Marijuana update: The Golden Leaf cleanup, Aphria doubles down

Lots of weedness to discuss today folks, so let’s start with the most confusing of the lot.

Golden Leaf Holdings (GLH.C) is a company I bailed on recently, selling my stock after letting you know about it. Frankly, despite it being a company with great bones in a part of the marijuana industry where big money is being made, the market was just killing the ticker and management weren’t doing what was needed to fight back.

In the absence of information, disinformation tends to take hold, and thus short sellers were allowed to crater the share price. I caught a lot of that loss, but not all of it because sometimes, even if you like the company, you’ve got to cede to the will of the market and get out.

Sadly, the company didn’t do itself any favours. Execs were late on their annual financials, got an extension, and then rolled Q1’s into the miss. Regulatory issues were clouding the outlook at the same time, leading to the extractors stopping and much confusion.

Well, the financials have landed and they’re not amazing. They’re definitely food, much better than the year prior or the quarter last out, and the company has reduced a lot of expenses. But the bulk of the expenses needing to be slashed were executive compensation related.

There’s still into a quarterly loss, and cash is drying up, so there’s limited runway with which to right the ship.

In this situation, any company could crumple and die. You could raise money, but at the current share price, that’s of limited benefit. You could blow out the share structure but, again, that’s long term hurt for short term gain.

Instead, Golden Leaf’s board came up with a unique plan.

They bought into a new financing, but at a premium price to the market.

In a stunning show of faith and investor solidarity, the insider investors took up a new debenture offering at the same share price the company was raising money at several month ago, before it almost halved.

Frankly, this is the best thing the company has done since it went public. It’s an extraordinary doubling down by those with the biggest piece of the business, a demonstration that they believe in the mission and in the company’s ability to get there.

The market instantly reacted positively and the stock has had a nice run for the first time in some time.

But there are still issues to fix. A new branding push comes at a time when the existing brands were pretty well, There are new faces at many points in the company, and folks are being asked to slash wages to help keep the company growing. Not ideal, but demonstrative of the sort of actual change GLH has needed for some time.

Added to that – communication! For the first time in a long time, investors know what the hell is going on at the pointy end. They know, for instance, that the Washington State-based BMF had problems with WA regulators when they were found to be using a non-approved pesticide in the grow process.

The additive in question was approved in other jurisdictions, and is demonstrably better than some of those on the approved list, but the situation saw their grow quarantined while testing went forward to determine whether the crop could be sold.

Good news – it has tested clean by a third party. Should the regulators mirror those results in their own testing, BMF will have $1.2 million in product ready to sell, and will continue as Washington State’s premier grower.

The slowdown brought about by Oregon regulators accidentally rewording the laws to stop all extracting has ended, and the company used that time to bring about some new products, such as vape oils and bubble hash.

The question remains – has GLH learned its lessons about the market, and communication with investors, and fighting back against those who would muddy the waters for their own short-selling gain?

the jury is still out, but it genuinely looks like the worst has passed. If you got back in when the company was selling the 20c-30c range, hold firm because you won’t see those rices again.

In my opinion, you can look at GLH and see where it’s come down from and think to yourself, ‘nope, that looks rough’, or you can look at how much it cost six months ago compared to today, and think to yourself, ‘that’s pretty darn cheap.’

The risk that the company will dry up on the cash front is somewhat mitigated by the new dough rolling in, the risk that there’s something wrong with their Washington State acquisition has been explained by long awaited news releases, and the risk that Oregon might screw with its laws again and force the company to quit producing for another stretch has been removed as the state goes recreational.

This changes everything. It brings the company back to a place where they can re-establish the base that made them such a good bet way back when; cranking out an ever-growing batch of cannabis oil, building up solid and acquirable brands, and turning their revenue back into quick growth.

I’m not yet buying GLH stock back. But I’m tempted. I like the new faces, I like that the board is taking a bigger part in the public markets side of things, and I’ve never not liked the core business.

But I still want to see more. More change. More improvement. More communication. And the next financials landing on time. I suspect there’s going to be a few more shaky days before things really kick back in to where they should be, but I’ll be watching closely, as should you.

APHRIA DOUBLES ITS GROW TO 100K SQ. FT.

Honestly, I haven’t written much about Aphria (APH.V) for the last year, mostly because they haven’t been riding in the same clown car as many weed companies. They’re not big on the promo side, not loud on the PR side, not tangling with others or battling dispensaries, they just get their product out.

So much so that they’ve announced this week they’re more than doubling their grow space to 100k sq. ft, at a cost of $10 million. Some of that will go towards buying surrounding land from their existing landlord, which secures the grow for the foreseeable future.

The company makes no bones about this being directly attributable to the need to expand into an expected legalization of recreational marijuana in Canada nearing 2017.

Other companies will be looking to do this too, but few have the war chest needed to bang out a $10 million expansion today.

But the bigger news, for mine, is hidden away in the bottom of that news release, as it pertains to Aphria taking a 7.4% equity stake in Cannabis Royalties for $1.5 million.

Who is Cannabis Royalties? Former Head of Capital Markets at Dundee, Marc Lustig, is Cannabis Royalties. He’s been cooking this little goulash up since late 2015, making quiet moves on the private side to acquire a piece of solid outfits that genuinely work in concert together in the non-growing end of weed – including extraction, delivery systems and IP.

You know, what Pharmacan (MJN.V) should have been, before it became ‘GettingInYourWayAsYouTryToGrowCan‘.

Aphria’s investment is key to CanRoy’s plans, being as that company is looking to move quickly into extractions, while the aggregator will have much need for a good source of grown product.

I have hinted that an MMPR player was looking to take a stake in a new player that will be big, and this is it. The ‘big’ part of that story is yet to come, but it’s coming. Lustig isn’t messing about.

Neither is Aphria. Check out their recent financials and you see a story that has totally shifted gears into a place that all others should be mirroring. They’ve jacked up their quarterly reves from $2, to $2.6m, they’ve hit break-even, they brought in that fat financing for growth and acquisitions, they negotiated their piece of Cannabis Royalties, EBITDA was $400k, compared to a $600k loss in the quarter a year before.

Organigram (OGI.V) is doing fine sucking users up from pain clinics, Canopy (CGC.V) is doing fine throwing cash about to maintain their place at the top of the tree, Supreme (SL.C) is quickly moving into a solid place, and Mettrum (MT.V) has been raising money hard, presumably for an Aphria like expansion or acquisition of someone smaller.

This is all good news for the weedcos, who are finally into that whole ‘build a big boy business’ stage that so few have been able to reach after the Green Rush of 2014/2015.

AND THEN THERE’S THE FRAUDS

Not joining that shift is one Creative Edge Nutrition (FITX), AKA CEN Biotech, AKA Bill Chabaan’s multi-million dollar scam that I spent a year working on taking down.

The short story about FITX was, Creative Edge started telling people it was going to build the biggest medical marijuana plant in the world, back in early 2014. It was a claim so outlandish that it made it onto the late night TV talk show monologues. A billion pounds of weed!

Problem was, it was a lie. The town the company was based out of hadn’t given permission to build a big ass weed grow, didn’t have the water for it to be possible anyway, and the company hadn’t built anything more than a fence around a pole barn while it was claiming ‘everything is in place’ for the company to ‘open in a month, when it is licensed.’

A lot of media took that story on without question, but the devil was in the details. And everywhere else.

There was the constantly changing CEO signature on official documents, fake employees signing off on company news releases, fake news websites that only wrote nice things about the company and slammed anyone who didn’t go with their hype as being part of a huge conspiracy. There was a Facebook page that the company regularly stripped of any negative comment, fake Twitter users that did nothing but attack naysayers, threats of lawsuits against commentators who said mean things, actual filed lawsuits against one (though quickly retreated from when it got real), a town meeting that nearly ended in a fistfight, then came devastating articles in the national press alleging clear pump and dump activity, the federal opposition calling on the then Health Minister to shut the company down in Parliament, the company claiming that the Health Minister was best friends with them, the Minister angrily making clear that wasn’t the case, and finally a rejection of their MMPR application. At one point Marketwired fired FITX from using their service when it became clear the company’s press releases were outright lies.

But that scam worked for a while, allowing Chabaan and his buddies to load up on sub-half cent stock, which quickly rose to $0.10 before the inner circle began dumping it.

While the whole shit show made the paper-stuffed CEO a millionaire, and paid for a multi-million dollar condo in Vegas, he worked double hard to convince as many idiots as possible that he was the victim of a huge conspiracy, and that he was going to sue the government for its rejection of his love.

Basically the whole thing was a crime syndicate. But it kept moving along as the CEO pivoted, claimed he was going to spin off a couple of companies, and that one of them would pursue an energy drink deal. And while that was going on, he’d eventually have his day in court.

I laid out the company as hard and often as I could, dropping a straight up legally actionable headline on the company when I wrote “FITX is a straight up pump and dump” at Stockhouse last year. The boss was worried that FITX would run straight to the lawyers, but I said, “Let them – the discovery process will be delicious.”

No legal actions followed.

But death threats did. Lots of those. I got doxed a few times by Chabaan’s followers. I watched as his army of fake social media accounts spammed every media email address they could find with accusations that I was on the take from short sellers, that I was in league with the federal opposition and the NDP and other LPs.

It would have been easy to leave it alone. Certainly a few people advised as much, saying, “You’ve done your job, anyone who invests now is an idiots and deserves what they get.”

But I didn’t see it that way, especially after receiving an email from an investor who thanked me and said his house was on the line when he read my piece, and got out of the company in time to ‘only’ lose a car.

The share price since has gone from that $0.10 high to $0.003. It also slipped to the greys, the only action US regulators have bothered taking on one of the most obvious and dumb frauds on the OTC in years.

But this week it all came to a genuine end. A few days ago, with FITX having served the Health Minister with court papers, a judge finally said to all concerned, ‘okay, let’s do this. You have 20 days to get ready for that lawsuit.’

And, just as I predicted months ago, FITX quit.

From court documents, filed this week, it’s clear the company put its tail between its legs and ran:

Letter from Respondent dated 01-JUN-2016 …ON MAY 27,2016 SERVED WITH ATTACHED NOTICE OF DISCONTINUANCE FROM APPLICANT… WE ARE PREPARING BILL OF COSTS FOR MINISTER… received on 01-JUN-2016

Yes, not only has FITX pulled the plug on their last charade, but it appears the Minister will be demanding they cover the government’s costs.

Bless. I took a solid eighteen months of abuse from FITX investors for my part in the destruction of this bullshit ruse, even as everything I wrote about the company came true and the share price shattered. It was clear to any thinking person what was really happening, because the CEO was so amazingly bad at covering up his tracks.

When confronted with his sins, Bill Chabaan simply shrugged and said it doesn’t matter. When it was proven that people were signing company documents in his name, he said, “I can sign my name Ronald McDonald if I want to – who cares?” When confronted with evidence he was putting out news in the name of a fake employee, he claimed his employees were receiving death threats, so he allowed fake names to protect their safety. When confronted with his share sales while he was telling others to buy, he said he sold to pay for more investment into the company, something that never showed up on any trading documents.

Honestly, the dumbest excuses spewed from his mouth on the regular, but investors hung in because they somehow wanted to believe that there was some giant conspiracy keeping their company down. The death threats were coming my way, not his, and they were coming from insiders who had already faced the SEC in insider trading charges with previous companies.

FITX still trades, which is the most amazing and horrifying thing about the whole mess. Admittedly, it trades by appointment and at a price that features many digits after the decimal point, but the fact that the CEO was never called to task by the SEC for his lies and fraud is something that proves to me that the OTC will never be a real place to do business.

And that there’s always a new group of suckers about, just waiting to burn their money on stupidity.

In fact, a quick check on iHub finds the same group of suckers who a week ago were saying ‘something’s happening in court, here comes our payday!’ and now saying, ‘who cares, we didn’t need a license anyway.’

Good thing, because you’ll never have one, chumps.

AURORA’S RISE?

The clown car has one less participant it seems, with former Canopy/Bedrocan comms rock Cam Battley having jumped to the ailing producer for what he tells me is ‘a heck of an opportunity.’

I’ve described before how Battley is working to clean Aurora up, how its mercurial CEO Terry Booth is laying off the keyboard commando routine, and how other Bedrocanners have since joined in on the rebuild.

Aurora has a good product, and Battley says their patient numbers are super spiking, which just leaves that terrible balance sheet to be cleaned up so the company can get out of its own way.

On that front, Battley reached out this week, telling me he’s still got some work to do on the financial side but that “the trajectory is improving, and we’re getting closer to B/E and cashflow positive operations. which is what I’m pretty much obsessed with right now.”

This is exactly what Aurora has needed for some time. With 3000 patients now, it’s shifting from overvalued to pretty much valued just right to, if Battley can pull it off on the fins side, undervalued.

Take it away, Big Booth.

“Our customer retention rate thus far exceeds 90%, and we will continue to be diligent in ensuring that we onboard patients at a pace we can accommodate as we continue to scale up. At the same time, we will ensure our patients remain completely satisfied with Aurora’s medical cannabis and their overall customer care experience is aligned with the Aurora Standard.”

Honestly, I wouldn’t have expected to see this sort of news coming out of Aurora at any point in 2016. Fair play.

LINEUP CHANGE IN WASHINGTON STATE

Vodia Pharmaceuticals (VP.C) has ditched CEO Otto Folprecht, which should have been good for about a 40% jump in share price. I like the Vodis model, but Folprecht was a runway train pulling flaming dumpsters behind it. The share price is in the shitter, and the new guy has some work to do, but there’s value there if the VP crew can apply the brakes to that train.

As for Cote, he built and sold his own risk mitigation and investigation firm, so comes from a place where he should be well versed with regulation and due diligence, qualities the outgoing CEO did not share.

FINALLY, MAYBE IT’S WORTH INVESTING IN UMBRAL

I can’t tell you how many times in the last year I’ve received notes from people telling me that Umbral was a gimme on the marijuana side, that ‘big things are coming’ and ‘any time now’. I’ve never fallen for it and, in fact, have facepalmed it several times publicly and put some folks who insisted it was a big deal on global ignore.

Umbral was never a serious weed play and, in fact, over the last few months has dipped its toe into the Washington State weed space with negotiations around a building the size of an Abbotsford family home, to go with its MMPR application that just now is moving through security clearance checking, which is not an advanced stage.

So what’s Umbral doing that warrants giving it a look?

Lithium.

In fact, a lithium property a stone’s throw from Reno, one of the pair that the Zimtu crowd has been sitting on for a while.

And the share price has duly jumped from $0.015 to $0.09 in days.

THE CASE FOR VERITAS PHARMA

So Veritas (VRT.C) is moving quickly towards animal testing of its weed strains, which is the step just prior to human trials. This is big.

Why? Because I just had a chat with my doctor and asked him if he prescribes weed at all. To my surprise, considering how progressive this doctor is, and how anti Big Pharma he is, he says he doesn’t.

In fact, the one time he made an appointment for a patient with a view to exploring it, he said he was inundated with friends of that guy calling and saying, “I hear your prescribe weed.”

So he’s blanked the whole thing out. No weed scrips. Not yet.

I asked him what has to change and he said, “I need someone to have done the actual testing, properly, to confirm what I should prescribe, where it should come from, what the dosage is, and what it will do. I need to know how it will combine with other meds, how it should be ideally delivered, whether it has any side effects, I need insurance to cover it, and I need it to be recognized by medicine in general. Give me that, you can have your weed.

Enthusiasts of weed will not like to hear any of that, but one outfit that practically finished my sentences when I told them this story is Veritas Pharma (VRT.V). Because this is precisely what they’re looking to deliver.

Despite now being a bit along from their public markets launch, and there being a bit of a news slowdown while they move into the testing phase, Veritas’ share price has held up nicely for the past month. I can’t say they’ll be rolling in dough any time this year, but they’re doing the work that has to be done in order to move medical weed forward, and they’re doing it in a way that will deliver them real IP and medical partnerships that could see them being ‘the doctor’s weed company’ going forward.

Solid long term play, for mine.

PUTTING OUT THE TRASH

I attended the Medijean liquidation auction this week in which supposedly $1 million of weed grow equipment was under the hammer.

Bullshit. I’m told the Jean from Medijean was given a short period of time to load up the trucks before the locks were changed, and anything of real value left on those trucks. What was auctioned off Thursday last was a shit ton of lights, reflectors, fans, ballards, and a couple of office printers. If the auction raised $100k, I’ll be surprised.

I expected I might see a crowd of less than savoury characters, and I wasn’t disappointed, but just as with every auction in Vancouver, it was the Asian fruit and veg crowd and the Indian second hand trash dealer mob that were crawling all over everything of value.

Industrial fans were going for $40 each, flood tables for $20, lights were all over the shop. A couple of MMAR guys were making moves and one MMPR applicant was a player on every deal. Otherwise a bust, just like Medijean itself.

Oh. Last words: Jodie Emery is ridiculous. The self-styled pot activist tried to get herself on the Liberal Party weed taskforce with a public ‘job application’, then whined loudly for days when she didn’t get a spot that ‘the government is saving the industry for its friends on the stock market’.

First, ‘the stock market’ is anyone who has decided to put money into real companies, not some giant financial cabal. Second, weed legalization is coming, but right now Emery and her ilk at just getting in the way of that,. because they’re worried they won’t get their piece.

To be sure, there will be dispensaries going forward, real legal dispensaries with supply chains and rules and Apple Store-like interiors. But Emery won’t own one. And that’s why she’s yelling.

She’s like a kid screaming at mom that she’s hungry, two minutes after mom put an apple pie in the oven.

“I know already, shut up! Just wait, go watch some Baby Einstein or something!”

Realistically, it’s true the activists moved weed legalization forward, no question. But now it’s moving, they’re better served to sit down and shut the hell up, because there’s no further need for combat. The government is doing what’s been asked of it, and though it might take some time, it will happen, and the louder people scream that the regulators are a conspiracy writ large, the more likely those screamers are to be shut out of the end sector.

To be sure, any dispensary owners that slide by over the next few months need to make as much money as they can, build patient lists as quickly as they can, make sure their supply is as clean as possible, that they get in no trouble with the law, and that their finances are straight. Because those are the guys who will be bought out by the MMPRs the day the new rules land, allowing them to have retail storefronts.

Everyone else is basically selling fireworks until the cops show up.

–Chris Parry

FULL DISCLOSURE: I’m a marketing consultant for Veritas Pharma and own stock in the company. I also own stock in Golden Leaf and am under contract for marketing consulting with that company.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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