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Medical Marijuana Update: TGOD and THC get sales licenses, Cannaroyalty shoves back at TSX

08/24/2017

News Thursday announced two Canadian licensed producers have received their sales licenses from Health Canada, causing the publicly traded of the pair to double in share price.

Long beleaguered THC Biomed (THC.V), which had drifted from ‘good old days’ highs of $1.35 down to the $0.30 range over the last year, jumped $0.34 to $0.67, in a showing of weed investor boosterism the likes of which the dot.bong world hasn’t seen for some time.

Message board homers are already, predictably, talking about how it’ll hit a buck tomorrow, but trading flattened through the day as the stock appeared to hit its high water mark, but for a suspiciously timed last trading minute bump that took it up 7c and into a double on the day.

The other new sales licensee is The Green Organic Dutchman (TGOD), which is not yet private but was part of one of the biggest pre-listing PPs in Canadian history (which we also bought into), in terms of the sheer number of participants. Those investors won’t be getting their money free trading before mid-next year at the earliest, as TGOD is still rolling toward a market debut and, frankly, has done well to miss the recent downturn. But the news means it will be in revenue before that listing opens.

At the other end of the market, we continue to get calls from Health Canada applicants with dollar signs in their eyes, looking to find out who they should be letting take them public. The valuations being offered by some dealmakers to guys with no building, no license, and with timelines still years from production, are really getting absurd, but the life of a broker these days isn’t buying and selling stock, it’s bringing deals, and if you’re not bringing deals you’re the first guy cut.

“So, sure, you need $20 million to build out your facility, if you ever get the Health Canada okay? Yeah, you’re worth $80 million on the market, sign here and let’s get rich.”

Speaking of getting rich, I wrote yesterday that I’m buying into a private dispensary deal. You can read more here, and learn how you can get in too. TL;DR – I think dispensaries will be a thing when the new regs land, but that the current owners will be not permitted to do business, which will mean there’ll be an acquisition frenzy/fire sale, and the best run dispensaries will command big bucks. The Village Dispensary, which I’m climbing into bed with, appears to be among those.

Cannaroyalty (CRZ.C) financials dropped today, and they weren’t the stuff of W00T. $2 million loss on the quarter, which was pretty much expected. CRZ is in perma acquisition/growth mode right now and not attempting to roll with a set of sweet smelling profitable books. They’ll spend money where warranted, take revs when they come, and continue to expand the brand. Or brands. In fact, they’ve closed a $12 million debt financing with Sprott that will allow them to go out and snag more deals as they spot them.

CannaRoyalty will leverage its cannabis sector experience, deep industry relationships and investment pipeline to identify and refer attractive Canadian opportunities to the JV. Additionally, CannaRoyalty will assist Sprott in completing due diligence and providing strategic support to JV investments, as well as the structuring, negotiation, and monitoring of those investments. Sprott will provide the JV with its significant expertise and experience as a provider of asset backed investment capital in specialized areas that are not fully served by traditional credit providers. Financing for each investment, expected to include both debt and equity upside, will be arranged by Sprott and include participation by CannaRoyalty, if desired by CannaRoyalty. As partner in the JV, CannaRoyalty will participate in realized returns from investments made, following a customary private equity style waterfall. CannaRoyalty will also have the opportunity to directly enter into royalty, streams, offtake agreements or other business relationships with JV borrowers.

If you don’t know what all that means, CRZ has basically partnered with Sprott to bring tasty weed deals that have gone through CEO Marc Lustig’s due diligence, which Sprott will finance, and CRZ can tag along on. It’s a great deal for both teams.

So, yeah, quarterly loss? All you need to know is:

All comparisons below are to December 31, 2016, unless otherwise noted

  • Total assets of $50,018,351 as compared to $32,197,938.
  • Total investments of $22,329,027 as compared to $8,363,922.
  • Cash and cash equivalents of $6,441,303 as compared to $2,945,895.

[…] The company currently serves 528 dispensaries, has 20 account representatives, 17 suppliers and producers, 1,191 active SKUs and 3,028 total SKUs.

Sprott has placed a guy on CRZ’s board to replace Chuck Rifici, who resigned when his Cannabis Wheaton (CBW.V) deal took off. Interested parties should check out the financials news release, which lays out a swathe of the company’s investments, many of which are very tasty.

More impressive: Lustig has gone after the TSX mucky mucks with alacrity, after they blew a hole in the foot of the entire sector by publicly wondering if they should clear stock certs on companies that have (federally illegal) US assets.

Aphria (APH.T) wasn’t happy about that deal, being as they’ve got deals in two US states cooking, iAnthus (IAN.C) was similarly not taking any shit, being as they’re expanding into five US states, and CRZ has entered the fray in no uncertain terms, making it clear that, if they need to, they’ll go legal and work around the CDS.

TMX Group, the owner and operator of CDS, Canada’s equities and fixed income clearing house, released a statement on August 17, 2017, clarifying that, “there is no CDS ban on the clearing of securities of issuers with marijuana-related activities in the U.S., despite media reports.” TMX Group also announced they are working with regulators to clarify this issue. CannaRoyalty’s shares are also traded and settled through The Depository Trust Company (“DTC”), allowing CannaRoyalty to facilitate trading and settlement for CannaRoyalty shareholders. DTC is the largest securities depository in the world and holds over US$35 trillion of securities on deposit. Many Canadian brokerages are fully equipped for and settle through both CDS and DTC, and in the event of any CDS policy changes, CannaRoyalty will, among other options [emphasis mine], pursue clearance of trades through the DTC. CannaRoyalty is one of approximately 10 issuers listed on the Canadian Securities Exchange (“CSE”) with exposure to the US cannabis sector.

You hear that, TMX? Yeah you do. Stay in your lane.

Tinley Beverage (TNY.C) is REALLY close to droppingtheir new SKUs on the market.

FULL DISCLOSURE: We sold our CRZ position recently when it was on a nice run, but may buy back in at any point. The company is not a client, but it remains one of our top picks for the sector.

Cannabis Wheaton (CBW.V) was big news when it came out, with several heads at the houses that put the deal together getting blasted due to conflicts of interest, and some being walked from their positions entirely. That took the luster of the rose and has left many people dismissing it, but that was back when it was getting $3+ a share, setting a market cap that was, frankly, not defensible.

Today, the stock has rolled away like the tide at Spanish Banks, sitting at a much more reasonable $0.73. I’m not buying, because I think the model is not understood by many investors, the blast radius of the old issues still hasn’t cleared, and weed in general is flat, but if you were worried about a mondo amount of cheap paper being sold while you still had a piece, we’re four months past that big open. Watchlist.

In a story you can’t see because The Globe and Mail thinks paywalls work (hint: You can read it below the pop-up box in greyed text, if your eyes are up to it), star business reporter Grant Robertson CREAMED THE SHIT out of Organigram (OGI.V), leaving their new CEO sounding very much like the old CEO, who is still apparently answering his office phone even after he oversaw the biggest disgrace in the LP business, and one that continues to leave the firm in class action peril.

For those who missed it, Aurora (ACB.V) found pesticides in product they bought from Organigram, forcing OGI to announce the problem, which they did with a small news release delivered minutes before trading close on the last trading day of the year. Later, they were forced to expand the initially small recall to nearly the entire year of product, because one of the chemicals emits hydrogen cyanide when burned.

Soon as the word got out, customers with ongoing medical problems started realizing it might have been their ‘organic medicine’ that was causing them.

Organigram still hasn’t figured out where the chemicals came from, and still shrugs when called on it. But legal cases persist and will eventually be heard from those affected.

Robertson’s story takes things further when he took the unopened product of one of those affected patients and sent it to several labs to be tested. What was found was there wasn’t just two banned chemicals on the product – there was five.

Organigram bosses continue to say “wasn’t me, man, and who knows, maybe someone tampered with the stuff,” while the lab operators, who don’t take shit from any LP, refuted that entirely and laid on that we’re looking at a far large issue.

OGI’s continued shrug and insistence that they know nothing is bullshit. It wasn’t an ‘errant employee’ that sprayed your entire crop with five chemicals for a year, and if it was, WOW do you have some lax oversight!

Black eye for the whole industry, and all under the watchful eye of then-CEO, now boardroom gargoyle Denis Arsenault.

Go read the piece, even if you have to pay for it. It just doesn’t end, and turns the knife several times on OGI’s bullshit. Outstanding work.

Affinor Growers (AFI.C) update: They’re really close to harvesting strawberries. That is all.

— Chris Parry

FULL DISCLOSURE: We own TGOD and Tinley stock, and Tinley is an Equity.Guru marketing client. Also, Organigram owes me money from so long ago I sometimes forget about it. ¯\_(ツ)_/¯

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