Now that the dust has settled on the market debuts of Organigram (TSX:V.OGI
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) and Bedrocan (TSX:V.BED
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), some interesting questions can be answered about the weed sector’s biggest day since Tweed
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How did Organigram come out of nowhere in just a few months and claim a $106m market valuation when Bedrocan had been the name on everyone’s lips for a large part of 2014?
Why did Organigram jump so hard to $2.40 with so little volume while Bedrocan, with loads of volume, stayed sub-$1.40?
Why did both stocks drop through the day after their big debut?
Will future weedco IPOs roll out in the same way?
Well here’s some gospel knowl’.
Ogranigram’s debut was planned and executed like Swiss clockwork. The build up to launch focused on several important parts:
Differentiators: I’ve been hard on grow plays because I don’t see them as a long term bet, but Organigram managed to outline two pieces to their puzzle that could draw significant revenue: the French speaking market, and their organic certification.
A tight float: Organigram has 51m shares outstanding but, of that, at least 35m are held by founders, the shell it moved into, brokers, and investors involved in the private placement round that just ended. Translated, those shares are locked down for at least the next four months – some of them far longer. That means the actual shares available to buyers yesterday were small in number - I’ve heard as little as 7m were free trading on the market when the company listed which means, if you wanted to buy them, you were going to have to outbid everyone else who wanted to buy them at the open.
Brokers squeezed the private company to get that PP looking as attractive as possible to clients. While that may sound mean to the founders, it also created real demand and the founders will not be complaining this morning.
Promotion matters: Organigram have been on the conference trail, they’ve been in media, they did a marketing deal with Stockhouse (full disclosure) and other sites. If you didn’t know Organigram’s name a month ago, you sure as hell knew it a day before listing.
Timing matters: Though just about everyone in the market wondered aloud why Organigram and Bedrocan would list on the same day, it didn’t hurt anyone to create a doubling of the buzz. Monday was the day the weed market got a lot more legit, and that’s in large part due to the double emergence of good weed plays.
Of course, once the stocks listed high, the value proposition wasn’t there for most of the rest of the market, so many of us backed off from Organigram and the volume stayed low for the day and the share price gradually slipped as daytraders realised the tide was rolling back on them.
The Tweed launch saw the exact same activity earlier in the year, and Bedrocan did likewise yesterday.
With the exact same trending patterns playing out for three very different market debuts, it’s safe to say this is how one can expect future big weed IPOs to roll. Either you get in on the placement, or you wait for the hype spike to end and the reality trough to kick in later in the day.
There were three Organigram buyers yesterday: The daytraders chasing a 1200% rise, the ‘I want this and I don’t care what it costs’ buyers who are playing for profits in a year or two, and the rest, who would have loved to grab some at $1.50 (my hand is raised here, though I found out at the zero hour that I did get some of that private placement, praise be to the Flying Spaghetti Monster).
This, for reals, is what every broker behind the Organigram deal (and any other deal) wanted for the company. It’s the perfect storm for an IPO. Clients brawl to get in on the PP at $0.85, their investment quickly drives to a near-triple, and the broker gets a fat finder’s fee, keeps his job and gets to do more deals with happy clients.
A tight float such as Organigram’s was built for elevation from the outset. It was wired into the structure of the deal: Keep the shares scarce to force up the price and ensure holders see value in keeping the stock.
Jordan Securities broker Justus Parmar told me the book closed with almost $20m in investors wanting in on the OGI deal, for a raise that was initially only supposed to be $5m. That left a lot of pissed off people who aren’t used to not being allowed in on the private placement deal du jour, which added to the opening day shove.
It also points to a real problem with the ‘accredited investor’ system in Canada, where most investors aren’t allowed to get in on the deals that make the most money. It’s a dumb system built to ‘protect’ people from themselves, but that only serves to ensure you need wealth to build wealth and, frankly, without those restrictions, you’d have seen an $80m book on OGI before launch.
Will that Organigram book get opened again soon? A company with a small float would be crazy not to take what’s on the table usually – especially if it would mean financing the next round at three times the price of the last. The bigger question in this case will be whether that $20m is still there for a $2 raise, and whether Organigam can make good use of the money and drive revenues harder and sooner if it snatches at the cash.
If the exponential growth plan isn’t there yet, the company should keep those shares tight and scarce and leave investors wanting more. But if it does want the easy money and has a good plan for what to do with it, you can bet it will make another raise happen before all those PP shares become free trading in four months, and there will be no end of takers.
Bedrocan has played it differently, but no less well. As I understand it, of their 67.5m shares out, some 37m or so were on the market yesterday. That led to a much smaller lift on much MUCH higher volume (millions as opposed to hundreds of thousands), and should see a lot more volatility in the market going forward.
Bedrocan stock also drifted as the day wore on – same reasons – resting at $1.17 by the time all was said and done. But this is not a loss for the company – at all.
$1.17 was a huge spike and a big green day for investors of BED’s PP. In fact, with a market cap some 20% lower than Organigram’s, but with a massive war chest, the best experienced levels in the business, existing sales and some of the biggest financial backers in the game, Bedrocan likely has a higher upside in the coming year than Organigram does.
OGI management would argue that point, and they’re definitely also on the charge. But Bedrocan is basically coming in the size of Tweed without the inherent issues Tweed has faced.
Tweed has to grow weed and figure out its facility and all those strains and now a second facility and… it’s a slog. Bedrocan simply calls the Netherlands and orders more stock when it’s needed.
Though they do have a 50k sq. ft facility on the way – do they really need it? If the company can make money importing product from The Netherlands, why not focus on client acquisition and leave the vagaries of growing herb to companies that don’t have the same special import/export license?
Bedrocan hasn’t rushed into anything thus far. They have ample cash, revenues, their MMPR, regulator allowances that others don’t have, a strong reputation, an infinitely deep bench of grow talent, a CEO that is about as calm and considered as any I’ve seen in this particular space, and a market valuation that leaves some room before it hits Tweed’s established comparable level.
If you made a fat profit yesterday on Organigram, your money is locked down for the next four months. But if you have any extra, Bedrocan’s in a place where money can be made over the coming half year, with lots of growth scheduled by 2015. Great day for a parlay.
It’ll be a heck of a battle to see who reigns supreme. Mettrum, which goes public soon, has a bit of chasing to do.
Creative Edge Nutrition (OTO:FITX
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) – yeah yeah, I know (eye roll).
So that stock is up 16% since the company released ‘news’ that a Health Canada inspector had set foot on the premises
in late July. Why it took four weeks to mention is anyone’s guess.
Also odd, that the release doesn’t say the inspector liked what he or she saw. Just that they were there.
"Health Canada inspectors were present on July 31, 2014 and conducted their pre-license inspection. The facility was built according to specifications provided to Health Canada. We look forward to the next steps in this amazing journey," stated Bill Chaaban, President & CEO.
Who says the facility was built to specs? The inspectors? Health Canada? The contractors? Madame Cleo?
Nope, those are the words of CEO Dollar Bill Chabaan.
If the inspectors had said those words, the company would be showing us all a shiny new MMPR right about now, and the ensuing news release would be three pages of detail, not an 85-word missive with 42 of those words being a quote from the CEO.
That the stock took such a jump goes to show you that FITX fans are really… excitable.
They weren’t so excited, strangely, by recent pictures posted to FITX’s Facebook account recently showing Dollar Bill sitting in restaurants with various politicians in the Ukraine
If the intent was to show Creative Edge will be setting up an offshoot in the Ukraine at some point in the future, one has to wonder of the wisdom involved in looking to set up in a country that is actively being threatened with invasion by a superpower.
Again, FITX promised they would have their license in June (so far, no luck), they told the media they were building the world’s biggest marijuana grow (they’re okayed for 60k feet by the town of Lakeshore), and they told reporters back in January they had all the city permissions they needed to get started (a recent town council meeting ended with FITX discussions being considered less important than other matters, and they were thus shelved).
As you may have figured, not an FITX fan. Comparing that company to Bedrocan, Organigram or even Tweed, is like comparing malt liquor to Louis XIII.
The big three are Charlize Theron on a summer’s day at the beach after two bottles of wine. FITX is Charlize Theron at the end of Monster.
I know who I’d prefer to be in bed with.
Elsewhere, Vodis Pharmaceutical (CSE:C.VP
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) notched the first tranche in their $1.5m financing
, bringing home $685k. The cash is going towards making their Delta BC grow inspection ready. Stock up 11% on the news.
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) is halted, pending news. The company has announced news recently about their ‘Successful Trail of Globalex Tablets
’ [sic], which I guess means they can find their way back from the wicked witch, and it has a few LOIs with weed growers in play. I was hoping to do a deeper dive on that company but we haven’t been able to connect. The company has plunged from $0.165 a month ago when volume was crazy to $0.085 and zero volume today, so perhaps that ship has sailed.
Supreme Pharmaceuticals (CSE:C.SL
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) announced they’ve hired Agoracom for IR, which is usually not the kind of news I’d comment on, but I’m hearing some very interesting rumblings that moves are afoot in that camp. The company has stated that their short look into Arizona based deals has been backburnered so they can focus on the bigger picture, and a $5m private placement is underway so that generally puts the kybosh on any news. But there’s quiet and there’s stony silence - people I know at the company who are usually good for a little insight are straight up hiding right now. The place has become a steel trap – in oil and gas parlance, it’s become a ‘tight hole’.
Considering what just happened to the two big LPs than have just gone public, and considering Supreme’s market cap is about 20% of each of theirs with a dead similar float, and with CEO David Stadnyk having said that the PP is to cover the cost of ‘final steps’ in the MMPR process (namely security upgrades), now’s the time to seriously look at C.SL, if grows interest you in any way.
Supreme up 5% on the day.
Talked to the folks from the recently listed Wildflower (CSE:C.SUN
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), Geonovus (TSX:V.GNM
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) and Thunderbird (no ticker yet, but coming soon) this past week, with all three presenting very different and interesting business plans.
Wildflower’s got two Nanaimo grow facilities they’re readying for MMPR approval with a VERY interesting tech angle that could make their growing expenses negligible. They’ve flown under the radar a little (a lot) thus far, but I’ve had a detailed look at their build-out plans and their people, and if a few important pieces fall into place and are proven out, the thing could be a gamechanger. Really small float (13m shares out), low market cap, great branding, a solid Plan B (a rarity in the space), and even a Plan C. Get it on your radar. Only thing that can really scupper the deal, for mine, is the need for Health Canada to do the right thing. But should that not happen, did I mention there’s a plan B..?
Geonovus is another Satori, in that it’s a small mining play looking really hard at a non-traditional business in the weed space, with a TSX Venture listing to back it. But while Satori has been all about looking for a way to stay on the big(ger) board, I get the sense GNM won’t be so precious about it. And GNM has what could be a much larger play, if it all shakes out.
Full disclosure: Geonovus is in the process of becoming a Stockhouse client, and has also signed a consulting deal with me, so take whatever I say with that in mind and do your own due diligence.
The company can’t say much about the weed space without being trade halted, so don’t expect any news for the next week or so that’s likely to tell you much about the play beyond mining. But there will be news. And, if what I’ve seen so far is any indication, it’s a true Icarus deal: There’s potential for it to fly, if it can avoid getting too close to the sun.
Thunderbird is interesting in that it has an MMPR, is coming close to listing, but is happy to stay small and focused. While others, like Supreme, are talking about cut price medical marijuana being a good differentiator, Thunderbird is going the other way. They’re going to sell for $15 a gram, and they’re going to do everything they can to make that $15 worth it.
They’re not looking two years down the line to full recreational use, they’re focused on pharmaceutical grade medicine that they can sell to people who aren’t concerned about price but are very concerned about quality. The kind of guys who figure that curing their cancer is worth not going all Wal-Mart.
They will not own the market. They will, they say, keep costs very manageable, grow the best product around, and need only a few hundred clients to be profitable.
Again, and for the 37th
time, I’m not a fan of grow plays, but I’ve always said that a real grow business needs a differentiator, be it branding, price, quality, a solid doctor network, organics or variety, to forge a real business that can return a profit. The Thunderbird guys are looking to be Mercedes, not GM. I can dig it.
Cannabix Technologies (formerly West Point) (CSE:C.BLO
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) slid 21.4% today. I’ve had some odd questions from brokers asking what I thought of that company in the last few days. Not sure what’s up, but when there’s a ripple in the water, it means activity underneath.
Talking to Prescient Mining (CSE:C.PMC
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) tomorrow about their weed interests. Will report back.