alan j. brochstein, cfa 420 investor & new cannabis...
TRANSCRIPT
The Global Cannabis Investment
Opportunity
Alan J. Brochstein, CFA
420 Investor &
New Cannabis Ventures
CFA Society Houston
April 26, 2017
Alan Brochstein
Native Houstonian
Investment Management/Securities
Analysis for 31 Years
Earned CFA Charter 1997
Independent Research & Consulting
Since 2007
Focus on Cannabis Sector in early
2013 and full-time since early 2014,
launching 420 Investor in September
2013
New Cannabis Ventures launched in
September 2015
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Why Talk About Cannabis?
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The industry is growing rapidly
Investment opportunities exist
Your clients may ask!
What is Cannabis?
Cannabis = Marijuana
The cannabis plant is extremely complex, with
varying amounts of THC, CBD and other
cannabinoids and different “terpenes”
Hemp is in the same family
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Today’s Discussion
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Cannabis Industry Background
Evolution of Investment
Opportunities
Where to Focus
Cannabis in the U.S.
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Federally illegal – Schedule I drug
Cole Memo under Obama limited
enforcement
Legal for Adult-Use in 8 States
Now: CO, WA, OR, AK
Soon: CA, MA, ME and NV
Legal for medical purposes in ~30
states, including Texas soon
Issues with Federal Illegality
Advertising
Banking
Capital Access
Scalability Restricted
Risk of Asset Forfeiture and Jail
Taxes – 280E
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State Medical Programs Differ Greatly
3 Key Criteria
› Qualifying Conditions
› Types of Products Permitted
› Market Structure (Number of Providers)
Good Market: Colorado
Bad Market: New York
Terrible Market: Texas
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Market Potential
3 Different Segments› Psychotropic Drug
(“Recreational” or “Adult Use” (like caffeine, alcohol or nicotine)
› Health & Wellness
› FDA-approved
Estimates: $35 billion - >$100 billion
Alcohol is $200 billion market
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Legalization Drivers
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Social justice issues
Defeating organized crime and cartels
Alcohol parity
Tax revenues and resource allocation
Unmet medical needs
Childhood epilepsy
PTSD (veterans)
Opioid epidemic
Big Trends in U.S. Cannabis Industry
Consumption changes› Vaporization
› Edibles
› Extracts
› Microdosing
› Targeting females
Production shifting from warehouses to greenhouses
Falling wholesale prices
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Cannabis in Rest of World
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Canada: Federally Legal for Medical, Soon
Fully Legal for Adults
Germany: Federal Medical Program Ahead
South America: Uruguay Fully Legal and
Colombia and Chile have Medical
Production and Research
Australia: Medical Program Underway
Canada – Global Cannabis Leader
~160K Medical Patients
Legal for Adults in 2018
Research/Clinical Trials
Access to Capital/Banking
TSX Listings
Institutional Investors
Analyst Coverage
Global Opportunities
Market Size Estimates:› Direct: >$5 billion› Indirect: >$18 billion
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Investing in Cannabis
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U.S. Publicly-Traded Stocks
U.S. Private Placements
Canadian Publicly-Traded Stocks
Other Geographies
Range of Investments
Direct Cannabis
Cultivation
Processing
Retail
FDA path
Ancillary
Branding/IP
Consumer Goods
Consumer Services
Consulting
Equipment
Media
Nutrients
Real Estate
Software
Testing Labs
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U.S. Publicly-Traded Stocks
First stocks traded in 2009
I track over 400 U.S.
public companies
Most trade on the OTC,
many don’t file with the
SEC
Some recent
improvements in quality
of companies
Mainly retail market
Cowen and Company
providing research
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U.S. Private Companies
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Friends and family are primary funders, with little
investment banking
Two large funds, Privateer Holdings and Tuatara
Capital, with several smaller ones
Some big multistate vertically integrated
companies emerging, but highly fragmented
market for the most part, with residency
requirements in some states
Technology companies have been successful in
drawing traditional Silicon Valley investors
Private REITs attracting institutional investors
Crowdfunding is in its early stages
Canadian Public Companies
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11 (soon 14) publicly-traded licensed
producers
Huge gains in 2016
3 with market caps >$1 billion
3 trade on Toronto Stock Exchange, most
others on TSX Venture
Several Canadian companies are raising
capital and then investing in the U.S.
First ETF – Horizons Medical Marijuana Life
Sciences ETF (TSX: HMMJ)
Rest of World
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Australia has seen a big increase
in cannabis-related listings
Canadian companies are doing
business in and making
investments in Australia, Europe
and South America
Where to Focus
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U.S. Publicly-Traded Stocks with Revenue
and Ability to Raise Capital
FDA Plays
Real Estate
ScottsMiracle-Gro
Canadian Licensed Producers
Canadian Companies Investing in U.S.
Germany
U.S. Publicly Traded Stocks on OTC
AeroGrow Intl (OTC: AERO)
CV Sciences (OTC: CVSI)
GrowGeneration (OTC: GRWG)
Kush Bottles (OTC: KSHB)
Medical Marijuana, Inc. (OTC: MJNA)
Solis Tek (OTC: SLTK)
Surna (OTC: SRNA)
Terra Tech (OTC: TRTC)
*GRWG, KSHB and SLTK are New Cannabis Ventures Clients
Annual revenue > $5mm
Some ability to raise capital
Varying degrees of balance sheet strength
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FDA Cannabis Plays
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GW Pharma (NASDAQ: GWPH)
UK-based, Sativex marketed in some countries
(but not U.S.)
NDA filing mid-2017 for Epidiolex to treat seizures
from rare forms of childhood epilepsy
$3 billion market cap
Synthetic Cannabinoids, including Insys (NASDAQ:
INSY), Therapix (NASDAQ: TRPX) and Zynerba
(NASDAQ: ZYNE)
Lots of underfunded OTC companies
*TRPX is a client of New Cannabis Ventures
Real Estate
Innovative Industrial Properties (NYSE: IIPR)› Public in December 2016 at $20
› Management team from Alexandria Real Estate Equities and Biomed Realty
› Underfunded, too much exposure to one property in New York
Private REIT: Kalyx Development
RE Funds: Greenspace (in Houston) and others
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ScottsMiracle-Gro
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SMG trades on the NYSE
Large cannabis-oriented division after
several acquisitions – Hawthorne Gardening
Company
Not efficient way to invest, as cannabis
focus is small part of company (~10%), but
watch for spinout
Canadian Licensed Producers
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11 (soon 18) trading publicly, including 3
with market caps above $1 billion)
Sales estimates in the hundreds of millions
for a few in 2019 and beyond
Stocks are expensive on near-term sales
Lowest valuations are 4X P/TB
Risk in scaling up
Global opportunities
*New Cannabis Ventures clients include ABcann Global, Aurora Cannabis, Canopy Growth, Emblem
Health, Green Organic Dutchman and Harvest One
Canadian Companies in U.S.
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4 companies have raised substantial capital to
deploy in U.S.
Canadian Bioceutical Company (CSE: BCC)
(OTC: CBICF)
CannaRoyalty (CSE: CRZ) (OTC: CNNRF)
Golden Leaf Holdings (CSE: GLH) (OTC: GLDFF)
iAnthus Capital (CSE: IAN) (OTC: ITHUF)
One LP, Aphria, has invested in AZ and FL
*iAnthus is a client of New Cannabis Ventures
Germany
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2.5X Bigger than Canada
Pharmacy Distribution
Insurance Coverage
How to Play
Certain Canadian LPs
No Direct Plays Yet
In Conclusion
Federal illegality makes it tough for institutional investors to get involved
Ancillary companies and real estate are attracting some institutional ownership
U.S. publicly-traded opportunities are limited but improving
There is a “Canadian Cannabis Arbitrage” developing, with Canadian capital being deployed in the U.S.
Canada is a market for institutional investors due to federal legality
Germany is looking like a great opportunity ahead
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Q&A
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Alan Brochstein, CFA, is a leading authority on cannabis-related investments as the founder of internet-based 420 Investor and New Cannabis Ventures. He is a member of the National Cannabis Industry Association (NCIA) in an ongoing effort to promote the industry and supports many organizations seeking responsible, regulated legal cannabis.
Background
After beginning his financial career working in the New York City bond business, with Kidder, Peabody and then First Boston’s investment management subsidiary, Alan joined Criterion Investment Management as a portfolio manager in a $10 billion fixed-income advisory business. Later, Alan was a principal and analyst/portfolio manager at Piedra Capital, where
he focused on Mid-Cap Growth stocks for institutional and individual clients of the firm.
In 2006 Alan began his own business, AB Analytical Services. Until early 2014, he was a consultant to several investment advisors and an independent research firm and provided a model portfolio service and a trade-alert service to individual investors
Alan, who resides in Houston, is a widely-read blogger at Seeking Alpha and graduated from Northwestern University in 1986 with a BA in Economics and Mathematical Methods in the Social Sciences
About Alan Brochstein, CFA
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Alan J. Brochstein, CFA
713.344.0326
420 Investor: 420Investor.com
New Cannabis Ventures: NewCannabisVentures.com
Twitter: twitter.com/Invest420
Facebook: facebook.com/420investor
Facebook: facebook.com/NCVmedia
LinkedIn: linkedin.com/in/alanbrochstein
LinkedIn: Cannabis Investors & Entrepreneurs
Contact Information
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