Cannabis investing $YOLO

[SharperDingaan]

Would you believe the numbers of a promoter? or would you discount them 20% as your 'grain of salt'?? If it doesn't work as advertised, what are the write-offs? Not mentioning them is just one more opinion - wishful thinking did NOT remove the possibility, it raised it! 

 

SD

 

[3259]

4 hours ago, MMM20 said:

I want my MSO to focus on building good brands - that's where the moat will be

How do you build a brand at scale given the current regulatory environment?

 

If interstate commerce is eventually allowed(don't know if or when this would happen), which would make brand building much easier, what would then be the value of all these high-operating cost greenhouses the MSOs purchased or leased due to state vertical integration requirements?

[3259]

5 hours ago, MMM20 said:

I have to laugh when I see folks here wondering why the MSO exec backgrounds are not perfectly polished and bang-on. Are you kidding me?

You're setting up a straw man here. There is a difference between expecting perfection and competence. I agree, however, that there was / is career risk to working in this space and that may explain my concerns, in part. Appreciate the response. 

[3259]

The feds removing pot from schedule 1, which resolves some big tax headaches, is the best reason I know of to be bullish on the US MSOs right now. The problem is, I don't know when this will happen. I assume, the riskier co's with higher cost of capital would jump the most, but that is a dangerous game to play. If pot was removed from schedule 1, my current thinking would be to sell the news.

https://lawprofessors.typepad.com/marijuana_law/federal-marijuana-laws-policies-and-practices/

[3259]

On 12/17/2021 at 6:11 AM, Spekulatius said:

 

My only exposure to this sector is via TPB.

https://viewpoints.reedsmith.com/post/102h3ll/how-a-major-tobacco-company-is-making-a-play-into-cannabis

[Spekulatius]

Does any of the superusers ‍ have an opinion where the the moat lies - with the dispensary or the brand? I feel it’s more the dispensary than the brand. The brands often seem crude and archaic in terms of packaging. Although from limited experience some stuff “works” better than others even if both have the same nominal dose.

[SharperDingaan]

The moat is the black market. Decriminalization made the product legitimate and expanded demand, pain control via weed vs opiate addiction is a lot more benign, every state its own oligopoly fiefdom, rising inflation/cost drives users to the lower cost product. Bans on interstate trade virtually guaranteed, to prevent in-bound flights from a far cheaper South America. 'Brand' is the group controlling distribution - not the product packaging.

 

The big beneficiary is the state, not the users, or legal sellers. Divert folks from opiate addiction and the health care 'system' saves enormous amounts of money. Opiate addicts cost a lot to treat, and take a while to croak. Weed addicts cost almost nothing when the weed is supplied via a 2% 'no hassle' fee on black market suppliers - little different from other agricultural supply managed products.

 

SD

 

 

 

 

 

[3259]

3 hours ago, Spekulatius said:

where the the moat lies - with the dispensary or the brand?

Cannabis reminds me of Macau casino stocks. The long-term outcome is mostly/completely? dependent on national policy.

 

Not an expert here so pls tear this apart:

Under current policy, way to build a cannabis moat is through license / regional brand in a limited license state (CA isn't limited license).

 

OTOH, If you think interstate commerce will happen, you'd want to build brand in a handful of the most populous states including NY & CA so you're ready to compete nationally. While waiting for interstate, you'd have to deal with competitive & oversupplied CA market. If you take this route, I think (don't know) you'd have to be concerned about stranded cultivation & distribution assets upon the market going national. 

[3259]

4 hours ago, SharperDingaan said:

Bans on interstate trade virtually guaranteed, to prevent in-bound flights from a far cheaper South America. 'Brand' is the group controlling distribution - not the product packaging.

Agree that black market is a massive issue / competitor & that international trade restrictions would shape the industry post-federal legalization. But state bans on interstate commerce, especially post-federal legalization, are unconstitutional in US. It's a commerce clause / dormant commerce clause issue.

 

Thinking first principles, in an unconstrained free market, I'd think the lowest cost way to cultivate US product would be in WA, OR, CA, Central or South American countries?? But, the issue becomes whether the US gov would allow that (from other countries). Which circles back to my prior pt...in the long-term I think this all depends on federal regs.

 

Edited December 22, 2021 by 3259

[3259]

3 hours ago, SharperDingaan said:

The moat is the black market.

 

I think the black market's "moat" is based on continued government ineptitude, political inertia (other issues taking priority), and the political / regulatory complexity of cannabis. IF the political will is there, the gov can easily and has the incentive to destroy the US black market. Luckily for the black market, CA is particularly inept & plays a huge role in the problem. See link, 

https://www.theguardian.com/us-news/2021/nov/02/california-legal-weed-cannabis-industry-economy

Edited December 22, 2021 by 3259

[SharperDingaan]

If you have interstate commerce, all an enterprising lad need do is grow their weed cheap in South America/Mexico, fill up a cargo ship, and slowly cruise north and south just inside international waters on both the US East and West coasts. That dirt cheap international weed is going to land in any number of coastal states, in volume, move freely through the states, and immediately put local growers out of business.

 

Back in the day it was whisky on the Canadian side, or rum on the French side of the De Miquelon.

Sure, smugglers took the illegality risk, but nobody could really compete against the bribes/kickbacks/volume pricing, even the local moonshiners found it more profitable to 'transport' versus brew their own. There was consumer demand and booze was quasi-legal, little different to todays cannabis. 

 

SD

 

 

[JRM]

53 minutes ago, SharperDingaan said:

If you have interstate commerce, all an enterprising lad need do is grow their weed cheap in South America/Mexico, fill up a cargo ship, and slowly cruise north and south just inside international waters on both the US East and West coasts. That dirt cheap international weed is going to land in any number of coastal states, in volume, move freely through the states, and immediately put local growers out of business.

 

Back in the day it was whisky on the Canadian side, or rum on the French side of the De Miquelon.

Sure, smugglers took the illegality risk, but nobody could really compete against the bribes/kickbacks/volume pricing, even the local moonshiners found it more profitable to 'transport' versus brew their own. There was consumer demand and booze was quasi-legal, little different to todays cannabis. 

 

SD

 

 

 

Even better is the cartels grow here!  Like what is happening in northern California.

[3259]

1 hour ago, SharperDingaan said:

If you have interstate commerce, all an enterprising lad need do is grow their weed cheap in South America/Mexico

Agreed but there is a key legal difference between international commerce and interstate commerce under US law. In a post-federal legalization world, the feds can engage in protectionism and keep the Mexican weed out. Post-legalization, absent US Congress undertaking comprehensive reform (see for example how insurance products are regulated) and suspending the dormant commerce clause (DCC), the state's won't be able to keep the WA, OR, CA, or Mexican weed out of a higher-cost-to-grow state like NJ. The DCC also threatens the social equity licensing programs states have adopted to boost minority participation in their marijuana markets. So fed legalization will also involve debate over what happens to those.

 

Fed legalization - (suspension of DCC + comprehensive reform allowing for state regulation) = Multi-State operators with stranded assets

Edited December 22, 2021 by 3259

[Gregmal]

I am not up to date on AYR but one of the problems I did have awhile, after selling out, was this….if you’re really executing on the business, and you believe your own numbers, you have no business making acquisitions instead of buying back stock. Everyone always has excuses, but it is very simple. If you trade at 2x EBITDA making acquisitions is a poor use of capital. 

[3259]

2 minutes ago, Gregmal said:

you have no business making acquisitions instead of buying back stock.

They also bought Liberty Health which, per recent VIC writeup, almost went out of business due to crop failures. @gregmal I'm surprised you'd touch this stuff. Unlike me, you seem to find much easier ways to make money.

 

[Gregmal]

16 minutes ago, 3259 said:

They also bought Liberty Health which, per recent VIC writeup, almost went out of business due to crop failures. @gregmal I'm surprised you'd touch this stuff. Unlike me, you seem to find much easier ways to make money.

 

LOL I dont EVER really buy these. Ive invested in two post deal spac in my life. AYR which got 4-5x out of before selling in high 30s and Fisker which was a quick momo trade. Otherwise the thought of owning these types of businesses disgusts me and I dont like to play with that sort of fire too often. Currently I have a few flyer warrants on YSAC. Otherwise, just stick to pre deal spac. 

 

Ironically there was a big group of Liberty shareholders who threatened to throw a temper tantrum because they thought the offer was unfair. They are lucky they got AYR stock huh? 

 

I just dont care for the "we need to grow at all costs" approach at AYR. For the exact reason now highlighted by the Liberty deal. Get your shit in order. Take your time. Execute. Allocate wisely with the focus on per share value. Fuck off with this "gold rush" sales talk. Gold doesnt grow with a few seeds, some sun, and a watering can. 

[Gregmal]

17 minutes ago, MMM20 said:

I know you know that the gold rush is in the limited licenses / storefronts, not the plant. But yeah, tbd if it even plays out that way. 
 

I also wouldn’t touch these stocks if I didn’t believe legalization be prove an enormous net benefit for socket. Fuck off with opioids and cartels and all THAT bullshit!

Hahaha yea, no I agree theres some opportunity somewhere, I just have trouble seeing exactly the where and how of it, in terms of making money. These guys(pot companies) make O&G guys look like fiduciaries. Net lease cannabis REITs seem to have an edge, but even there, not sure I have the balls to do anything meaningful. IIPR has been a stand out. 

[Spekulatius]

Has any of these cannabis stocks paid any capital back to owners? EBITDA sounds great, but net income seems to be way less impressive and FCF of course is non- existent because of growth with acquisitions.

 

Another thing that bothers me is why backwards integrate into growing at all? It require huge Capex and in the end, it’s an agricultural business. I don’t see any moat with growing, the moat lies with distribution (mostly) and perhaps in the future with branding.

 

As with the illegal stuff or the dealers around the block, where is the “quality control” with those? Their weed could be contaminated with pesticides or worse fentanyl ? I don’t think they sell edibles either.

 

I think the whole sector is basically momentum trade and probably best done with ETF’s. I think it is likely that if the legalization agin gets into front and center, people are going to buy in. This would be a classical buy the rumor, sell the news kind of case, imo, because I am not sure that federal legalization will be a positive for the operators. It will be a positive for society, I think.

[SharperDingaan]

17 hours ago, 3259 said:

Agreed but there is a key legal difference between international commerce and interstate commerce under US law. In a post-federal legalization world, the feds can engage in protectionism and keep the Mexican weed out. Post-legalization, absent US Congress undertaking comprehensive reform (see for example how insurance products are regulated) and suspending the dormant commerce clause (DCC), the state's won't be able to keep the WA, OR, CA, or Mexican weed out of a higher-cost-to-grow state like NJ. The DCC also threatens the social equity licensing programs states have adopted to boost minority participation in their marijuana markets. So fed legalization will also involve debate over what happens to those.

 

Fed legalization - (suspension of DCC + comprehensive reform allowing for state regulation) = Multi-State operators with stranded assets

 

There is also the French approach .... as demonstrated with the Rainbow Warrior solution to Greenpeace protests  Simply sink the ships in international waters, and rescue the crew - both the Seals and the Coast Guard could use the practice!

 

And the fintech approach ... a stable coin with a cartel backed coin on one side, and a BTC on the other. Speculate on the operating abilities of your local syndicate, tax the trading gains, and enable an options market. Lots of ways by which to skin the cat! 

 

SD

 

 

Edited December 23, 2021 by SharperDingaan

[Ronchong]

Has anyone looked into NewLake Capital Partners? Came public recently with a similar model to IIPR. Could be worth looking if the trajectory is similar to IIPR

 

Oh and Gordon Dugan is the board chairman. 

[MMM20]

On 12/24/2021 at 8:32 PM, Ronchong said:

Has anyone looked into NewLake Capital Partners? Came public recently with a similar model to IIPR. Could be worth looking if the trajectory is similar to IIPR

 

Oh and Gordon Dugan is the board chairman. 

What I struggle with is what the real estate is worth if most legal stuff ends up grown in California. Even if that never happens, it seems like at Newlake’s cap rate you are paying roughly 2x the valuation of MSOs like AYR and VRNO, when you can own their (maybe?) emerging brands at pretty low multiples b/c of structural restrictions (for now?) on ownership of plant touchers. Do you disagree?

 

I guess what I’m trying to think through is, what is that asset you want to own in an endgame of mature industry at national scale? Where will be the defensible profits?

- Brands/distribution (booze model?)

- Regulatory capture (tobacco model?)

- R&D/compliance (pharma model?)

- Physical infrastructure/ local warehouses (Amazon model?)

- Software?

- something else?

 

Edited December 29, 2021 by MMM20

[willie2013]

Attached image courtesy of @cashflow_free on Twitter .  Appreciate his work and please read the footnotes. All of these stocks have a high beta to MSOS. If MSOS revisits previous highs with legalization and removal of 280E , the lower tier names will 3-5 X or more.  If MSOS goes to $15 capital constrained lower tier names will go much lower or even bust. Also, I think there is some room in this discussion to include a look at historic Canadien cannabis stock price charts during legalization.  I relate investing in this sector to other binary type stock decisions I have made in the past.

 

 

[KJP]

POSaBIT Systems provides payment processing to cannabis retailers, has been growing like a, uh, weed, and has a big backlog:  https://www.posabit.com/assets/posabit---investor-presentation---july-21.pdf

 

I just started looking at it so I don't know how well its payment offering would do if cannabis sellers had normal access to the US federal banking/payment systems. 

[KJP]

13 hours ago, willie2013 said:

Attached image courtesy of @cashflow_free on Twitter .  Appreciate his work and please read the footnotes. All of these stocks have a high beta to MSOS. If MSOS revisits previous highs with legalization and removal of 280E , the lower tier names will 3-5 X or more.  If MSOS goes to $15 capital constrained lower tier names will go much lower or even bust. Also, I think there is some room in this discussion to include a look at historic Canadien cannabis stock price charts during legalization.  I relate investing in this sector to other binary type stock decisions I have made in the past.

 

 

 

Are you trying to pick a few winners here or just going with a basket?

[willie2013]

Picking Ascend, Verano, GoodnessGrowth, Columbia Care, C21 and smaller amounts with others.