🕵️ Why most canna-stocks aren't what they appear to be...
This article was published 4/15/2020 on Cannablurbs, a weekly newsletter covering the business, strategy and policy of legal cannabis.
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Cannablurbs
Pump, Dump, Chumps: The Securities and Exchange Commission is suing a group of investors in cannabis social media company MassRoots for allegedly manipulating the company’s stock prices through coordinated buying and selling. The pump-and-dump scheme, spearheaded by early investor Doug Leighton and aided by CEO Isaac Dietrich, booked the group over $3 million in profits from 2015 to 2016. MassRoots, which was an early cannabis entrant into public markets, now is essentially defunct, with a closed website and stock price below a cent.
Why It Matters: It’s probably not unfair to say that microcap stocks are far more likely to be vehicles for the enrichment of management and related parties than, you know, actual businesses pursuing profit and long-term appreciation. MassRoots is one pure example, but you can probably apply the lesson to cannabis more broadly. Many public cannabis companies are valued far beyond what they would be in traditional markets, and often treated as more sophisticated (or trustworthy) than they really may be. Market caps may not reflect reality, and some big names are just microcaps in spirit, masquerading to try and sit at the adults’ table. Invest accordingly…
Shorts Sighted: Speaking of, Grizzly Reports has issued a bearish investment report on cannabis real estate investment trust Innovative Industrial Properties, calling the market leading REIT “the WeWork of cannabis”. The attacks claim the company has accumulated low quality assets from nearly insolvent cannabis operators at pricey over-valuations and predict a stock price of no more than $22 (vs. $76 today). IIPR’s stock has barely moved since the report’s issue, and management’s response was curt, saying the report “is flawed and demonstrates a fundamental misunderstanding of IIPR’s business model”.
Why It Matters: Grizzly’s reports aren’t… good, per se, but they’re interesting? You may recall the last we spoke of them, they were attacking Trulieve, another relative darling within a battered cannabis sector. Their somewhat all over-the-place attacks here do highlight the interesting, somewhat exposed role REITs play in the ecosystem - indeed, they’re, in many ways, de facto “banks” for cannabis operators who can’t access other capital. If their diligence processes are poor and tenants go belly-up, of course they’ll feel the pain. But, looking bigger, if alternatives like traditional banking or cheaper debt continue to become more prominent, REITs may struggle to keep up growth without diving into bed with bottom tier operators - where things surely will get messier. IIPR has done extremely well by essentially arbitraging the weird inefficiencies of cannabis capital markets - but arbitrages rarely last long.
Deals Aren’t Dead: Cannabis software company Akerna is still firing away on deals, announcing recently the acquisition of inventory management software Trellis for $2 million, following deals to acquire solo sciences and Ample Organics. The company has also announced “deals” with Simplifya and Rolling In Green that look more like partnerships or collaborations. The Trellis acquisition is aimed to help Akerna move into the small and medium-sized business segment, as well as the California market, with potential upsell into Akerna’s enterprise-level solutions.
Why It Matters: It’s been a bit of a shift for the company, which was historically focused on waging war against Metrc for the seed-to-sale software market as MJ Freeway. After acquisition by the Akerna SPAC, the strategy seems to have shifted a little, with the company refocusing MJ Freeway on the enterprise software for cannabis operators side, and aggressively chasing M&A. Their buys have largely been opportunistic, grabbing well-regarded software players that could benefit from a larger platform, or might have needed cash. The way things are heading, this likely won't be the last "value" acquisition opportunity to be had...
Quick Hits
- Charlotte Figi Passes Away At Age 13: Figi was the de facto face of the medicinal CBD movement. A tragic loss, likely to COVID-19 complications.
- Green Thumb Presidents Steps Down: GTI is considered a top MSO, so likely not indicative of larger issues, but still a surprise. Maybe he wanted to follow Joe’s lead...
- NYC Dealers Thriving: I’ve heard that many CA bulk flower buyers aren’t asking for license info. Short-term, COVID could be a boon to illicit operations.
- MJBizDaily Announces Furloughs: While a better positioned canna-media company, there’s no dodging COVID when so much of your business is events-driven.
- Zelira Announces Success In Cannabis Insomnia Trials: Pretty great to see research moving forward, although (no surprise) it’s not in the U.S...
- Extinction Level Event Looms: If 2020 is going to separate losers from winners, cash runways are an easy place to start looking, as are wild reverse stock splits...
- 100-Year-Old Medical Cabinet On Antiques Roadshow, But Owner’s Brother Smoked Cannabis: I mean... we need a product review, right?
Research Rips
👍 Legal Marijuana States Had Fewer Vaping-Related Lung Injuries
👍 Patients With Severe Nausea Responded Better To Marijuana Than Alternatives
👍 Evidence Suggests Possible Benefit For Treatment Of Chronic Pain Via Cannabis
👍 Cannabis Access May Reduce Demand For Opioids In Persons With Pain
👍 Cannabis May Ease Opioid Withdrawal Symptoms
❓ Cannabis Tolerance Linked To Neurometabolic Alterations In Brain’s Reward Circuitry
👎 Healthcare Providers' Negative Stigmas May Compromise Effective Treatment With Cannabis
State-by-State
- Virginia Governor Approves Decriminalization Bill
- Coronavirus Short-circuits Connecticut’s Legalization Effort
ICYMI
Recapping some of our best and most recent long reads
- W*ndering What’s Next: Tanisha Robinson is leveraging her unique background in entrepeneurship, beer and more to craft a W*nder of a CBD beverage.
- Seeking Success In A Crowded Cannatech Landscape: Leaf Trade’s strategy: stay focused and follow their customers’ lead.
- Keeping It All In the Family: Rejuvia’s founders are betting that a cross-generational family team and deep medical roots will be a winning combo in CBD.
- Why 2020 Will Be A Banner Year For Investing In Cannabis: (pdf link) Karan Wadhera (Partner @ Casa Verde Capital) on the opportunities in cannabis investing this year
- Why Just Build A Cannabis Brand When You Can Find Its Soul?: Shawn Gold (CEO @ Pilgrim Soul) on what to expect in the oncoming wave of cannabis brands
- Reimagining How We Drink: Can Cann reshape social drinking and cannabis consumption all at once? Co-founder Luke Anderson thinks so.
- 🔮 What’s Coming For Cannabis In 2020?: In January, we pulled out our crystal ball and made our biggest predictions for the year. Stay tuned to see how we do!
This article was published 4/15/2020 on Cannablurbs, a weekly newsletter covering the business, strategy and policy of legal cannabis.
If you like it, sign up here for the far more attractively formatted and convenient email!