Editor’s note: This is Mark Dankel’s debut in what I hope will be a long run of pieces aimed at sticking a shiv in the shivworthy. Let’s just say the public markets are a target rich environment, and Dankel has a heavy trigger finger. Raise hell.
It has got to be a heady slab of awesome to figure out the angle on profiting on a craze like the legalized pot game. To figure out a way in, take it out of your head, and make it real, that’s gotta be a high well above anything the plants can provide. Thus far I can’t synthesize a plan that goes beyond selling a dime bag in Washington Square Park, possibly the lowest form of commerce in the “Green Rush.”
Or is it?
Enter Pazoo (PZOO), the zippy go-getter in the medical/recreational cannabis biz where money seems to sit in dew-kissed piles waiting to be harvested by the fella with all the right tools. But as Hamlet, possibly the Shakespeare character most in need of a deep, lung-searing intake of the kush would say, “Seems, I know not seems.”
Veering away from growing or distribution (save for a small assortment of non-cannabis related items from their pre-existing health and wellness business that tellingly didn’t put much in the kitty in 2012 prior to their entry into the pot market), Pazoo offered value as a service provider to the core industry; In this case, testing labs in anticipation of mandatory requirements on state and federal levels to make sure nobody croaks vaping up some Emerald Lung tinged with toxic mold or chokes because of the heavy dandelion content of Andy’s Ditch Weed Hoecakes.
Pazoo combines ownership of Harris Lee LLC and controlling interest in MA & Associates, LLC- two laboratory firms that possess an exclusive licensing agreement with Steep Hill Labs, a reputable cannabis testing service with presence in the key states (NV, CO, OR) at the forefront of legal medical and recreational sales, as well as being card carrying members of the Association of Commercial Cannabis Laboratories (ACCL), the closest thing this yet to be truly mainstreamed business has to a united front, ostensibly making Pazoo the go-to for the final seal of approval for cannabis products across several states.
Combine this with their diversification with their legacy business of health and wellness products and their other subsidiary, Cannabis King Green Solutions LLC, which produces their own line of cannabis-centric product (and in March closed a $12,200 sale of their Green Valve water conservation technology to a Florida building complex) and Pazoo seems to be making all the right moves to turn a profit in the green arena.
But there’s that word “Seems” again.
Pazoo’s business building is admirable but looking at their books, their chief business is neither testing nor aromatherapy products nor vaping tech, but… PZOO. Here’s where I glaze over without any help from a cannabinoid. I look for legs on a company that can actually function on the strength of their product, not imaginary bullshit that can’t even be sprinkled on a plant.
HotStocked’s Georgi Kamburov provides a succinct breakdown in his article from January 2016.
At the start of 2015 the company had around 193 million outstanding shares. By August the O/S had surpassed 730 million with a vast portion of the shares issued as a conversion of debt at discounted prices. The company hasn’t stopped printing shares and as the Schedule 13G statement from December 22 showed PZOO now had more than 1 BILLION outstanding shares.
The dilution might not be coming to an end any time soon. PZOO increased its authorized shares to 3 billion and had more than $600 thousand worth of convertible notes at the end of September 2015. The subsequent events section of the report revealed that three new convertible notes totaling $292 thousand were sold soon after that. These notes can be turned into shares at a 53% discount.
Put this against their Q3 10Q Filing, again from hotStocked:
At the end of the third quarter of 2015 the company had:
• $45 thousand cash
• $164 thousand total current assets
• $3.6 million total current liabilities
• $6 thousand revenues
• $539 thousand loss from operations
The CK Solutions sale shows a heartbeat (maybe one per minute) but as recently as March 28, 2016, there’s little to indicate any substantial profit from any lab testing racing past their formidable overhead costs.
Not helping is the blobsplosive share issuances (anyone remember Ang Lee’s Hulk? A low percentage reference, but when I see this stock I see a big nuclear invertebrate inflating to the point of losing cohesion, or at least, tepidly hovering between 0.02 -0.03).
Waiting for the Federal Government to come to a consensus on all things pot requires bringing several large novels with you to pass the time, I believe they call it a “library”, and even on a local level, individual states are still tooling around with how they would recognize “lab-certified” grow or how many tests a lab must perform in each state to properly certify the product. That’s a lot of time to keep a business afloat and secure your assets while politicians dither and you navigate the red tape of getting the business operational. I can’t lie that at Pazoo’s feet. They are getting the brand out there, staying relevant- with promises and positive attitude which never strays far from their “Safe Harbor” disclaimer.
The differing rules and regulations of the states is not nor should not be an alarm bell. Pazoo and its partner/subsidiary labs are very much aware of the various requirements- there’s still a foundation there. But despite planning and posturing, not a single leaf has been certified, qualified or released to consumers under the stewardship of Pazoo and its affiliates that I can tell. So how can these guys make some money? Well, they can spread some PZOO around, and boy howdy do they ever.
Pazoo’s stock moves were called out by theOTC.today in June 2015 and more extravagantly (and brutally) by weed stock guru Alan Brochstein, who had initially seen promise in Pazoo but couldn’t help noticing the severe dilution in Series A Preferred stocks, something Pazoo CEO David Cunic, either missed or… well, let’s take a look.
In fact, don’t miss Brochstein’s article, the definitive ground and pound of the PZOO strategy:
Helluva read. Lets’ pull a few items:
Brochstein pointed to Cunic’s 2015 earnings call (call excerpt taken from Alan Brochstein’s Marketfy article De Facto Insider James Farinella of Integrated Capital Partners Appears to Secretly Pump Pazoo While Dumping Shares) :
The next part of this first question was about stock dilution. I want to go over some facts about that because I have done emails, phone calls from people saying, oh well there has been 200, 300, 400 million of shares of dilution last few months, when that’s not the reality at all. If you were to look at our queue and you look at our convertible notes over the past three months you will see the breakdown of the convertible notes. In the month of May there were 17 million shares of convertible notes. In the month of June there was less than 10 million shares of convertible notes and in July there was about 12 million shares of convertible notes. If you look over the past 400 days or so there has been less than 40 million shares of dilution, alright. Once again I do not know where people are getting these numbers of 200 to 300 and 400 million shares of dilution over the last three months because it’s just not there, it’s only been around 40 million shares.
Excerpt taken from Alan Brochstein‘s article lifted directly from Pazoo’s SEC filings – page 7 of the 10-Q from Q2 issued on 8/19:
339,534,662 shares resulting from debt holders converting $952,305 of debt into common stock.
That was for all of 2015, and the company indicated that in Q1 231,583,201 shares resulting from debt holders converting $679,251 of debt into common stock
The boner left hanging in the conference room by the company CEO would be bad enough, but Brochstein noticed other red flags with regard to Pazoo’s CEO and one of its prominent investors and supporters, James Farinella, who bears a striking resemblance to one of PZOO’s most ardent shills on I-Hub under the moniker “Dolphins13”, right down to their shared spelling of “Kool Aide”.
Brochstein makes it clear that while no activity he has observed (and very carefully documented) falls into illegality, its several mile markers past the turnoff to “Ethical Behavior”. If you fancy yourself a “Pazoovian” through and through and don’t mind the likelihood of an investor/owner in the company who also happens to be a Penny Stock Maven with ties to the CEO, buying shares, pumping them with the vigor of a gym rat hours away from hitting the club scene and then making some dough on the sale, then here’s where you and I e-shake hands, agree to disagree and part ways.
But if, like me, you find a company’s practices veering away from constructing and implementing its foundation and product and becoming a load of airy fuckery designed to allow for owners and investors to play day trader with the idea of value minus the actual value while whipping the existing shares into a shit-meringue and dumping them for fast cash it can’t even make with its own product, you see where my sympathy erodes for the struggling entrepreneur fighting for their dream and my cold disgust writhes for someone working the pedal under the table of this legalized roulette wheel we call the stock market.
Somewhere in this mess lay the bones of a potentially solid company. If Pazoo can stop with the Tribble-like reproduction of its stock and push for getting the labs up and running and pushing out certified leaves while still running their respectable, lower key subsidiaries, there could be an actual future here. Right now it’s just the tired drek that makes people want to throw their hands up and just make an honest living palming a small bag to a stressed college student for a solid $20.