Just rolling through the portfolio and locking in some tax losses for the year, one very obvious thing struck me: The companies I lost money on, for the most part, in 2016, were OTC companies.
Many of them are good ideas, some solid concepts, even some good companies, but the place they live is a post-apocalyptic nightmare world where grandma will stick a tire iron through the side of your head to get at your toothpaste stash.
I hate the OTC. It doesn’t make sense on any level, unless you’re the type of person who, upon finding yourself standing in front of Thunderdome, would get the urge to climb in and go to battle with a rusty socket wrench.
Sure, people make millions on the OTC. But you know where those millions come from? Other people who lost millions on the OTC. It’s not a test of skill, or fundamentals, or even market shifts. It’s a total fucking dice roll where, if you hit your number, you make bank, and if you don’t, you lose everything.
Let’s look at all the Canadian weed stocks, climbing all over one another in multiples, raising millions that turn even the shonkiest concept into a reality. Why don’t they fall apart? Because audited financials, that’s why. You can invest in those companies knowing that what they say in their financials bears some semblance of reality.
On the OTC? You can just say “We’re really busy, financials are for pussies,” then feed yourself a billion options and burn paper for warmth.
Let’s look at a couple of Canada’s weed companies that lived on the OTC.
There was Green and Hill (GHIL), which is Olympic snowboarder/weedblower Ross Rebagliati’s vehicle for the millions he’ll make selling t-shirts and pipes. According to Google Finance, the company share price right now is $0.00001 per share. Today it dropped from $0.0002. The market cap stated is $1,011. The price of that stock is so low, that it’s expressed as ‘1e-05’ in the open column.
This, obviously, is insane. It’s even more insane that the stock still exists (indeed, insiders tell me they’re planning big things). More insane still? In 2014, that stock was at one point a **$400 million company**.
From $400 million to the cost of a Black Friday flat screen TV in two years, and she’s still going.
Then there’s Creative Edge Nutrition/CEN Biotech (FITX), which was calling itself ‘the biggest weed company in the world’ for a hot minute, a claim nobody seemed bothered to prove or refute until I dug my dirty mitts into it and discovered the company had no permit to build it’s ‘world’s biggest’ facility, that the city didn’t have enough water to fuel such a weed facility anyway, and that the CEO was selling stock by the millions while telling others to buy.
Then there were the fake employees he had signing news releases, the fake news websites he was financing that were telling everyone how great the company was and how guys like me were ‘paid bashers’ intending to destroy it, and how the federal opposition were in league with the media to slander the CEO.
There were multiple versions of the CEO’s signature on official exchange documents, and insiders with insider trading convictions, no financials to speak of, faked photos of the facility posted to Facebook, and ongoing promises that a billion pounds of weed per year would be forthcoming.
It was all lies. Stupid lies. Obvious lies. Incredulous lies. And yet, FITX trades today, on the OTC, with a market cap of $14 million, and (get this) 4.75 billion shares out. And it’s trading.
Why would anyone buy this stock? Because, in September, it got down to $0.0001 per share. Today, it’s at $0.0025. Someone is still making bank trading what has been demonstrated without any doubt is a scam, because others are at the roulette table placing their own bets, up or down.
Admittedly, to get $1000 of it, you need to buy 333,000 shares. And it may well drop by half in a day, as much as it might jump by half. And it will never do any actual business. And there will never be audited financials. And the CEO is still burning paper, because it takes time to work through 4.75 billion shares that you gave to yourself, and when you gave them to yourself at $0.001 per way back in the day, you’re still making a triple, even at today’s terrible price.
One of the companies I’ve somehow been stuck with this year is Vega Biofuels (VGPR). I honestly don’t know how I came to own this stock, though it was likely a case of seeing it jump over a few days and chasing a spike the wrong way. Regardless, what’s Vega Biofuel’s reason for being?
They’re developing a technology that can turn highly heated timber into a fuel that can be used to fire coal plants.
Let’s think about for a second. This ‘green energy’ tech wants to turn trees (considered renewable by the government, but still needing to be grown, then cut down, and still important for us to breathe) into coal energy plant fuels.
Sure, no more coal is burned. But trees burning isn’t much better, is it?
And somehow this idea doesn’t appear to be catching on with the market, leading the stock to drop from $1.75 earlier this year to $0.02 now. In 2014, it was $1900 per share. Rollback city.
Vega Biofuels has a market cap of $263,000 according to Stockhouse, and $24,800 according to Google Finance, so not only do we have a company that barely exists, developing tech nobody needs or wants, but we can’t even agree on whether the thing is worth a Surrey one-bedroom condo or a gently used Honda Civic. I’m going to pay my broker $10 to sell what has become $8 of stock. It was $16 last week, and $40 for a brief moment of two. It was $100 three month ago.
None of these moves have been based on news. They haven’t been based on potential or fundamentals or activity with the tech or work done at HQ. The moves have happened because someone, somewhere, sold a bunch of it, others followed, and the players at the table realized the game wasn’t rigged in their favour anymore, so they took their 87,000 fake Twitter accounts and 120,000 email marketing lists and their 48 brokerage accounts and their bags filled with pennies and they moved to something else, which is currently jumping for no good reason as thousands pile on and try to catch the wave before it breaks (What’s up, DRYS).
The OTC is like walking into a wild west saloon, the piano player stops, everyone looks at you, and you saying “I’m the fastest gun in this place. Who wants to go outside and help me prove it?”
It’s seeing a knife fight break out in front of you and deciding to break a bottle on the bar top and wade on in. It’s having sex with hookers without protection. It’s cheating on your wife and leaving your email open. It’s eating street meat that’s been sitting on your dashboard for a day. It’s saying “I’ve never heard of this fentanyl thing before – is it a good high?”
Yes, you may just make some money. But someone else might just be making yours.
I’ll take the CSE, and audited financials and the occasional regulatory bureaucracy delay, over the OTC any day of the week.
— Chris Parry