Hey, been a while since I put out one of these, eh?
Let’s get to the budness at hand. Wednesday marks the day when DOJA (DOJA:CSE) – AKA: Northern Lights, AKA: Spirit Gold, AKA: Kitsch Chronic, AKA: Kelowna Joins the Legal Weed Boom – finally moves to public trading, and it’s been a ride not without its bumps.
You may recall back in the early days of the deal, when the weed space was cranking out ridiculous valuations, that this bad boy was a hot ticket, with a heavy valuation attached that led to boardroom shenanigans and deals changing and people coming in and out and, at one point, the deal being off.
Yours truly was there as it broke down, and advised both sides to keep it civil, so that they could get things back on track. To their credit, they did, and the deal as is currently fashioned is a far fairer one, with lots on the table for new investors to profit from.
DOJA has, as I confirmed today, $4.5m in cash in hand right now, which they’ll use to complete their phase II expansion in sunny Kelowna BC. The build will happen on their own land, as part of the existing facility, and will also see them open a DOJA lounge in Kelowna downtown. by the end of the month.
Phase I of the build out was done before they got their license to grow (which dropped right as the boardroom battle royale was going on), and the company is currently at the genetics stage, putting together a lab to create their own strains.
There will be another raise needed, or some form of financing at least, to move to phase III, which they see as the purchase and retrofitting of an existing greenhouse building in the area.
As we’ve discussed before, the Kitsch clan, who’ve put in the hard work building this thing out back when it was private, are serial entrepreneurs and generally find either a nice exit in their business building (SAXX Underwear), or build a legacy that becomes a regional landmark (Kitsch Winery).
This is a young crew, and if anyone wants to find a reason to hate on them, that’s going to be the one they use. But never have I sat with a crew this deep into a weed build and found them as hard working, and open to ideas, as these guys.
Deals sometimes get hairy and fall over, especially for first timers and especially when half the town is trying to jawbone the deal out from under the originators. I don’t fault anyone for the hiccup in coming to market. I would have faulted them all if it went away, or changed radically, or if everyone just majorly cashed out. If anything, these guys used the dissension to recalibrate in a positive way, got a better deal done for the end investor, and stayed with the guys who brung ’em.
I don’t own DOJA stock and, honestly, don’t have a marketing deal with them yet. But I hope to change both those things tomorrow. Opening bell.
UPDATE: Now they’re a client, and I own a chunk. And am happy with the morning’s buying.
TINLEY’S SET TO LAUNCH NEW SKUS
The wise men of Tinley Beverage Company (TNY.C) have endured what can only be called an odd ride. Once ignored as too small for the weed boom, with a product too different from the standard, they hit their stride late last year when we noted they were the cheapest entry into the space, zooming from under $0.10 to $0.40+ in quick time.
They took that rise to lock in some better financing, then used that financing to create a line of products that go beyond simple ‘hemp drinks’, launching Tinley ’27, a de-alcoholized alcoholic drink line that will get you high instead of drunk, allowing you to be social without a hangover, and get stoned without smoke.
That gave the stock a jump, but then they moved to the heavy lifting of actually creating, formulating, marketing, testing, and developing a real line of products out of that. And you guys aren’t the type of guys to invest in that ‘low news’ period, so the stock has drifted back down to $0.24.
Bullshit bot-written spam financial sites like the Rockville Register look at the financial lines and conclude ‘Tinley is moving down’, but the reality is this company is in the perfect space to make a Moneyball run.
I called CEO Jeff Maser in California to get a firm bead on his new product launch, and he agrees that the stock is in that weird zone where everything is happening as to plan, but nobody is going to get in until everyone gets in.
“It feels a bit like we’re in the classic Lassonde gold curve,” he told me. “Stocks run when the initial idea captures investors imaginations, such as during the exploration phase at a gold company, and then goes into a lull until the mine goes into production, at which point it surpasses its all time high. We’re in that lull right now, except that we’re just weeks away from THC launch, and not years away like mines or grow operations.”
Weeks away from Tinley ’27 on shelves, yo. This is the moment.
You can roll back through the last eighteen months of Tinley mentions on the stock messageboards and find lots of people who said they’d never get their Hemplify product on shelves (they did), or that large chains wouldn’t accept them (they have), or that the product wouldn’t taste good (it didn’t, but does now). And you’ll find plenty who said the Tinley ’27 idea was bunk.
But Tinley did the work. They hired people with a background in beverages (from Cotts, specifically, which is the next rung down from Coke and Pepsi), who knew how this process works and understand how to penetrate retail. They’ve also done the work of setting up properly in California, so customers looking for THC can sign up and buy some, while also serving the CBD market not just with the existing early Hemplify product, but something else they’re working on that expands things markedly.
CBD coffee creamer.
Word from Tinley central is they delayed their next Hemplify formulation run so they could get a creamer product out there – stat – because their retail partners wanted a product on shelves ASAP.
That is, they’re not trying to sell it to them. Their distributors are demanding it right now, because they see retail chains actively looking for it.
Go Maser: “A creamer was always part of the business plan, as our early filings and presentation said, so this fulfills another key promise. I know everyone is most excited about our THC products, however companies like ISOL and CVSI are proving that CBD is a huge market – each of them generate more than US$12 million annually, which is more than most THC edibles companies, including some of the major brands, and most of the Canadian LPs.”
ISOL (formerly Laguna Blends, who we long followed) is pushing hard into the affiliate marketing space, and Tinley is aimed squarely at their blind spot – the legit retail chains. They’v already done business with some of LA’s premier chains, including Bristol Farms, Erewhon, Lazy Acres, and even some Sprouts and 7-Eleven stores.
I like Tinley as a set-it-and-forget-it play, because California is going to be massive and moreso with every month that full rec nears (CDS weirdness notwithstanding, but we’ll get to that), and I love the beverage space. In fact, I’ve talked to several big players in the Canadian weed scene, from LP CEOs to The Bongfather Chuck Rifici, and when I ask about where the growth opportunities lie, they almost always mention beverages as being the obvious go-to.
Maser again: “As great as grows are, edibles/drinks are even better because Colorado, Oregon and Washington have all shown that revenue from leaf drops to less than 50% once markets go recreational, plus the wholesale prices of leaf drop 50% as well. Infused product prices remain high.”
Yeah they do, and as options that don’t involve smoking become more prevalent, a surprisingly mature market (that is, customers who are nearing 50 years old more than nearing 23) will always opt for a less intrusive delivery method. You see that in the Canadian space now that the LPs have oils as an option, that the trend for flower is in the decline while oil is now neck and neck with it.
Reward those who deliver on their promises. Tinley is in that category.
UMBRAL TIES TO CANOPY
If one company could be classified as ‘not’ having delivered on promises, yo, it’s Umbral Energy (UMB.C). Every few months someone who’s holding that bag asks me what I think of the deal, and every time I shrug and say, “I can’t think of a single thing I’ve been told about the company that turned out, ever.”
Ever. I mean, Christ on a bike, the website still has lithium properties all over it (another promise not delivered on, back when lithium was hot). The company still has ‘energy’ in the name. The news releases, however, talk about weed, because the CSE has never met a ‘change of business’ it wouldn’t ignore (seriously guys, the lithium properties were moved away months ago).
You’ll recall, if you’re a long time reader, that we’ve had this discussion before. Umbral was one of the first movers from mining to mary jane, and there were all sorts of plans that involved applications and they were going to be huge and blah blah blah.
I had one chat to CEO Jag Bal back in 2015 and didn’t bite. Or Jag didn’t bite on me. Both.
I do not regret this, because it’s taken so long for Umbral to get its shit together, and the stock just petered along for most of that time, that I wouldn’t have liked to be writing about it on the regular, and I’m sure he wouldn’t have liked what I would have been writing.
Is Umbral getting somewhere now? Well, today they announced a deal with giant player Canopy Growth (WEED.T) that says the latter will sell the former’s product on their CraftGrow website – WHEN/IF Umbral gets itself approved for a license.
That’s not a terrible thing. And the company recently announced it has agreed with another company regarding how they’ll get startup grow materials – WHEN/IF they get a license.
And they’ve agreed to buy some land to expand on, and made plans to expand on said land – WHEN/IF they get their license.
But take away the WHEN/IF news and what you’re left with is a late stage applicant that has been an applicant for a LONG time that is still, at this point, in the queue.
They raised a few million bucks at $0.06 (the stock is now at $0.105), giving them a market cap of about $8 million. If they get their license, that valuation will be cheaper than a Trump tie. If they don’t, or there are delays that see others pass them, it’s insanely high.
Also high? Matica (MMJ.C), which came blazing out of the gates when late stage applicants got hot for a minute, snagging two quickly and stealing some of Umbral’s thunder. I own stock in that, having cashed in some options from way back in the day: Full disclosure. The market cap on that thing is also nutty – nuttier than UMB, for sure.
But I have heard so many times now that “Umbral is one the brink of something,” that now, when they’re actually on the brink maybe, it just doesn’t sit well. So I’m still in the ‘meh’ column.
I will one day cure cancer – WHEN/IF I complete a clinical research Ph.D, take mind altering drugs on a summer vacation in Peru that turn me into a genius, and divorce Charlize Theron to make more time for my work.
So back in the day, everyone wanted to be a grower. Then along came oils and the money guys jumped all over it because, margin. Then along edibles and the money guys got all up ins on that because, gummies are fun! Then came lithium for a bit, then came the late stage applicant fad. So what’s the next buzzword that will see every broker in town diving onto the next deal?
I called it months ago. Dispensaries.
Dispensary players that have run their operations in accordance with local regulators, in a way that makes ‘coming in from the cold’ possible, with full books and sourcing and revenues that put LPs in the shade, with operations that are run with best practices and not Ikea tables with jars and a dude spinning a sign out front? No $5 bong hits, no Skype doctors? Full client lists worth hundreds per head?
Yeah. Doesn’t exist, right?
Yeah it does, and such a deal is being shopped hard right now, in the expectation that one of two things will eventually happen.
- That the government will allow dispensaries in some form to exist, which will make this sub-sector THE SINGLE BIGGEST GOLD RUSH SINCE WEED BEGAN.
- The government will shut them all down, in which case that customer list becomes massively valuable who whoever comes next, be that LPs, drug stores, mail order sellers, clinics, or ‘blue ribbon’ retailers that can take over the unlicensed operations and run them in accordance with high security clearance and standards that are approved.
I know of one customer list that recently sold for several hundred dollars per head. This is a big deal.
If I could set the odds of Umbral getting a license at 50%, I’d wager the odds of some sort of retail weed operation eventually being allowed at about the same probability. But it won’t go to those in the space now because they haven’t played by the rules.
But it may go to someone (*cough*Rifici*cough*) who has built a rule-following brand (*cough*Canopy*cough) and has shown they know how to be regulated in business (*cough*DOJA*cough).
Mark my words: This will be big. This will be where you can buy the weed stock equivalent of Starbucks, instead of the weed stock equivalent of the guys growing the coffee beans for Starbucks.
And I’ll be the first one to bring you the deal when it lands.
Sorry Jodie Emery. It ain’t you.
CDS IS NOT CHANGING THE RULES, FOLKS
Last week came a story that I immediately told those asking me for an opinion was bullshit. in which it was reported that the Canadian Depository for Securities Ltd (CDS) was considering changing their rules and refusing to clear stock certs for companies with US-based weed investments.
This would affect about ten companies on the CSE, maybe a couple on the Venture, is it ever happened.
It won’t happen because, dumb.
Let me lay out how a story like this comes to be. There’s a bunch of guys out at the TSX, which runs the CDS, who are normally very happy with their lives. They earn a good living, they go to Vegas and hang with attractive women, they look years down the line at their retirement and they smile at the idea of the lake they’ll be building a mansion behind. It’s a good life.
And then one day the phone rings, which is never a good thing because phones bring complications. Esepcially when the guy on the other end is Jefferson Beauregard Sessions, the US Attorney General, who is hanging on to his job by a thread because he works for a clown.
On the phone: A lawyer from the TSX, another from the US Justice Department. One makes a veiled threat. The other takes said veiled threat to his boss.
Next thing you know, we’ve got a mysterious statement that the CDS “may” choose to not handle companies that have US-based operations and/or assets that, from a legal standpoint, are not federally legal.
“You wanna be dragged down with these guys when we take them to court?” says the G-man, probably. “You better disassociate yourselves.”
Now, nobody is going to suggest a lawyer shouldn’t make sure his or her client isn’t protected from such douchery, but the moment such douchery becomes real, the financial world moves to mega crisis. I mean, we saw what happened to weed stocks just at the notion that, maybe, kinda, could be the CDS would do something WHEN/IF the US government decides to become stupider by a scale of fifty. Imagine what would happen WHEN/IF that actually happened in reality.
So people sold their stock, which is dumb, because an arm of the TSX put out a statement looking to cover its ass, which was dumb. The statement didn’t say a rule change was coming, that it was being explored, or even that it was possible (it’s not – the provincial market regulators would go ape shit if they tried to pull such shenanigans). It said, basically, ‘hey, if the US decides to make life hard for us, we’re gonna pass that on.’
Let’s take a knee and think about this: Let’s say Trump decides to destroy the industry currently paying for all of Colorado’s schools. Let’s say he decides that the millions of regulated users at the state level, and the billions sitting on the NYSE in the space, and the tens of thousands of jobs, and the towns depending on weed revs, and the legislators allowing those people to do business, were suddenly considered criminals.
Is the CDS really the first target? Or even the 60th?
What the US has done is toss a cherry bomb at the Canadian weed scene, and everyone who is supposed to know better, who is supposed to be safeguarding the market from this sort of jiggeryfuckery, instead started dancing for their lives and delivered panic. No protection, just panic.
The TSX should be ashamed of itself, and they should be frankly a lot more afraid of the lawsuits that would come if they tried this stupidity as policy – and perhaps the lawsuits that will come from shareholders unnecessarily impacted by their ill considered ass cover last week.
Companies with US-based cannabis assets – like the $200 million Cannaroyalty (CRZ.C) and (maybe, if they can figure it out) Aphria (APH.V) and Vodis and Tinley and LDS and Marapharm and Golden Leaf and Nutritional High and about eighteen more on the way – they are doing honest business in the US in a system that has done its best to heal itself from decades of federal ridiculism, and they’re part of one of the fastest growing, and most heavily taxed, sectors in the financial markets.
If Trump came after that, he’d have 40 million Dorito fueled users, 500k employees, millions of investors, and billions of dollars coming after him like an unpaid Russian peepee hooker.
Buy your stocks, people. Buy up and take advantage.
And credit to iAnthus (IAN.C), who put out a sizzling FU news release to the exchange, and the CSE proper, who shoved back and told the TSX to mind its own.
— Chris Parry
FULL DISCLOSURE: Tinley, Golden Leaf, and Lifestyle Delivery Systems are Equity.guru marketing clients. We own stock in Matica, and have previously serviced them as a client. We continue to hold Cannaroyalty as a long term investment. Donald Trump is a chump.
NB: Doja Cannabis (“DOJA”) announced a name and symbol change on January 30th, 2018 as a result of its merger with TS Brandco Holdings Inc. (“Tokyo Smoke”). Effective 31 January 2018, the company trades as Hiku Brands under the ticker symbol HIKU.C