Canopy Growth Corp. (WEED.TO)

There was a lot of hype around the marijuana stocks during the last election. However, they are pricing in a much higher usage of medical marijuana than actually takes place. Although medical marijuana will grow, the stock is pricing in growth that is unlikely to occur. He is looking at this from the Short side.

Mostly institutional money they manage. Mostly BMO shares. You get the money management business almost for free. They keep selling BMO shares and investing in businesses. They are increasing the dividend and buying back shares. There is some illiquidity, however.

The whole sector got overheated when they went public. He looked at all of these, and the one he preferred best was Aphria (APH-X). Management team was with Jamison before and were able to sell that. The people they are connected with are very good marijuana growers. All the other companies have had problems in growing the marijuana. Thinks these are going to be the go to guys and this is the way you should play it.

The hype is that Trudeau will legalize marijuana for recreational use. His guess is that he will do that, but it may not happen tomorrow. Not the kind of thing you want to rush into. The government has botched the medical marijuana so badly. He wouldn’t buy it here.

Chart shows a long decline from early 2014. There was recently a small bump, which may be a “Trudeau bump”. The after effects of that are going to slowly wane away. There has to be some more news. These small companies are really news driven, and if more news does come out it can pop up again.

He doesn’t buy anything on the Venture Exchange. Marijuana is a tremendous growth market, and there are going to be a lot of companies that do well. Also, there is going to be a lot of charlatans that make a lot of money because people are going to pour into the field. You have to look carefully at the financials to see if they have revenues, debts or if there is dilution because they keep selling shares.

There was a bit of a gold rush into them. There are a few businesses that got through the application processes and have real businesses. He thinks there will likely be consolidation and CGC-X may be the acquirer. Since the election the government’s attitude towards Marijuana will be different. You should stick to the larger companies like this one.

(Market Call Minute.) Very impressive facility with a really good management team, but he is not a believer that this industry is going to be an easy place to get profitable anytime soon.

Their margins look very, very good. He does not buy companies that are still not profitable. Wait for a profitable quarter. He is also worried about long term pricing at $7.50 a gram. It is a concept stock.

There are high expectations on marijuana stocks, but there is a limited supply and everybody is excited about this market. You are really going to have to look company by company. The stocks that had the big moves up are largely trading on the “greater fool” theory of people really wanting these companies to work on a matter of principle. It remains to be seen what the regulatory environment is going to be and what are some of the big pharmaceutical players going to do.

Has a Short position on this. Put it on in April at around $3.40, and covered part of it below $2. If this stock showed any signs of life, he would add to his Short positions. They came up with their 1^st crop which was a disappointment to investors. Bear in mind that marijuana is an agricultural stock, so you are always going to have the growing risks associated with agriculture. There are all the costs of managing and heating a greenhouse for 8 months of the year, plus cooling costs. As the US South opens up, they are going to be in direct competition, and there is no way Canadians can compete with them in price.

Everyone got excited about marijuana stocks last spring and then the frenzy died down. They are licensed and are producing. Their sales were only $188,000 last quarter. They will grow and have big plans. But it is too early for the entire sector right now.

This is pretty early for the sector. One of his observations is that it is less profitable than people think. It is really an agricultural stock with all the risks that are associated with it. Also, there is a lot of hype behind it. He has been Short this one since April. Feels it is overvalued and overhyped. There is going to be more competition for them.

The industry looks quite interesting. We don’t get too many opportunities in public markets to invest in an emerging sector like this. You have to be aware that there could be some government challenges along the way. This one seems to be the leader, which is why he chose it. Growth rates look good and he doesn’t think the demand picture is going to be a problem. Thinks that we could see earnings in 2015 that would justify the current valuation.

Medical marijuana. Trades in a fairly volatile fashion. The difficulty he has is that there is huge uncertainty about what will happen to the market, regulations and the court case that happened in BC. There is some possibility that with a change in government, there could be problems. It does look like it has some investor affection. This is “gold rush” time and in a gold rush most people don’t find any gold.