By Jeremy Rubera
I started up working on independent research for cannabis stocks. At the time, I didn’t own any stocks. I didn’t take any money from companies because I wanted to keep it independent as there’s a ton of fraud going on; lots of stocks that are just pump and dumps, and I figured it’s better to take a better approach and be an independent voice.
After about a year, my subscription service turned out to be a good business. So many people want to invest in cannabis companies, but the space is too new to easily make good choices. It’s just little bit tougher than I anticipated. I started producing cannabis events and building out for them so we could start getting companies the right coverage. Through Technical 420, I was able to build great relationships with these businesses, learn about the management teams and learn who the real players are in the sector, because there’s a lot of fraud. Best thing to do is just give companies a phone call, because most of them won’t answer. That’s definitely the best step. A company that doesn’t answer the phone is not all good!
After learning about these businesses and getting them featured, we built a great report. We started helping them raise capital as well as reach investors, and decided that it was better to put our money where our mouth is and invest in these companies. Currently my only two investments are licensed Canadian medical cannabis producers, and this is a sector I’ve been very bullish on for the last year and a half.
How Has Marijuana Legalization Affected Stock Prices?
Legalization of recreational marijuana in Canada is a huge catalyst that has been incredible for stock prices. That being said, they’ve definitely moved a little bit ahead of themselves and people have priced too high in recreational cannabis; late 2017 or early 2018. Many companies want to do was similar programs for what they have for medical cannabis. That’s been working very well. They want to tax the higher potency items like the edibles and the oils a little bit more. That could be an interesting and even better margin opportunity for those companies, but that’s down the road.
Look at Emblem and the Greener Gain Dutchmen, for instance. People got into the rounds at 50 cents, 75 cents – even a dollar and fifteen cents with warrants throughout that entire process. Emblem went public at 3 dollars a share, and it was obvious this was going to be a winner just from the way it’s structured. They have a cannabis producing component, they have a clinic component and they have a pharmaceutical component. It’s a really attractive business model. Really attractive financial structure and a really attractive management team.
Those are the three main things to look into when looking into investment, and that’s where you’ll find real value. Looking where people don’t see the value, who has the growth potential, who has the vision, the management team that could lead you there, and also the business plan and the financials to execute on it. Because if you don’t have the capital and you can’t execute, it’s just not possible.
Cannabis Companies in The Americas
Canada is flush with cash. They’ve been raising money like it’s been growing on trees for the last year. They’ve probably raised about a billion dollars over the last year alone. Companies like Canopy are announcing 60 million dollar deals and closing like it’s nothing. And it’s pretty much nothing because it’s being raised overnight: Over-subscribed so fast.
The US is obviously a great opportunity as well. There’s a lot of great investments in the US. However, most of them are in the biotech space. You don’t have the licensed producers or the retail markets in publicly traded companies in the US. There is one, the Tinker Symbol is KAYS. But it’s currently at less than 30 cents. It could be worth a quick look, but not much else.
There’s over 400 publicly traded cannabis companies and 90 percent of them will be going out of business within the next two years. This isn’t because they aren’t good companies; it’s just because they didn’t realize what they were doing when they went public. They didn’t understand the cost associated with it, their pouring structures and everything there is to do. There was a surge of these companies going public in 2014 and 2015, and it’s slowed down as Canada’s taken the front seat. The United States is in the back because they’ve just been seeing all the companies going public and they’re on better exchanges.
When it comes to the US, you really have to look between the exchanges. It’s best to focus on the NASDAQ and the OTCQBs. Don’t look at the non reporting companies and the pink sheets, because you don’t really know what they’re actually doing. And if you don’t know what they’re actually doing, it’s very risky. If you look at companies like AXON Biotech, for example. 13 dollar stock, seems like a good bet.It was 40 cents back in November and it’s up quite a bit. When they announced the financing deal, they decided to leave out the terms of how much they raised. They have enough money now to execute on their clinical trials.
It’s best practice to look into the filings. Look into what they say, look into how they say it and how they follow through because these management teams are great talkers. How they act is a completely different story. CBDS, for example, haven’t done anything in the last two years but the stock’s gone from about a dollar to six dollars and management sold it all the way through. They continue to say they’re going to do things and they continue to say they’re spinning off a subsidiary. They’d said that two years ago and they still haven’t done it.
Look into how they’re getting paid, as well. It’s definitely something important to look into, because it’s not something they’re going to talk about. It’s something you have to do due diligence for. You just have to be patient. You have to have a strategy and most people, especially in cannabis, just think it’s the next big thing and they do it without strategy which is definitely not recommended.
Sound Strategies to Grow Your Investment
One of the key strategies to employ is dollar cost averaging down or up. It really depends on which way it goes. But start with a 25 to 30 percent initial investment. The biggest mistake people make is putting all their money in at once. You don’t want to do that, because if it goes the wrong way you can’t average down. Look into the fundamental story: look into what happened, look into the volume, look into the spread because the spread on these stocks are absurd. Some of them are 40 percent higher than the current price.
You’ve got to be very careful if you’re not buying a stock that’s liquid.