The Global Cannabis Investment Opportunity Alan J. Brochstein, CFA 420 Investor & New Cannabis Ventures. CFA Society Houston April 26, 2017

Transcription

1 The Global Cannabis Investment Opportunity Alan J. Brochstein, CFA 420 Investor & New Cannabis Ventures CFA Society Houston April 26, 2017

2 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

3 Why Talk About Cannabis? The industry is growing rapidly Investment opportunities exist Your clients may ask! 3

4 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 4

5 Today s Discussion Cannabis Industry Background Evolution of Investment Opportunities Where to Focus 5

6 Cannabis in the U.S. 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 6

7 Issues with Federal Illegality Advertising Banking Capital Access Scalability Restricted Risk of Asset Forfeiture and Jail Taxes 280E 7

8 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 8

9 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 9

10 Legalization Drivers Social justice issues Defeating organized crime and cartels Alcohol parity Tax revenues and resource allocation Unmet medical needs Childhood epilepsy PTSD (veterans) Opioid epidemic 10

11 Big Trends in U.S. Cannabis Industry Consumption changes Vaporization Edibles Extracts Microdosing Targeting females Production shifting from warehouses to greenhouses Falling wholesale prices 11

12 Cannabis in Rest of World 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 12

13 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 13

14 Investing in Cannabis U.S. Publicly-Traded Stocks U.S. Private Placements Canadian Publicly-Traded Stocks Other Geographies 14

15 Range of Investments Direct Cannabis Ancillary Cultivation Branding/IP Processing Consumer Goods Retail Consumer Services FDA path Consulting Equipment Media Nutrients Real Estate Software Testing Labs 15

16 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 16

17 U.S. Private Companies 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 17

18 Canadian Public Companies 11 (soon 14) publicly-traded licensed producers Huge gains in 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) 18

19 Rest of World 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 19

20 Where to Focus 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 20

21 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) Annual revenue > $5mm Some ability to raise capital Varying degrees of balance sheet strength *GRWG, KSHB and SLTK are New Cannabis Ventures Clients 21

22 FDA Cannabis Plays 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 22

23 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 23

24 ScottsMiracle-Gro 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 24

25 Canadian Licensed Producers 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 25

26 Canadian Companies in U.S. 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 26

27 Germany 2.5X Bigger than Canada Pharmacy Distribution Insurance Coverage How to Play Certain Canadian LPs No Direct Plays Yet 27

28 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 28

29 Q&A 29

30 About Alan Brochstein, CFA 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 30

31 Contact Information Alan J. Brochstein, CFA 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 31