January/February 2017

TheCROW’SNEST

January/February 2017 Issue

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TheCROW’SNEST

A hoy Crow’s Nesters,

I hope the New Year is treating you all well. It has certainly treated the stock market well…

The DOW finally broke through that magic 20,000 barrier for the first time. While that is quite a psychological accomplishment, I’m not sure the fundamentals really back up this recent run.

Here are a couple reasons why...

The Trump presidency has already proven to be rather unpredictable and volatile.

We’ve seen executive orders to withdraw from the Trans-Pacific Partnership trade deal, a hiring freeze for federal employees, a promise to kill ObamaCare without any details as to how to replace it, and two orders to revive the Keystone XL and Dakota Access pipelines — all within a couple of days.

Oh yeah, and a possible trade war with Mexico — capped off with a threat of a 20% import tariff that could cause the price of goods to skyrocket.

These are all huge initiatives without very clear paths to do so. It screams uncertainty to me, and the market tends to hate uncertainty.

But the stock market is up 2.6% this year. Yet a recent survey of economists revealed that they expect a tepid 0.3% growth added over the next two years.

Here are how the fundamentals stacked up when the DOW hit other major milestones:

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As I’ve said before — I don’t have a crystal ball. I don’t know if we’re going to keeping sailing well beyond 20,000, or start having to navigate choppy waters and toss some cargo overboard.

That’s why I built our portfolio to ride out any storms and plunder when we see attractive booty.

Which is why I stress dividend stocks to bolster the ballast. I recommend dividend reinvestment plans so you can continue building positions on the way up and the way down. I encourage dollar-cost averaging so that you can you end up with a solid foundation: when stocks take a dive, buy some more. When they are riding all-time highs, chill out on the buying.

These are all simple concepts, but they become far harder to stick to when things start getting unpredictable.

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This has worked wonders for our portfolio over the last few years — just look at our stable of dividend aristocrat stocks, which are among the most predictable stocks out there:

And our standard dividend portfolio, which has some lesser-known, high-yielding positions:

As you can see, ALL OF THE POSITIONS ARE UP! Not one loser among them. I would consider that a hell of a foundation for any investor out there.

We’ve even scored outsized gains on what are typically slow-burn stocks: 176% on Collector’s Universe (NASDAQ: CLCT), 82.66% on Newtek Business Services (NASDAQ: NEWT).

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Luckily for us, we’ve been mighty fortunate to get in on the burgeoning cannabis industries. Take a look at those positions:

This month I have a new position that is the best of both worlds: it stands to do well in the legalized cannabis industry going forward, plus it’s a solid long-term dividend company that should do well in any economic environment.

I also have a pharmaceutical recommendation that could offer at least a 20% upside this year.

Let’s get to it…

Collector’s Universe (NASDAQ: CLCT)

Let’s start with my favorite dividend stock, Collector’s Universe.

For new readers, Collectors Universe Inc. provides third-party authentication, grading, and related services for rare and high-value collectibles consisting of coins, trading cards, sports memorabilia, and autographs.

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Its brands include: Professional Coin Grading Service (PCGS), the world’s leading third-party coin grading service; Professional Sports Authenticator (PSA); the world’s leading third-party sports card grading service; and PSA/DNA Authentication Services (PSA/DNA), the largest and most respected autograph authentication provider.

While I was in Vegas last week, I met up with Collector’s Universe founder Van Simmons. Van took me through the show and explained exactly why each rifle, pistol, or sword was worth the incredible sums they were selling for (he was an Honored Guest of the show, and seemed to be on a first-name basis with about every vendor we spoke with).

This guy knows more about collectibles than everyone I’ve ever met combined.

While we were walking around, he also shared some wonderful insight into Collector’s Universe’s expansion into the coveted Chinese coin market… as his business partner David Hall told me once, “The only thing real in China are the counterfeiters.”

The Chinese are huge into coins, and are lining up to have PCGS grade their collections. I can’t say too much about it, but it certainly looks like the Chinese interest in PCGS has taken off in Shanghai — well beyond expectations. It is already grading far more coin than it anticipated...

I think this will be a great opportunity for growth in the stock.

As long-time readers know, I really love Collector’s Universe because of its generous dividend payout to shareholders.

The company just declared a quarterly dividend of $0.35 per share, or $1.4 annualized.

The dividend will be payable on February 24, 2017, to stockholders of record on February 15, 2017, with an ex-dividend date of February 13, 2017.

The annual yield on the dividend is 6.9%.

The company also just released record financials:

Operational and Financial Highlights:

• Revenues in the second quarter increased by $5.2 million, or 41%, to a quarterly record of $17.9 million from $12.6 million in last year’s second quarter. That increase was driven by a $4.7 million, or 57%, increase in coin service revenues and a $0.5 million, or 15%, increase in cards and autograph service revenues. For

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the first half of fiscal 2017, revenues increased by $6.4 million, or 23%, to a first half record of $33.6 million. That increase was driven by a $5.4 million, or 30% increase in coin service revenues and a $1.0 million, or 13%, increase in cards and autograph service revenues. The coin revenue increases included increases of $3.1 million, or 547%, and $3.5 million, or 317%, in revenues in China, in the second quarter and first half, respectively.

• Coin service revenues generated by our overseas operations, which are inclusive of the China revenues discussed above, increased by $3.2 million, or 306%, to $4.3 million, or 24%, of total revenues in this year’s second quarter, from $1.1 million, or 8%, of total revenues in last year’s second quarter. For the first half of the year, coin revenues from our overseas operations increased by $3.8 million, or 194%, to $5.8 million, or 17%, of total revenues, from $2.0 million, or 7%, of total revenues in last year’s first half.

• The gross profit margin was 64% and 62% in this year’s second quarter and first half, as compared to 60% and 63% in the corresponding periods of the prior year. The improved gross profit margin in this year’s second quarter reflects changes in the mix of revenues and the overall increase in revenues in the quarter.

• Operating income was a record $4.5 million and $7.3 million in this year’s second quarter and first half, as compared to $1.7 million and $4.9 million in the corresponding periods of the prior year. Our operating margins increased to 25% and 22% in this year’s second quarter and first half, reflecting improved operating leverage as revenues increased.

• Income from continuing operations was $2.9 million, or $0.34 per diluted share, and $4.5 million, or $0.53 per diluted share, in this year’s second quarter and first six months as compared to $1.0 million, or $0.12 per diluted share, and $2.9 million or $0.34, per share, in the corresponding periods of the prior year.

• The Company’s cash position as of December 31, 2016 was $10.1 million, as compared to $12.0 million at June 30, 2016 and $10.3 million at September 30, 2016. Net cash used of $1.9 million in the first six months included $5.4 million of cash generated from continuing operations, offset by $6.0 million used to pay cash dividends to stockholders, $1.1 million used for capital expenditures and capitalized software costs and $0.2 million used for discontinued operations.

We’re up 135% on the company since my first recommendation.

We’re still buying CLCT as a long-term dividend position under $25, and buying more on any dips.

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Nucor Steel (NYSE: NUE)

Nucor is the single-largest steel producer in the United States. It is also the largest “mini-mill” steelmaker, meaning it uses electric arc furnaces to melt scrap. The sheer amount of steel the company recycles makes it the largest recycler of any material in all of North America.

The company operates in three segments: Steel Mills, Steel Products, and Raw Materials.

Steel has been on a rampage since Donald Trump took office on a pledge to hit China for unfair trading practices — such as flooding the U.S. market with cheap steel. Now that he has signaled that he’ll go ahead with both the Keystone XL Pipeline and the Dakota Access Pipeline, Nucor should have plenty of use for its steel products.

I like holding Nucor in a dividend reinvestment plan, because the cyclical market can lead to swings in stock price. I buy more at the downturns and hold my position when it rockets up.

Right now, it seems to be in an upswing — it’s up 63% in the last year.

The average short-term price target analysts are putting on Nucor is $67 — which is a solid 12% from where it sits now. High targets are up to $78, which would be a 30% gain.

And that doesn’t take into account the 2.48% dividend yield.

As usual, I’m in between, but remember I hold Nucor as a long-term dividend play. The company is a dividend aristocrat, and as far as the aristocrats go, it’s a strong one: Nucor has raised its dividend each and every year since 1973.

We’re adding to our Nucor position at or around $63, preferably in a DRIP. You can enroll in its DRIP program here.

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AbbVie Inc. (NYSE: ABBV)

AbbVie is a global biopharmaceutical company with a focus on addressing some of the world’s greatest health problems. The company was spun off of Abbott Labs (NYSE: ABT) in 2013 in order to focus on pharmaceuticals while Abbott took over the medical products business.

It produces the biggest blockbuster drug in the world — Humira for rheumatoid arthritis — which is projected to pull in over $18 billion a year into 2020. It also has a stable of drugs that treat cancer, hepatitis, endometriosis, and autoimmune disease. In fact, seven of the drugs focusing on these illnesses could bring in over $25 billion a year.

In order words, it has plenty of drugs in the pipeline to keep growing.

The spinoff has worked wonderfully for AbbVie, whose stock has gone up 81% since. However, it pulled back a bit from a $70 high and is now sitting at an attractive $61.

It also qualifies as a dividend aristocrat from its time with Abbott — which has collectively raised its dividend for over 25 years straight. Since the spinoff, it has increased its dividend payouts by 60%.

Its most recent dividend hike was a 12% increase... It should continue to do so.

It currently yields a juicy 4.1% and offers a fee-free dividend reinvestment program, so you can buy the stock without any broker fees and let that dividend compound.

In essence, AbbVie has a strong portfolio, strong growth prospects, nice value stock, and solid dividends.

We’re buying AbbVie Inc. (NYSE: ABBV) under $65.

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Pioneering Technology Corporation (TSXV: PTE; OTC: PTEFF)

Here’s the skinny from the last update:

Pioneering Technology Corporation (PTE.V)(OTC: PTEFF) is a fire prevention company.

It specializes in devices that shut off before tragedy strikes. I’m talking about common sense approaches like stovetop burners that have alerts that sound when a pot has been sitting too long and microwaves that interrupt power when they detect smoke.

I recently sat in on a company presentation, spoke with management, and was quite impressed with their business structure. I love small, niche companies that have a singular focus that meets an obvious need. Pioneering fits that criteria to a T.

You can get the whole rundown at the end of the last issue, which you can read here.

Like I mentioned in the write up, it only takes a few large-scale deals to really send Pioneering moving up. And it just landed its biggest deal to date…

Here’s the press release:

Pioneering Technology Corporation (TSXV: PTE; OTC: PTEFF), is pleased to announce a follow-on purchase order from one of the largest suite style hotel chains in North America to equip an additional 159 hotel properties (approximately 19,000 hotel rooms) with Pioneering’s SmartBurner.

The purchase order is led by one of Pioneering’s new major channel partners. For clarity the purchase is for approximately 40,560 single SmartBurners (or 10,140 4-burner kits) to equip 159 hotel properties that have approximately 19,300 hotel rooms. This new purchase order represents the second phase of major installations for this hotel chain (138 of their hotels were equipped with SmartBurner in September 2016).

This undisclosed hotel chain is one of North America’s largest owner/operators of company branded suite style hotel rooms that include fully equipped kitchens. This

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latest purchase means that this hotel chain will now have equipped approximately 50% of its hotel suites with Pioneering’s SmartBurner.

Shipments occurred during the weeks of December 26th and January 3rd - installations will be completed in February/March.

Pioneering CEO Kevin Callahan said, “We are very pleased with the success we continue to have in this very relevant channel for our product solutions. Our new channel distribution partners are playing a significant role in helping Pioneering broaden its awareness and reach. This recent order is of particular significance because it is the second large order from this repeat customer, lending credibility to the success we are having in helping prevent cooking fires in this new but very relevant channel.”

The hotel/motel segment with fully equipped kitchens is large, growing and a natural channel for Pioneering’s cooking fire prevention solutions. Major suite style hotel chain properties (with kitchens) in North America number over 3,200 hotel properties and approximately 320,000 hotel units representing a significant multi-million-dollar opportunity for the Company and its distribution partner(s) while helping these hotel chains save money, protect their guests/tenants and deliver a return on their investment.

According to the National Fire Protection Association, cooking equipment is involved in nearly half (45%) of all hotel and motel fires resulting in significant costs, injuries, inconvenience costs and sometimes death. For a hotel chain like this one, cooking fires result in significant annual direct costs but also result in additional costs in the form of lost income, relocation, insurance and other indirect costs. Pioneering’s SmartBurner with its patented temperature limiting control (TLC) technology helps prevent cooking fires before they start. This TLC technology has now been installed on over 200,000 stovetops throughout North America with 100% efficacy (zero reported stovetop cooking fires).

This is a great step for it, and certainly a vote of confidence to have a previous customer up an order by that magnitude.

I have a good feeling about this company, and think that it could really take off with a few more arrangements like this — especially if it breaks into the U.S. hotel and REIT chains.

It has also just released record financial results:

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The Company enjoyed its best year to date, meeting all of its 2016 objectives/goals and surpassing its guidance forecast, achieving new highs in revenue, gross profit, net income, and adjusted EBITDA.

Some highlights for the 2016 fiscal year include:

• Revenue of $6,644,252 (an increase of 51% versus 2015).

• Gross margins were approximately 67%.

• Net income of $1,388,962 an increase of 885% versus 2015 and EPS of $0.04.

• Adjusted EBITDA of $1,683,346 (an increase of 158% versus 2015).

• Solidified channel partnerships with the 3 largest U.S. distributors in North America.

• Completed a $1.5M private placement and $1.75M long-term loan to strengthen balance sheet.

• Delivered meaningful shareholder value – a top performer on the TSXV in 2016.

Pioneering CEO Kevin Callahan said of the results, “We accomplished everything we set out to do in 2016 and we are now well positioned for continued growth and success in 2017 and beyond. Our patented solutions are easy to understand and to date have delivered 100% efficacy. The market for our products is huge (we created it), awareness is growing and we are just in the early stages of market penetration. We believe we are just starting and have other opportunities that will enable the Company to continue to deliver further results and shareholder value.”

Pioneering expects that 2017 revenue will achieve approximately 50% year-over-year growth on the basis of a number of factors including: its current sales pipeline, the strength of growing interest in both new and existing products, support from the U.S. fire prevention community, and Pioneering’s new distribution/channel relationships.

We’re buying Pioneering Technology Corporation (TSXV: PTE; OTC: PTEFF) under $1.20.

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Marijuana Stocks

Emblem Corp. (EMC.V, OTC: EMMBF)

Emblem Corp. is a licensed producer of Medical Marijuana in Canada, led by a team of former Health Care & Pharma Executives who have built & run multibillion-dollar companies. It was co-founded by John H. Stewart, the former President and CEO of Purdue Pharma. If you’re unfamiliar, Purdue Pharma is one of the largest privately held pharmaceutical companies in the world. It’s the maker of OxyContin, which generated $3 billion in revenues just a few years ago.

Here’s what they are working with right now:

1. State-of-the-art 23,500 Sq Ft Facility

2. Licenses - Cultivation: August, 2015 | Sales: July, 2016

3. Harvesting began March 2016

4. Planned expansion to 11,600KG by Q3, 2017

5. Potential capacity on all lands of up to 21,000KG

Before I get started on Emblem, let’s take a look at a common question I received after recommending the company last month.

“It seems that EMC.V and EMMBF do not match up as the price of EMC.V is up 18% today and EMMBF is down almost 14%. They seem to be 2 different companies. Can you explain?”

- Marc C.

Thanks for the question Marc, it is an important one.

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As I’ve written in the newsletter many times, I prefer to buy any stock on the major market it trades on whenever possible.

That is because over the counter stocks (OTC, aka pink sheets) are more volatile since the liquidity is much lower than the actual — in this case, Canadian — exchange. That basically means there are fewer investors in the OTC symbol. While the two symbols should be closely correlated, the OTC version is subject to bigger swings in either direction, depending on how much is being bought or sold.

As for the movements Marc spoke of, it appears that there was much higher selling in EMMBF and higher buying in EMC.V. So while EMMBF has an average trading volume of 55,742 shares, EMC.V traded 345,277 shares today.

That, in a nutshell, is why the movement is so different...

That is also why I prefer the Canadian exchange — I hate leaving my investments in the hands of what could be a few large investors that can crash the stock by selling off their holdings. I prefer liquidity where I can find it.

As for Emblem, we’re up 40% on EMC.V. while EMMBF is down a percent. I know this is a strange phenomenon, but that’s the world we live in.

Overall, the two should be rather close in the end, however you can expect more wild swings in stock price in the short term.

I hope that helps…

There isn’t much news on Emblem Corp. since our last update.

Emblem did receive confirmation from Health Canada that its license will be amended to allow the production of cannabis oils. Emblem Corp has already invested over C$1 million to date into its extraction and purification platform, including a supercritical CO2 extractor, purpose-built rooms, and analytical equipment. The license amendment enables Emblem to better serve patients by providing a broad range of cannabis products.

As a medical marijuana company — where smoking the product is a major issue — this is a huge boost to its business.

It raised $10 million in a special warrant bought deal financing where underwriters have agreed to purchase 2.8 million special warrants of at $3.63 per special warrant.

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That will fund a 2,500 sq. ft. dedicated extraction and formulation development laboratory expansion of its facility in Paris, Ontario — to keep up with the demand.

After the offering is finished, Emblem will have about $37 million to deploy.

You can read my interview with CEO Gordon Fox here.

We’re already up 30% on the company since its December IPO.

We’re buying Emblem Corp. (EMC.V, OTC: EMMBF) under $4.25 this month.

Heliospectra (OTC: HLSPY)

Heliospectra specializes in intelligent lighting technology for plant research and greenhouse cultivation.

We haven’t heard much from the Heliospectra team over the last few months.

But the company is growing fast. So fast, in fact, that it was honored as one of the Top 50 companies in the Deloitte Technology Fast 500.

Here’s the press release...

Heliospectra AB, a world leader in intelligent horticultural lighting technology, is pleased to announce it has been recognized as the 42nd fastest growing company in Europe, the Middle East, and Africa (EMEA) according to The Deloitte Technology Fast 500™ EMEA program.

Now in its sixteenth year, the Deloitte Technology Fast 500™ EMEA program in 2016 included 28 countries and growth rates from 212% to 28,126%. This year’s winners were selected based on percentage fiscal-year revenue growth from 2012 to 2015.

With revenue growth of 2,204% from fiscal year 2012 to fiscal year 2015, Heliospectra

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was ranked as the 42nd fastest growing company in the Fast 500™ EMEA list. This revenue growth figure also set Heliospectra as the third fastest growing company of the 20 companies in the clean technology sector, which had an average growth rate of 471%.

“Our LED lighting strategies and advanced technology offer customers operating large scale greenhouses and indoor controlled growing environments the ability to produce consistently high yields and quality products year round,” said Staffan Hillberg, CEO of Heliospectra.

Heliospectra’s LED lights and control solutions enable customers to use the full light spectrum to improve cultivation methods and accelerate the flowering cycles of many plants and vegetables. By increasing the number of harvest cycles achieved each year, customers also accelerate time to market which increases revenue and sustains their businesses’ profitability.

It also just named a new CEO to take the company to the next level.

The board of directors have elected Ali Ahmadian as the new CEO of Heliospectra. Mr. Ahmadian joined Heliospectra as Chief Commercial Officer in November of last year and will assume the position of CEO on February 1, 2017.

Andreas Gunnarsson, Chairman of the Board of Heliospectra, stated, “As Heliospectra is entering a new phase with continued strong growth and focus on operations, it feels natural to evolve the management. Ali Ahmadian is the best choice from a deep pool of interested and highly qualified candidates. He has in earlier positions demonstrated a strong international commercial acumen combined with the ability to create winning teams. On top of this we are also pleased to be able to retain Staffan Hillberg, current CEO, as advisor regarding capital markets and investor relations.”

Ali Ahmadian was part of Tetra Pak’s Global Senior Leadership Team previous to Heliospectra. Tetra Pak is a leading multinational food packaging and processing company. With more than 23,000 employees based in over 85 countries, Tetra Pak provides safe, innovative and environmentally sound products that each day meet the needs of hundreds of millions of people in more than 175 countries around the world.

Mr. Gunnarsson stated, “We want to thank Mr. Hillberg for his significant contributions to the growth of Heliospectra. He has been in charge of Heliospectra since 2010 and built the Company from a small research-based company into an international

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organization with over 30 employees on two continents and a growth of approximately 340%. Further, he has raised over 29 million USD in equity and listed Heliospectra on Nasdaq First North as well as via an ADR having the first listing of a First North company on the North American OTC Markets.”

If you want some more background about the company, you can read our report here.

You can read my interview with outgoing CEO Staffan Hillberg here.

We’re buying Heliospectra (OTC: HLSPY) under $1.25.

MassRoots (OTC: MSRT)

MassRoots is a social network for the cannabis community — other wise known as the “Facebook of Weed.” We’ve seen the stock move all over the place since our first recommendation.

But it has gained 44% in the last six months and should keep cruising as more U.S. states legalize recreational cannabis — opening up new markets for MassRoots.

CEO Issac Dietrich just released a letter to shareholders that spells out the strategy for the next year. Here it is in its entirety.

MassRoots Shareholders,

We’re pleased to report that MassRoots continues to expand its market share as one of the leading online communities of cannabis consumers and through our recently introduced product-reviews, are in a position to dominate the demand-side of the cannabis market. Given the current state of the cannabis market, our Company in the right place at the right time as the industry develops from its nascent stage to maturity.

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The 2016 elections put in place new cannabis laws affecting 22% of the U.S. population, a fundamental growth catalyst for MassRoots and the entire industry. As we gear up for 2017 and the next phase of growth for MassRoots, I wanted to highlight some of our recent milestones and outline our key objectives for the next several months. As previously reported, MassRoots had generated $794,000 in revenue as of September 30, 2016, compared to $64,000 in revenue during the same period in 2015.

Over 75% of these sales have come from the Colorado and California markets and we are now seeing these and other markets open up to help facilitate our further growth. Based on our current growth rate, we are on track to be cash-flow positive on a monthly basis during December 2016 or early 2017.

Our two closest comparables, Weedmaps and Leafly, are expected to generate more than $25 million and $15 million, respectively, in digital advertising revenue during 2016. MassRoots, having similar user-bases to both of these services, expects its annual revenue run rate will grow to this range within the next 12 to 18 months.

Through community-driven reviews, MassRoots intends to dominate the demand-side of the cannabis market, channeling sales to our preferred partners. In August 2016, we introduced a dispensary finder within the MassRoots mobile applications and escalated business on boarding, followed by the introduction of product and strain reviews in November 2016. Within the next several weeks, users will be able to rate and discover products based on how well they treat certain ailments (back pain, joint pain, nausea and other ailments) and see how much those products cost at their local dispensaries.

Our primary focus has been getting this model right in Colorado before scaling to the 27 states with medical and recreational cannabis laws.

MassRoots currently has 900,000 users out of an estimated 10 million regular cannabis consumers who reside in a state with a medical or recreational cannabis laws.

We believe that once enhanced product reviews and live menu pricing are live, MassRoots will be able to generate positive cash-flow off of each new user acquired within 6 weeks of acquisition. At that point in time – which each new user acquired is profitable within 6 weeks – we will aggressively ramp-up user acquisition spending again. MassRoots currently has 900,000 users out of an estimated 10 million regular cannabis consumers who reside in a state with a medical or recreational cannabis law.

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On November 8, 2016, 7 states representing 22% of the United States population voted to regulate the production and sale of cannabis, perhaps the single biggest event in marijuana history. As a result, ArcView Market Research and New Frontier Financial project the regulated industry will grow from $5.7 billion in 2015 to $23.1 billion in 2020, an annual compound growth rate of 35%.

When a state passes a medical or recreational cannabis law, MassRoots is able to immediately begin registering users and businesses in that state with minimal marginal cost. Because we are not involved in the production or sale of cannabis, we do not have to build outgrow operations, open retail stores, or have a significant physical presence in the state in order to generate revenue.

At the same time, MassRoots’ financial model is not tied to the success of a particular location, brand or a particular ballot initiative – we believe we will have a significant percentage of all dispensaries and brands on our platform, making MassRoots a play on the industry as a whole.

Throughout the next two years, we expect five additional states will pass medical cannabis laws: Texas, Louisiana, Utah, Nebraska and South Carolina while an additional five states will pass recreational cannabis laws: Michigan, Maryland, Vermont, Connecticut and New Jersey. We expect that, with the exception of Michigan, these laws will be passed through the state legislature which is a fraction of the cost of running a statewide ballot initiative. Sitting at the intersection of healthcare on the medicinal side and a vice industry on the recreational side, we believe the cannabis industry can continue to grow in any economic climate.

In early September, MassRoots partnered with cannabis business intelligence firm Headset to integrate their base-level dashboards into MassRoots for Business. This partnership will significantly accelerate the roll-out of live menu prices from every major dispensary point-of-sale system on the market, as well as offering dispensaries access to meaningful data in easy-to-use, actionable formats. We believe Headset is the leader in this segment of the cannabis technology market and is poised to rapidly scale over the next several quarters.

I am also pleased to report that MassRoots has entered into a partnership with MJ Freeway – the largest cannabis seed-to-sale tracking platform that has processed more than $5 billion in cannabis transactions and has close to 50% market share.

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Through this partnership, MJ Freeway clients will be able to automatically sync their inventory and pricing data with their MassRoots profile, better serving both MJ Freeway’s clients and MassRoots users.

We are confident that these collaborations and partnerships will expand the offerings and capabilities of the MassRoots platform and offer some insight into the direction we are taking the business. Fundamentally, we believe that MassRoots is in a stronger position than ever while the 2016 elections have significantly accelerated the growth of the regulated cannabis market. Management looks forward to applying the knowledge, experience, and relationships we’ve gained the past few years to shaping the development of the regulated cannabis industry.

During the next several months, many of the new laws will begin to take effect in their respective states.

Furthermore, we expect additional legislation to occur, as more states implement the necessary legal framework for a regulated cannabis market.

Thank you for you continued support of MassRoots. We look forward to leveraging the near-term growth catalysts that lie ahead of us and reporting back to you on the continued development of our Company.

Best Regards,

Isaac Dietrich

Chairman & Chief Executive Officer

MassRoots, Inc.

MassRoots will expand along with the legal cannabis market. Now is the time to get in.

We’re buying MassRoots (OTC: MSRT) under $1.25.

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Scotts Miracle-Gro (NYSE: SMG)

Scotts Miracle-Gro should be pretty familiar to anyone with a lawn or garden… It is the world’s leading marketer of branded consumer lawn and garden products.

But the company has recently doubled down on the legal cannabis industry. Scotts has bought up several of the larger businesses that focus on aspects of hydroponics or organic gardening — nutrients, soils, and lighting.

Hydroponics literally means to grow without soil. It’s a very popular technique to grow not only marijuana — but all types of plants and vegetables.

Here are just a few of its recent acquisitions that play on the burgeoning cannabis market:

• $130 million buyout last year of California’s General Hydroponics was the company’s largest acquisition in 16 years

• Scotts subsidiary Hawthorne Gardening Co. spent the money to acquire a 75% stake in Gavita Holland BV, which has $100 million in annual sales

• Closed on an acquisition of Arizona-based Botanicare, a manufacturer of plant nutrients and growing systems for hydroponic gardening

“It’s hard to remember the last time we had consistent double-digit growth in our core, and that’s exactly the opportunity we see in hydroponics,” CEO Jim Hagedorn told investors on a recent conference call.

“Clearly, a new industry has taken root, authorized by state laws that have been in place for some time now,” Hagedorn said, referencing projections for the creation of “tens of thousands” of jobs and a new tax revenue stream topping $1 billion. “That base is likely to grow as more states come online in the months and years ahead.”

I’d recommend reading this great profile on Hagedorn — who was an F-16 fighter pilot and generally interesting dude.

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It has also just released its new financial statements, which showed off its new acquisitions.

• Company-wide sales increased 27 percent in its fiscal first quarter driven by the benefit of recently completed acquisitions and strong consumer demand in the U.S.

• Sales in the Other segment, which includes The Hawthorne Gardening Company, Canada and Asia Pac businesses, increased 74% to due primarily to the recent acquisitions of Botanicare and Gavita.

• U.S. Consumer segment reports 11% sales growth to $125.5 million, on strong consumer demand

Keep in mind, this is the dead time for the company — which typically reports losses during the winter months for obvious reasons.

The Company will host its annual Analyst & Investor Day on Tuesday, February 21st. The meeting will consist of a brief series of presentations, store walks at nearby retail locations, and a luncheon that includes a Q&A session with management. The presentations and Q&A session will be webcast live from the Company’s investor relations website at http://investor.scotts.com.

We’re jumping on this play for the long term. It should see some great returns on the cannabis market, but otherwise should be in great shape for its bread and butter, which is the lawn and garden business.

Here are the vitals:

Market Cap: $5.4 billion

P/E: 17.70

EPS: 5.08

52-week range: $62.72 – $98.82

Dividend/ Yield: 2.00 (2.20%)

Buy Scotts Miracle-Gro (NYSE: SMG) under $96.00.

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I have a new recommendation for you that plays off of the introduction in the last issue.

I discussed that one reason I am so bullish on medical marijuana is it has shown great promise in managing chronic pain — which is the major reason people are prescribed opioid drugs like Oxycontin and Vicodin.

It is due to the massive prescriptions of those drugs that opioid drug abuse has become a national epidemic.

Here are a couple of terrifying facts:

• Approximately 80% of the global opioid supply is consumed in the United States

• Pain drugs are the second-largest pharmaceutical class globally, after cancer medicines — 300 million prescriptions were written in 2015

• The Centers for Disease Control and Prevention estimates that 78 Americans die every day from an opioid overdose.

• 170,000 Medicare beneficiaries were “doctor shopping” going to multiple doctors to get the same opioid prescriptions and then going to multiple pharmacies and getting them all filled

This is all because these drugs are incredibly addictive.

The company I want to talk about today has just developed a drug that could potentially deliver pain relief without the scourge of addiction.

Teva Pharmaceutical Industries Limited (NYSE: TEVA)

Teva is an Israeli company that specializes mainly in generic drugs.

Its “non-addictive” painkiller, Vantrela ER, was just approved by the FDA. Vantrela ER is a painkiller with built in features that deter abuse.

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From the Press Release:

A joint US Food and Drug Administration (FDA) advisory committee has voted to approve Vantrela ER (extended release), a hydrocodone product for pain management, and recommended that labeling for the oral, intranasal (IN), and intravenous (IV) versions of the drug reflect its abuse-deterrent properties.

The product has layers to resist drug extraction via the most common routes.

Opioid abusers crush and grind opioids, sometimes employing chemical extraction using solvents. They strive for a good “high” (peak or maximum serum concentration of the drug [Cmax]), and they seek to minimize the time it takes for the drug to reach such concentrations (Tmax).

The company provided evidence of the drug’s effectiveness, safety, and tolerability. Its pivotal 12-week, double-blind, phase 3 study included 370 patients who had a three-month or longer history of moderate to severe lower back pain. Patients were randomly assigned to Vantrela ER (30-90 mg every 12 hours) or placebo.

The study met its primary endpoint, which was worst pain intensity. Significant pain reduction was observed in the treatment group compared with the group receiving placebo (P < .001). There were no unexpected safety concerns, and the safety profile was consistent with that associated with hydrocodone and other extended-release opioids.

Research showed that healthy recreational drug users had a significantly lower “drug liking,” “overall liking,” and “willingness to take the drug again” with respect to Vantrela ER in oral and IN formulations — the two most common routes of administration in cases of abuse — in comparison with agents that are not formulated to deter abuse.

Generic Drugs

I wrote about Teva a bit in a recent Outsider Club. I talked about Trump’s recent comments that drug companies were “getting away with murder.” He called the drug industry practices “disastrous” and threatened to involve the government in negotiating drug pricing. I think he was being a bit blustery, as he is wont to do, but if he does go forward with his war on price gouging, Teva’s generic drug business should do just fine. It is also somewhat insulated from U.S. price wars since only 50% of its revenue comes from the U.S.

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Teva is also the cheapest generic drug stock out there, and two of its competitors Mylan (NYSE: MYL) and Valeant (NYSE: VRX) have both already felt the wrath of congressional oversight for price gouging.

From Forbes:

Trump’s healthcare advisors have said they want to quicken the pace of generic drug approval by speeding up the review process, alleviating pressure off a deep backlog of 3,000 Abbreviated New Drug Applications (ANDAs). Teva’s drugs represent roughly 10% of those ANDAs, meaning a hurry to push more generics through could easily benefit this Israeli pharma outfit.

Now, it can be hard to pull the trigger on a company that has trended down and released downgraded projections. But, as they say: “Buy when there is blood in the streets.”

Lucky for us, there really isn’t too much blood — it seems like merely a flesh wound, and certainly not a serious bloodletting.

Many analysts have set price targets lower after the start of 2017:

• Maxim cut its price target to $41 from $49.

• RBC reiterated its Outperform rating but lowered its price target to $42 from $51.

• Cowen reiterated its Buy rating but slashed its price target to $50 from $100.

The stock currently trades around $33, so there is double-digit upside from even the most conservative estimates.

And again — you get a 4% dividend.

But as they say — buy low, sell high. This is a prime opportunity to do it.

We’re buying Teva Pharmaceutical Industries Limited (NYSE: TEVA) under $38.

Company Stats

Market Cap: 34.31 billion

P/E Ratio: 22.58

EPS: 1.5

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52-week range: 33.56 - 64.31

Dividend yield: 4.03%

1 Year Target: $45

That’s all for this month. I’m vetting a couple of new and exciting companies, so keep your eyes peeled for updates.

As always, if you have any questions please e-mail me at customerservice@angelpub.com and I’ll try and work your questions into our next “Message in a Bottle” feature.

Godspeed,

Jimmy Mengel

Investment Director, The Crow’s Nest

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