The post-conference l’il weedco share spike

Over the weekend, the nation’s weed companies and enthusiasts converged on Vancouver to get familiar with each other at the Lift Conference. Family commitments kept me away, but the effect of the conference is writ large in this morning’s share price movements.

Golden Leaf Holdings (GLH.C) up 20.2%.

Supreme Pharmaceuticals (SL.C) up 8.1%.

Vodis Pharmaceuticals (VP.C) up 21.4%.

Nutritional High (EAT.C) up 7%

Even scammy old Lifestyle Delivery Systems (LDS.C) is up 19.4%.

I’m not saying those companies killed at the conference – for all I know, they may not have even been there. But what I do know is, this conference was the high school prom of the weed industry. The coming out party. The housewarming.

Cannabis became official yesterday. And people are taking it a lot more seriously today.

But the big jumps are not coming at the LP end (Supreme excepted). Mettrum is up 6% today, but Aurora, Aphria, Canopy, Emerald Health, and Organigram are up only a couple of points, which is a rounding error compared to how hard they’ve moved this year so far.

To me, this points to a continuing schism between the Canadian weed enthusiast and the concept of a licensed, government approved supplier. Supreme gets a pass from the ganjavists because boss John Fowler is about as pro cannabis-user as anyone in the business. But the others still, and often, bear the brunt of the weed community’s scorn as being capitalist stooges trying to monopolize a flower.

The LPs might not care, because they’re all improving by the quarter. And they’ve had a nice first half of the year.

But in a more macro sense, increasingly, LP branding is becoming less important as companies do deals to supply and buy to and from each other to fill supply holes and make side money via wholesale. When Canopy runs out of Mondo Brain Scoonch #3, it’s no biggie to get Aurora to send some their way, or Supreme, or Tilray. Ditto, Supreme’s got a big fat greenhouse to monetize, and if white labeling a few trucks to Aurora between harvests helps them do that, everyone wins. Every LP is in constant talks with every other LP.

This is a natural progression. Kelloggs doesn’t grow millions of fields of wheat, it buys from whoever has acceptable supply at a good price, then when they’re done processing it into Special K, they take a slightly crappier supply and turn it into generic branded versions of the same product for supermarkets across the country, even in competition to their own brand. Then they make the dollar store version in a slightly smaller box, again in competition to their own core product.

This is the future for many weed growers today. If Ontario decides to sell weed through their liquor stores, they’re just as likely to contract all the LPs to supply it to them under their own branding as they are to sell someone else’s. And, though LP CEOs will begrudgingly say, sure, we’d be happy to have storefronts, the reality is they’re not so interested. Retail is hard work. Growing is hard enough, thanks very much.

And then there’s the likelihood of a bigger, more moneyed up outsider coming in to Amazon or Coca-Cola it all. If cannabis turns up in 7/11 stores one day, it won’t be as Bedrocan brand or Aurora Standard, it’ll be a brand we don’t know about yet that comes in with a marketing budget and throws out billboards and cinema advertising, and buys product from the LPs we know and love.

Branding is the future, and none of the LPs have got even a smidge of the way there yet. They’re too busy with their core business. Canopy is making money and buying up stuff, Aphria is going great, ramping up sales and investing in growth, Aurora is piling up new patients – but what man in the street can name two marijuana brands today? Indeed, what percentage of dispensary customers can? A large number of users just want ‘weed’, not a brand they’ve never heard of or a strain they can’t pick from the next, and they’ll take that weed sitting there in the jar behind the counter, please and thank you, because it makes the back pain go away.

We are in the early stages of the dotbong industry – still – and what it’s going to look like in a year or several is nothing like what it looks like today. So why isn’t the share price of our trusted LPs moving today, when the smaller guys are moving hard?

Because the hard moves are about people waking up this morning, having spent the weekend at the convention, and realizing that the grow side is ultra competitive, ultra restricted (still), and if recreational showed up tomorrow as a permitted use, a) the LPs may not be the biggest beneficiaries, depending on where it’s sold and who’s doing the selling, and b) most LPs are already priced high with the assumption that rec will happen.

Canopy Growth Corp (CGC.T) is a $416.7 million market cap beast. In its recent financials, however, it made $7 million in quarterly revenue, losing $4 million in net income. Tough to value a company at 59 x revenue and believe it has more stock price running to do. It may well, for a number of reasons, but it’s not so much a value proposition as a first mover deal.

Mettrum has a $124 million market cap, on $5 million revenue and $1 million loss in net income. Better value, but still 25 x revenue.

Supreme hasn’t even made revenue yet, and it’s gone up from a $30 million when it got licensed a few months back to a $100 million company today. In fact, it has the straightest, most consistent upward line over the last week I think I’ve ever seen, shooting up from $0.70 to $1.05 today. I got in at $0.80, figuring for a quick exit if it neared a buck, but the usual one-dollar resistance line was blown through like it didn’t matter.

So why are the little guys running today, when it’s been the big guys running over the last few months?

Because value. Vodis Pharma may or may not ever make a dollar in its Washington state leaseback real estate workaround plan, but at $0.07, who really gives a crap? You toss a few hundy on it and let it ride like you would red on a roulette wheel or the Carolina Panthers defense on your daily fantasy sports roster.

Vodis is for play money. So is Golden Leaf and Veritas and True Leaf. Those companies aren’t just valued around something closer to a real world estimate of their actual worth, but the fact that they’re small has exposed them to active short sellers, who know they only have to spook a handful of investors to make good value on their gamble. It’s tougher to short Canopy or Aphria and actually drive their share price down, but with Vodis, a ne’er-do-well could set up a few fake Stockhouse accounts and have that thing at 4c by lunchtime. And they have. Often.

So when a large number of investors are suddenly exposed to the Golden Leaf story, and it’s been actively held back for so long, that upward move becomes harder to withstand. And once that stock price starts squeezing the shorts and they bail, those companies tend to spring hard.

Sure enough, GLH is up from $0.24 last week to $0.415 today. No news. Just moves.

It’s also why two weed plays rapidly approaching their public listing are going to, I think, fly.

One is way undervalued in terms of comparables to other growers, and the other may finally be the key to the branding puzzle that the industry on both sides of the border has struggled with.

Sign up for the newsletter and I’ll tell you more.

Oh, one last thing before I’m out – Lifestyle Delivery Systems. I know, I’ve put no end of shit on this company, and rightly so, for months now. And I know, yes, it’s been on a tear of late.

Consider this: As it pushes into the $0.40 range, with a load of $0.45 warrants hanging out there, a conspiracy theorist might think it’s going to get a meaningful shove to get those warrants exercised, before descending back into freefall as the market movers recoup their investment.

I’ve been wrong before, and folks are definitely making money on it. But keep your eyes open if you want to play with a stock that’s had this level of chicanery around it previously.

— Chris Parry