As a business journalist, it’s not often you get a chance to be at the table when decisions are made. You get a lot of press releases that PR guys hope you’ll rewrite. You get a lot of ‘company line’ that execs hope you’ll swallow. But you don’t get to see the wheels turn very often.
Wednesday night, a local mover shaker by the name of Brayden Sutton, who I happen to see, hear or feel the presence of just like a weed-based Obi Wan Kenobi just about every time I turn around in the marijuana sector, called me up and suggested I come to dinner. Some interesting guys would be around, he said.
I duly hit Joe Forte’s in Vancouver, which is unapologetically like being sent back in time to 1978, to find the Wolf of Weed Street
at the table.
The Wolf, who I’ve written about before plenty of times, leads a 20,000 strong Twitter following of people who want due diligence on US weed stocks and, for the most part, follow what he says as gospel. He travels all over North America looking first hand at weed plays, and can afford this due to the fact that his portfolio looks kind of ridic. He’s way green on green.
Didn’t ask him what he was here to check out, but soon figured it out when the upper tier of Supreme Pharmaceuticals (CSE:C.SL
, Stock Forum
) management showed up.
Supreme is a some-time client of Stockhouse, having used our marketing tools on occasion. I did a piece on them recently that foreshadowed a 65% increase in share price over the following week. At the time of writing, they are not a current client.
But to say they were happy with what followed my article is an under-statement. The piece, which was not universally positive (I still don’t like grow plays, as a general rule), was very in-depth (4700 words) and, I think, filled in a lot of knowledge gaps for a lot of people.
The bottom line on it was, Supreme aims to grow really cheaply and sell cheaper than a lot of their competition can take.
Whether this turns out to be how things play out or not is pure guesswork at this stage. But, as a strategy, ‘going Wal-Mart’ on the competition is certainly better than ‘we’ll be the best and people will pay more to buy our stuff’, which is something I’ve heard from about 19 companies to date.
After a lot of small talk and friendly mocking (one Supremo now owns the nickname Old Thirsty Bones), the topic got to Supreme’s plans and, with a few money guys at the table eager to share their thinking, the pros and cons of a consolidation.
Stadnyk was against rolling back any of the 300m+ shares outstanding the company had. The number crunchers, who spend a lot of their time talking to institutions only to be told the big financiers can’t buy in on a sub $0.10 stock, were of the contrary viewpoint.
It was clearly something the company had been mulling over for some time. There was an existing shareholder approval in place for a 10-to-1 rollback, which all present thought would be too aggressive. But as the oysters were shucked and the cold beer sucked, Stadnyk asked me what I thought.
Consolidate, I said. With 300m shares out and a share price under 10c, you’d need to move a lot of paper to get things up where Stadnyk had earlier said he wants them, pre-financing, at around $0.25.
It wouldn’t be universally popular, but sometimes you have to break up the party so you can clean up.
Reasons to consolidate:
Reasons not to consolidate:
The stock had recently jumped 65% - it could take the 20% or so drop that might come with shareholder panic at hearing the C word.
You need institutional support for the stock to really run, and most just can’t play at the sub-$0.10 level. At the $0.50 level, now you’re playing with the bigger dogs.
With a smaller float, you’re adding to the potential for volatility, and you’re making room for future dilution if you need to raise money going forward which, eventually, Supreme will need to do.
Yeah, nervous shareholders will flip out for a day. But then you’re clear and clean moving forward. Take the one day hit, and move forward without overhang and nobody will be talking about it come Tuesday.
Any consolidation has to be considered against the potential for a big sell-off going in, but Supreme’s market cap was already criminally small when compared to companies like Green and Hill (OTO:GHIL, Stock Forum), which is selling glass pipes and a reality show at three times the C.SL market cap, and Creative Edge (OTO:FITX, Stock Forum) which has ten times the market cap and… well let’s just say a smaller facility, at the same stage in their licensing, with billions of shares falling like snowflakes. How far could the Supreme market cap really fall, even amid consolidation talks, before you simply HAD to buy it up as a value proposition, rollback or not?
Daytrader shareholders will flip out. But let’s be honest, that’s only because you’re taking the stock from daytrader friendly and moving it to long friendly.
Stadnyk polled the table, heard a few more positive opinions on the rollback side, and said it was something that the team would need to discuss later. I didn’t think any more about it. After all, I tell a lot of companies they need to clean up their share structure and most are just too scared to hang a rollback in their newsflow.
But yesterday that discussion was had at Supreme HQ, and today the consolidation was announced – at 5 to 1, rather than the 10 to 1 the company was pre-approved for.
Shares in the company dropped 22% on the news, but shifted back up as the day rolled on. The bullboards were a gong show early, lots of panic, lots of support, lots of shots at me.
But by the close of trading, the stock had only dropped one cent. It had taken the hit, rolled through it, and was coming out the other end at speed.
Here’s what it comes down to, to me: The company has cleaned house.
Now, if they need to raise finance, they’re in good shape to do so. Now, if they go to an institutional investor, the compliance department isn’t going to have kittens. Now, if someone comes in with a buy, they don’t have to buy 8 million shares to get the price up 5%.
Over the last few weeks, trading volume on Supreme has been about 16 times what it was three weeks ago. The stock is starting to look hot. Now was the time to make the grown-up move for long-term positivity, shake off some weak hands, and clip the daytraders upside the head.
To be very clear, there was a ton of buy support for Supreme today between 7c and 8c. Yes, that’s down from the $0.09 it was yesterday, but when you’ve got 8m trading volume on the CSE, that’s a massive day – and, remember, for everyone who panic-sold, someone else snapped that share up. Those who thought they might pick up bargains at $0.06 left the day empty-handed because enough big players get that $0.08 is tremendous value.
Bottom line, when Supreme gets its MMPR finalised, assuming it will, it’ll run like a greyhound after a catapulted hamster. The same will apply to most grow companies in a similar position – the pennies being talked of now will be dollars when the license drops.
Bedrocan is going to list at around $0.45 in the next month or so, and if Tweed’s (TSX:V.TWD
, Stock Forum
) market cap is justified, I’d be shocked if it won’t quickly double. That company is producing and licensed and putting product to market. If it does land with a bounce, it’ll be ten times Supreme’s market cap and a good guide as to where C.SL may go down the road, if it can pull the pieces together.
That said, don’t take this as a buy recommendation from me on Supreme. I’ll repeat what I have said all along: If all you do is grow, you’re a goner. There’s got to be value-add plays, or wholesale contracts, or connections that can get that product, which will be a cheap commodity soon, out the door for a profit.
Supreme doesn’t have that element in place yet. Of course, admittedly, they don’t need it there yet, but it’s something that is a real blind spot for a lot of companies, and Supreme is no exception.
So if you’re going to buy, buy because the share price will likely run hard at some point soon, not because it’ll be still going up in three years.
For now, compare the market cap to other companies in the space in the same position as Supreme and, it’s pretty clear, C.SL stock is as low as it can reasonably go.
IN OTHER NEWS:
Southbridge Resources (CSE:C.SOU
, Stock Forum
) announced it is acquiring Vodis Innovative Pharmaceuticals
. What does this mean to you?
Well, if you’re a Southbridge investor, this is the business plan you’ve been wondering about for a while now. Ultra tight share structure (just 10.8m outstanding), low market cap. But what is Vodis?
It’s a small grow collective who have been growing under the old rules for a long time, and who are actively seeking opportunities in Washington State while pushing their facility towards an MMPR.
I like the diversity of the play. I like the way Vodis has presented itself as a solid health-focused company rather than a marijuana leaf-resplendent hippy trip.
What will the company need to show investors in order to take off? Aside from an MMPR (which everyone needs and nobody can predict the arrival of), closing some of those Washington deals would be very interesting. TONS of room for financing. Largely undiscovered listing. This one is edging back into my top five, even though investors didn’t jump at the Vodis news release and, as mentioned previously, grow plays are largely meh.
Green and Hill Industries (OTO:GHIL
, Stock Forum
), which is trying to turn Ross Rebagliati into a monetizeable brand, put out a news release that says they’ll be branding Ross’ Gold pipes, vaporizers, and associated weed toolery
to be sold at head shops all over.
Another company, West Coast Gifts, will do the design, production and distribution, with GHIL presumably taking a cut of the action.
My favourite line in the release is “Ross' Gold glass water pipes will include a certificate of authenticity signed by Ross Rebagliati.”
CEO Rebags said, "We're creating a brand that people can identify with, a brand that people can trust and a brand that people already know,” leading my first thought to be, if people already know the brand, how is it that you’re just now creating it?
I’ll give the GHIL crowd one thing – when the mainstream media needs someone to quote about marijuana, they clearly believe a Rebagliati quote is more important than, say, a Dev Randhawa quote, based on the infamy surrounding Rebagliati’s Winter Olympics drug tests. As someone who spent five years toiling in the Vancouver Sun newsroom, I know the first journalist impulse is to find someone to talk about a topic that might be recognizable by the audience.
But I have, since the outset, been of the belief that nobody buying a pipe, or a vaporizer, or a gram of Mondo Face Smash Kush, will be compelled to buy because Rebagliati’s name is attached. They may sell some product if it’s sitting on shelves, but there’s just no value-add in his association.
At least, that’s how I see it. I’ll be talking to the company this week to get a deeper insight into what they’re doing at the pointy end, and I’m more than happy to give them every chance to make their case.
That said, had the following conversation with GHIL exec Patrick Smyth on Twitter this morning:
$GHIL boss says weed investors should be "sure they’re comfortable losing all their money”, stock drops 2%. #GoodPlan http://www.theprovince.com/sports/Olympian+Ross+Rebagliati+joins+bong+boom+seeking+marijuana/10026598/story.html …
PS: guess we're not a paid Vancouver typical pump and dump, and we are building a business.
CP: Cornering the glass pipe market. Right on.
PS: Putting our brand into brick and mortar stores across Canada. Think 'brand awareness'. We are a brand. This deal helps us get in front of a whole new segment who just might be interested in medical cannabis. if a pubco has one grow-op, what happens if they get powdery mildew or burn down? Pubco out of business? #eggsinonebasket
CP: If they're smart, the one facility is divided into many secured rooms, so that a breakout of badness equals minor setback.
PS: Yea...that's not really how it works. Have you been to any facilities? If not, might be able to intro you into one.
CP: For real, with your price down 90% in the last [three months], you're going to try to tell me 'how it works'?
PS: ah. That question. Ross and I are focusing on the business. Share price will follow revenue streams not hype.
CP: Yeeeeah, it was just a few months back Ross was comparing GHIL to [Tylenol], Amazon and Greygoose. #realitycheck
PS: we are here long term. Our biggest shareholders are happy with our progress :)
I’ve been hard on GHIL, but I think that’s justified to this point as there's a lot to prove and the share price was WAY over-inflated when it hit the market. Like, stupidly inflated.
That said, I remain open to having my mind blown and can at least appreciate Pat's ability to come at a critic hard without taking things personally. We’ll talk, Pat.
Elsewhere, Greenbank Capital (CSE:C.GBC
, Stock Forum
) has plunged to just $0.035 per share. The stock, which was a mining play, then a Bitcoin play, then a weed play when the Bitcoin angle was shut down by regulators, then a weed website
play, has basically run out of room to move.
Though it rocketed to $0.50 in December of last year when Bitcoins were a big deal, it has fallen consistently since. A recent VP appointment was given stock options
at $0.13, which don’t appear to be worth anything anymore.
Smoke one out for the dearly departed, GreenBank Capital, we hardly knew ye. We at Stockhouse take the blame for this turn of events; when we published our deep dig on the company, we appear to have sucked the air out of the company’s lungs
That said, it’ll probably reappear as a sneaker company or a rare earths explorer or a 3D printing play or god knows what down the road.