, but if they can make that work (and thus far, they’re doing just fine), it’s a very real company with a product that will only show a better profit margin with scale. And that scale will most certainly come when they get the commercial supply side going and you find hemp seed in your Corn Flakes.
 
Also making waves, Verde Science (OTCQB:VRCI, Stock Forum), who sent out high profile consultant and potential one day California Governor Paul Pelosi.
 
Pelosi, son of 60th Speaker of the US House of Representatives Nancy Pelosi, was doing the rounds talking about Verde’s plan to middleman between the growers and dispensaries, a plan that shows promise the more you realize the cost of weed is likely to plummet in the years ahead, while dispensaries will be needing consistent, quality supply and marketing help to get them out of their current ‘crusty dude in a tie-dyed t-shirt telling you to chill while he counts change’ persona.
 
You may recall Verde as being Rango Energy until recently.
 
Said CEO Harp Sangha recently, “Our company was presented with a significant opportunity to participate by teaming up with top biopharmaceutical experts to help produce a meaningful supply of the highest quality product for the underserved markets; particularly Southern California and other jurisdictions as Marijuana is legalized for both medicinal and recreational use."
 
I haven’t been neck deep in the Verde story, but where they’re positioning themselves is exactly where I’d want to be, especially with the political pull of Senor Pelosi.
 
Side note: I got the distinct impression Pelosi doesn’t mind sampling the product. Either that or he’s one of the slowest, most considered, maybe even docile conversationalists I’ve met. Not that it seemed to hinder him – he was fine on camera and talked his company up like a trooper, he listened and conversed and held a crowd, but if you slipped a pillow under his head and stroked his ear a few times, I think he’d be happily napping inside ten seconds.
 
Also at the conference was Next Gen Metals (CSE:C.N, Stock Forum), which has put on the successful Greenrush medical marijuana investors conference and promises to establish quality control labs going forward. Side note: Come see me at the next Greenrush show in Toronto on June 26th doing the most recent iteration of my “The Dot.Bong Bubble: Marijuana is great and all but how do we make money off this sh-t?” presentation.
 
And finally, rounding out the four, was Endexx (OTO:EDXC, Stock Forum), who I knew nothing about going into the conference, but which will supply growers and dispensaries with inventory tracking, quality control and compliance tracking software while also pushing the Autospense medical marijuana vending machine.
 
Okay, full disclosure: Endexx has announced a software partnership with CEN Biotech, a subsidiary of Creative Edge Nutrition (OTO:FITX, Stock Forum), and anyone who reads my columns knows that CEN CEO Bill Chabaan and myself are not BFFs.
 
But I don’t mind the prospects of what Endexx is proposing on the inventory solutions side. If ever an industry is going to be prone to shrinkage, medical marijuana is it, and tracking the entire process from grow to sale is something that requires a robust software solution.
 
But, man alive, do I HAAAATE vending machine plays.
 
Those that are out there in the US already have seen their usefulness slashed by rulings that they can’t contain actual weed, and that the machines must be manned by an attendant so as to keep young and un-qualified hands out of the mix.
 
This, for mine, makes them a very expensive shelf.
 
Vending machines are at their most useful when they can be left alone to do business long after the retail outlet has closed for the night. In Tokyo, you can find vending machines for just about anything, from umbrellas to ‘gently used’ panties. Run out of toothpaste in the middle of a business trip? There’s a machine for that. Looking for a nice cold can of dragonfruit and peachfuzz Happy Monkey Time soda? You’ll find it within ten steps of any street corner, just waiting to be dispensed.
 
I love vending machines. They make me happy. But weed vending machines are just bad juju.
 
That said: After waiting for the crowd around the Endexx vender at Cambridge House to move along, I got a few minutes to talk to hard working CEO Todd Davis who pointed out the first positives I’ve heard for vending as an option.
 
First, he sees the potential for one store to bank up five or six machines in one retail space, which would allow one person to man the machines while also keeping stock secure. Thumbprint scanners and other security options exist to ensure customer tracking (certainly better than the notepad some dispensaries rely on), and Davis says his machine has been test run in several US locations under video surveillance, and they’ve seen several attempts to steal the machine foiled by its construction and weight.
 
In addition, he notes that some dispensaries in California are so overrun with clients that there’s a 20-25 minute wait to get your weed, which a vending machine bank may prevent.
 
Good points. But.
 
You also likely need a security guard in any vending establishment, to ensure users aren’t relieved of their medicine at the door. And that they don’t use the machine 18 times for all of their friends. And that they don’t drive a forklift through the door.
 
So now your costs are going up. You also need Health Canada to okay vending machines, which they haven’t and maybe won’t. In the US, you need regulators to settle on rules for them, something Davis is going to try to sort out by visiting Colorado and trying to work around that ‘no weed in the weed machine’ rule which, to be honest, is a play killer.
 
So the jury is out on Endexx, but I’ll get in touch with Davis in the weeks ahead to gauge his progress and dive deeper into the software side, which is where I think there’s real potential.
 
So what do all of these four companies have in common?
 
Value-adding.
 
Next Gen is going to set up their lab and take a piece of sales in return for quality control. Verde is going to be the company that fixes the distribution problem of growers and the supply problem of dispensaries. Naturally Splendid is making hemp a retail superfood. Endexx wants to get paid to make all corners of the industry run smoother.
 
Ladies and gentlemen of the jury, if you’ve been sitting the weedspace out while it gets to grips with what it wants to be, these four companies are examples of what will be the long term growth path of the business.
 
They’re not ‘weed companies’, they’re tech companies, event companies, science companies, retail companies. They don’t live or die on the price of a gram – in fact, they’ll do better the lower the price of weed gets because they’ll help companies make margin. Low cost commodity in, high quality marketable value add out.
 
On my Cambridge House panel, which included Deloitte Tax Law’s Daniel Kiselbach, Cannabis Culture’s Jodie Emery (wife of soon-to-be-released Prince of Pot Marc), Verde’s Pelosi, and James West of Midas Letter, the overwhelming consensus was that there’s a crash coming for the MMJ sector, and that companies without a solid business model will eventually be dust.

When asked who The Prince of Pot would be alining with when he's released from a US prison for selling weed seeds, Emery said 'nobody,' adding that she and her husband have always given profits away, and that she believes the best investment advice in the space is to get behind companies that put the patient first and sell as inexpensively as possible.

I'm going to go ahead and suggest there might be better options. In fact, throw a rock at the sector and you'll hit one.

But not everything is as solid as the rising share prices may indicate.

For mine, what we're looking at is not a bubble per se, because everyone knows the reckoning is coming, it’s an educated bet on the ability of certain companies to keep turning over multiples in value before the guts drop out. It’s a daytrading play that relies on people to be able to make money on stupid plays by jumping in at the open and being out by noon.
 
That’s clearly unsustainable. West noted that the people behind the Supreme Pharmaceuticals push have made bank to this point, buying in at a micro level and running the rails to a nice mega-multiple profit today. Whether or not they ever get their license to grow a million square feet of weed is, right now, of little consequence. It’s going up, and if you’re not on it, you’re not where the cool kids are.
 
Kiselbach pointed to Tweed, a deal he helped put together, as being a crazy payday for the principals and early investors when they got in at the mid-$0.80’s point and the stock opened at the mid-$4 point. Whether Tweed can roll that into a big phat crop remains to be seen, but nobody at the company is crying poor.

But Naturally Splendid has not seen a massive share boost. Next Gen’s stock chart looks like an outline of the Disney castle logo. Endexx went up, then Endexx went down. Verde’s chart has only been kicking for a month, and despite a lot of volatility, it’s only $0.002 above where the stock debuted, at $0.088.
 
Verde’s earlier incarnation, Rango Energy, was at $0.40 in July of last year.
 
So why are these companies, with actual business plans and the ability to get to an investor conference and push their product decently, struggling to ride the same pop as companies that want to replicate a Hell’s Angels grow op, only with pharmaceutical grade conditions and costly government oversight?
 
Answer: Because investors in this space, right now, don’t care about your EBITDA.
 
Investors in this space are looking for pop. They want to know what company at $0.02 is switching to weed, and they’ll jump in for the day and jump out when it hits $0.06. Then they’ll jump back in when it hits $0.03, and get out four hours later when it’s at $0.05.
 
These are daytraders. Shorters. Basement suite zealots who live and die on half a cent of movement and have 195 buddies on Twitter who’ll follow them into a purchase and five accounts on the Stockhouse bullboards to say nice things, or crappy things, about whatever they want to raise or kill.

This is the medical marijuana market right now.
 
If you believe the sector has promise, as I do, but that such promise will come not tomorrow but in three months, or six months, or a year, and that an annual return of 30% is just fine for your money, then you must disassociate yourself with the day to day share price of what you own.
 
I believe the four companies at the Cambridge show will appreciate in value. But they’ll drop 85 times first, and for no apparent reason. If you’re in, you need to understand those red numbers are opportunities to add to your shareholding, not a reason to bail.
 
Keep your powder dry, friends. Buy quality. Ignore daily movements and look at the monthly swings. Investigate management. Think forward. Consider the likelihood that weed, which has never been cheaper on the street than it is right now, will get cheaper when a billion square feet of Canadian grow space is devoted to it and companies can’t find patients to take it at above-closet-grown prices.
 
Who will benefit from that likely to self-destruct commodity market?
 
Processors. Value-adders. Brand builders. Solution providers. Roll-ups. Vertical Integrators.
 
When you start to look at the sector with the long view in mind, you begin to see amazing value in what the daytraders are ignoring.
 
My top five right now, based on long range forecasts and the expectation of grower carnage:
  • Affinor
  • Abattis
  • Papuan Precious
  • Naturally Splendid
  • Cannabis Technologies
 
Would love to hear your own top three, and why, in the comments.
 
THE MOVERS:
GREEN AND HILL INDUS INC   1.120 +0.310 +38.27% 455.26k
Supreme Pharmaceuticals Inc   0.090 +0.015 +20.00% 8.72m
AXE Exploration Inc.   0.030 +0.005 +20.00% 132.27k
Next Gen Metals Inc.   0.170 +0.025 +17.24% 11.25k
Crailar Technologies Inc.   1.060 +0.150 +16.48% 34.82k
Prominex Resource Corp.   0.040 +0.005 +14.29% 40k
Affinor Growers Inc.   0.930 +0.080 +9.41% 795.32k
Calyx Bio-Ventures Inc.   0.060 +0.005 +9.09% 25k
Majescor Resources Inc.   0.065 +0.005 +8.33% 2.5k
Cannabis Technologies Inc   0.405 +0.020 +5.19% 431.5k
Abattis Bioceuticals Corp.   0.770 +0.030 +4.05% 307.68k
Growlife Inc   0.155 +0.005 +3.33% 5.24m
EASTON PHARMS INC   0.021 +0.000 +0.48% 9.1m
88 Capital Corp.   0.120 0.000 0.00% 0
Alchemist Mining Inc.   0.075 0.000 0.00% 0
Ansell Capital Corp.   0.050 0.000 0.00% 0
Pan American Fertilizer Corp.   0.070 0.000 0.00% 0
Seaway Energy Services Inc.   0.340 0.000 0.00% 0
Thelon Capital Ltd.   0.045 0.000 0.00% 0
Southbridge Resources Corp.   0.480 0.000 0.00% 0
Terra Firma Resources Inc.   0.015 0.000 0.00% 2
Senator Minerals Inc.   0.090 0.000 0.00% 666
Windfire Capital Corp.   0.165 0.000 0.00% 0
ROSTOCK VENTURES CORP   0.028 0.000 0.00% 30.33k
Cavan Ventures Inc.   0.040 0.000 0.00% 286.35k
Weststar Resources Corp.   0.025 0.000 0.00% 62.9k
Chlormet Technologies Inc.   0.465 0.000 0.00% 0
GeoNovus Minerals Corp.   0.035 0.000 0.00% 36.78k
West Point Resources Inc.   0.050 0.000 0.00% 0
Jourdan Resources Inc.   0.025 0.000 0.00% 750k
Pacific North West Capital...   0.050 0.000 0.00% 16k
Spearmint Resources Inc.   0.045 0.000 0.00% 10k
Green Swan Capital Corp.   0.090 0.000 0.00% 0
Arrowhead Gold Corp.   0.040 0.000 0.00% 0
Totally Hip Technologies Inc.   0.100 0.000 0.00% 0
GreenBank Capital Inc.   0.120 0.000 0.00% 6.5k
Victory Ventures Inc.   0.025 0.000 0.00% 4k
PREMIER BRANDS INC   0.001 0.000 0.00% 28.3m
CREATIVE EDGE NTRTN INC   0.059 -0.002 -2.96% 18.71m
Lexaria Corp.   0.290 -0.010 -3.33% 3.5k
Naturally Splendid Enterpr...   0.280 -0.010 -3.45% 11.35k
NEXT GENERATION ENERGY   0.026 -0.001 -3.70% 275.71k
Tweed Marijuana Inc.   2.840 -0.110 -3.73% 251.74k
PMX COMMUNITIES INC   0.019 -0.001 -4.08% 21.58k
Papuan Precious Metals Corp.   0.090 -0.005 -5.26% 936.6k
MODERN MOBILITY AIDS INC   0.146 -0.009 -5.81% 191.5k
Enertopia Corp.   0.200 -0.025 -11.11% 110.5k
Global Hemp Group Inc   0.080 -0.010 -11.11% 135k
Satori Resources Inc.   0.040 -0.005 -11.11% 27.2k
Maple Leaf Green World Inc.   0.055 -0.010 -15.38% 443.88k
Anexco Resources Ltd.   0.140 -0.030 -17.65% 122k
 
Full disclosure: Next Gen Metals and Cannabis Technologies are Stockhouse Publishing marketing clients. I do not own any of the above mentioned stock, nor has any company paid for this coverage. If I trash your deal, it's because you need to do better, not because it'll send my kid to college.

Find more marijuana sector coverage at http://www.stockhouse.com/discovery/marijuana

Twitter: http://www.twitter.com/chrisparry
Email: Chris(dot)Parry(at)Stockhouse(dot)com
Passenger pigeon: 49.287317 N, -123.125311 W
Desk: The one with the IPA bottles underneath.



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Comments

G4General
1) TWEED (twd-v)- obvious reasons, they are the leader in the Canadian MMJ sector 2) Affinor Growers (AFI-c)- Showing a great 2 prong approach to the MMJ field. They are not putting all their eggs in one basket to only grow MMJ. 4) Papuan Precious (pau-v)- Has real assets alongside mixing it up in the MMJ sector. 5) Satori Resources (BUD-v)- they are getting their feet wet with the Jourdan resources for the intention of marketing/using fertilizer to grow MMJ. Also there 8 week due d...
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June 3, 2014
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MAZZMEX
Not even a mention on Supreme's achievement... not a word on todays news release....lots of bias here from Chris..
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June 3, 2014
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StockGru2013
1- Affinor Growers - great management team, great share structure, great vision 2- TWEED- SELF EXPLANATORY 3- Satori Resources- news will be evident really soon based on transactions from the due diligence period 4- GrowBLOX Sciences Inc have been doing some interesting things and have seen a great amount of share price increase Also Mr. Parry hear anything about THC?
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June 3, 2014
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George141
..Chris...you are well documented in your articles...but is there a bias against Supreme?..We all know the huge potential..especially with the latest aquisiton.Any thoughts?
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June 3, 2014
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Boug1234
For those that believe in SL they are so far from the finish line that by the time that they get a crop out tweed will have had 10 crops or more for the fact that SL still has to get approved by MMPR an if they get approved for the building they still have to deal with health Canada about there waste like there water over flow where will this go there is so much red tape before they can set up shop all you have to is go to SEDAR an read what tweed has to put up with this is a not a mom an po...
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June 3, 2014
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G4General
... 5) Satori Resources (BUD-v)- they are getting their feet wet with the Jourdan resources for the intention of marketing/using fertilizer to grow MMJ. Also there 8 week due diligence period is coming to a close in a 1.5 weeks’ time.
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June 3, 2014
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STOCKRUS
In reference to "mining is not as it used to be" ... i bought NAN.V & it is doing quite well. With MMJ stocks I like TWD.V the best, but I think it's early to observe the "cream that has risen to the top".
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June 3, 2014
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Tomek0333
1) Tweed: licenced producer, already selling product, most cash in the bank, spending lots of $$ going directly to doctors to promote their product, brand name (ask any Canadian to name the first thing that pops into their head when medical narijuana comes up, and it's more than likely they say Tweed or "that company in Smiths Falls who took over the chocolate factory). 2) Bedrocan: looks like they have lots of experience in the medical marijuana industry and a strong management t...
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June 3, 2014
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Boug1234
An for those who don't no or think that by having a MMPR permit that it's good for life sorry the permit is good for one year only so if you break any of there law there goes your permit for now tweed looks like they are holding 3 aces for now an waiting for the other ace to come to cash in there Johnny cash
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Tomek0333
None of your top 5 are even licenced producers by Health Canada. They still have a long long way to go to be considered anything close to legitimate plays in the medical mj industry.
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