Ever had one of those years where you think back to what you were doing twelve months prior and can’t really fathom it?
This time last year, I had been told by the good folks at Halio Energy (HOIL.V), who I had been subletting office space from in return for marketing advice, that I wasn’t doing enough to ‘sell their deal’ to my readers, and so I should split.
Finding new digs right before Christmas is never easy, especially with two days notice, but in my dealings with the Halio guys, I began to realize they were shady AF, and it would be better to find a new office than sell what they were selling, to you guys.
We’d done okay in 2016. We’d gone from ‘just me’ to ‘just me and another guy’. But it was an inauspicious way to bring the year to an end.
Well, turns out Halio has been halted for not submitting financials, and the Chairman, President, and CEO (who was the only reason anyone was interested in the company) resigned ‘for health reasons’. And the group they had leased their ‘world changing’ oil project from is ready to take the property back because they can’t raise the $6k needed to cover the vig. And the new CEO non-ironically lists himself as the ‘intern CEO’ on the company website.
Bullet dodged, though they still have 10k of my money.
Hey, keep it, Misha. You guys need it more than I do.
(UPDATE: HOIL is now HOIL.H, and the company has been shunted to the NEX where it’s destined to wither and float away in the breeze. Further to that: Their website is down and marked as ‘account suspended’ which means someone hasn’t paid their bills.)
The good thing about something blowing up is it tends to blast you upwards, and upward has been the key word for Equity.Guru this year. In fact, it’s been the key word for most people involved in the public markets.
If someone told me that the capital markets today and that the political situation in the US today, were all some sort of master criminal plot by James Moriarty of Sherlock fame, it would make an almost comforting amount of sense.
The weed space, right now, is ridiculous. I mean, truly ridiculous. I wake up every day and look at the markets opening and think, nope, that’s too much. A $600m valuation for a company that sells vapes online and does a few million per quarter in revenues? Come on, guys. We’re in cuckoo land.
But we’ve been in this place since last year. The valuations we were laughing at in November 2016 would be seen as value buys today. Folks have compared it to the dotcom bubble, where many lost their life savings, and that’s not far from the truth, though it should be remembered, before the dotcom bubble, the top companies in the world were Exxon, GE, IBM, Locheed Martin, Microsoft. A few years after the dotcom crash, the rotation at the top has been forever changed – to dotcom companies.
Take my word for it – there will be carnage in the weed world. There will be a moment where someone comes in and hammers those high flyers with short selling and folks panic and it all goes boom – but the better companies, the real companies, they’ll reemerge, stronger, better, and market-proof. A year after the crash, they’ll be worth double what they were.
If we take that vape company mentioned above as a guide, Namaste Technologies (N.C) does real business. It sells vapes online at a variety of well visited ecommerce sites, and they’ll always make money on those.
In fact, I wrote nice things about them a year ago, when they were doing much the same level of revenue, but were valued at what some thought was an exorbitant price of $30m.
In November 2017, just two months ago, they were valued at $43m. Now they’re valued at $600m+.
Come on now.
Reading the message boards, you’d think Namaste invented the vape, or had won a license to grow weed in the White House basement. “It’s going to $3.80!” I saw this morning, after a news release went out saying management had no good reason for its ridiculous market move.
Make no mistake, the “we don’t know why our share price is moving so hard” news release should be subtitled, “We agree we’re overpriced,” because when the regulators come to you for an explanation of your hockey stick share price, it’s almost always because that hockey stick share price doesn’t make any sense. That news release is a tacit admission that the market cap has blown out and we can’t even begin to justify it… Legally.
Talk on the boards tries to explain Namaste’s big move as, “someone big is going to buy them,” which is backed by the recent move by the company to sell off an American asset for pocket change,.
If they were valued at $43m, like they were in November, then sure. Hell, I’d buy that if they were valued at $100m.
But they’re valued at the present share price at a market cap of $690m. Tell me – who’s going to acquire them for a premium at that price?
Nobody. That company is not worth what it’s worth, and I’m pegging it as the first one to crater in the new year. If you owned it in November and you haven’t taken your profits, brother, I don’t know how to help you, but if you think Namaste is worth two Supreme Pharmaceuticals (FIRE.V) or 1.5 Cannimeds (CMED.T), you’re vaping the good stuff.
That said, sometimes a company on an absolute tear can lock that overprice in by making moves. Take Aurora Cannabis (ACB.T) as an example. Yeah, they’re building a million square feet of grow space. But right now, they’re growing on 55k sq. ft. and their market cap is $3.5 BILLION.
That makes as little sense as Namaste, but Aurora went out and started swinging elbows, buying pieces of anything that moved, which ran the price of those things up, which gave Aurora move value in their assets, which began to make that price seem.. well, not fair, but not as disgusting as Namaste’s.
Tinley Beverage (TNY.C) was scratching about for pennies behind the couch cushion before it had a little stock run, then raised some money at a good valuation, then used that money to run their new SKUs hard and prepare for the arrival of Big Alcohol. Invictus (IMH.V) was, at one point last year, running below the value of the ash it had in hand until we told folks about the arbitrage opportunity, and they raised enough money on the ensuing stock jump to buy a license holder.
Stupid crazy dumb stock valuations are dangerous, but they’re also a means of actually growing fast into the value that, at one point, made no sense. Canopy Growth Corp (WEED.T) was a company that we all laughed at behind our hand (and sometimes to their face), but that big valuation meant they get all the tasty institutional and grandpa money that will only ever jump on the biggest weed company because, scared. Now Canopy’s valuation is absurd, rather than insane.
We can live with absurd.
The blockchain space was the weed market but in concentrated form in 2017. It’s been through everything weed went through in 2014, 2015 and some of 2016, in just a few months. We’ve already been through the hype spike, the reality trough, and now we’re coming into the slow growth phase where real business is being done and the markets shift from investing play money to retirement money.
These kinds of markets are a generational wealth creation situation. This is your chance to go get your piece of the stupid money.
But such events come with a cost, in that, eventually, there will be a reckoning, and those with their money ‘all in’ will get burned.
2018 is going to be roulette. Mark it now, understand it now, you will have the chance to make absurd amounts of money on weed and bitcoin and biotech and blockchain and we haven’t even started talking about virtual reality yet, but that’s going to blow up like gangbusters at some point soon, along with AI.
If you’re not so sure on VR, watch this. It’ll blow your face off.
When the money is being made, YOU WILL THINK YOU ARE A GENIUS.
It happens to us all. Ignore that notion. You are not smarter than you think. You are not making the money, the markets are. You’re just being sucked along in the tailwind.
At some point, you must take your profits. I know it’ll feel bad to have cash in the bank when tangential weed investments are making 6000% in two months, but every 100k you bank will be a year that you can sit on a Caribbean island and not think about how you’ll pay for it.
Make 200k, bank 100k. Make another 200k, bank another 100k.
Don’t empty your RRSPs. Keep tax money set aside. Buy a small business that generates monthly revenue forever. Pay off your debts. Be ready for the bad day.
In the NFL, it doesn’t matter how long you’re in front, unless you’re in front when the whistle goes. Such is life with your investments too. When the market goes bad, be liquid, debt free, and set of capitalize on the comeback.
Because if you think the profits you’re making are great now, at the top of a bull run, you ain’t seen nothing until you’re cashed up when it hits the bottom and everything is 90% off.
Happy New Year. And if we helped you have a good 2017, let us know in the comments. It’s why we do this.
PS: If you don’t know who Jim Moriarty is, catch up.
— Chris ParryDisclaimer: 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.