Going to pot - Somewhat OT

Most of the investments discussed on this board are in the SaaS arena. The remainder are pretty much all tech related.

The “old” business of providing a product, like a pair of sneakers (e.g., Skechers) which is sold one at a time to customers has fallen out of favor. There was a repeat business component, but it was not assured as the customer could easily abandon one company in favor of another. While a company can, and sometimes does swap out one software component for another, if the software has a large segment of embedded users, it’s far more difficult; and there’s a considerable cost involved with respect to training, lost productivity while users climb the learning curve of a new product, internal support, etc.

With these companies we find ourselves not only investing in high growth companies, but we are investing in what for all intents and purposes are new businesses that didn’t exist before.

There’s another “new” business before us. It follows the old model of providing a product that must be sold repeatedly in order for the company to survive, but the product is already known to be in high demand (it has long supported a vibrant black market), but with legalization in Canada and several US states, the marijuana business holds a great deal of promise. But, picking winners at this stage seems like an impossible task. There are already dozens, maybe hundreds of stock positions one could take and precious little performance history for any of them. In the US, in that the federal prohibition still stands, usually lending activity is greatly curtailed for almost every aspect of the business. In Canada, the picture is different.

So far, I’ve held two tiny, speculative positions in marijuana related companies. Innovative Industrial Properties (IIPR) is a REIT. They provide grow infrastructure for medical marijuana growers in the US. No matter which growers succeed, which get bought out and which fail, the specialized facilities required to grow the plants will be needed. Those that specialize in medical marijuana are seen to be less risky than those that grow recreational product. Financing is still a problem, but via equity and other non-bank sources of capital, IIPR is able to meet their capital requirements - so far.

I first purchased IIPR in January of 2017. The stock is up 123% since that initial purchase. They have beat earning estimates in all but one of the last four quarters. They have a yield of a little over 2% (I don’t know if this is good or bad for a REIT as I don’t follow the industry). It comprises about 1% of my total investments. Despite its performance, I have not purchase any additional shares.

Vitality Biopharma (VBIO) is a company that specializes in producing prodrugs from marijuana. They have a process which I do not understand that somehow mitigates against the psychotropic qualities of THC (the primary active ingredient in marijuana), yet delivers the potential medical benefits. They are developing medication for PTSD, Crohn’s disease (and other intestinal disorders), and possible other indications. They do not have any drugs on the market at this time, as such, they have no earnings derived from business operations. I first bought VBIO also in January of 2017. It is off 25% since that purchase. VBIO comprises less than 0.5% of my portfolio.

Today, I made yet a third tiny investment in a Canadian marijuana company. Canopy Growth Company (CGC). After I just got done saying the shakeout in the growers is coming and it’s impossible to know who the winners are, why would I buy into CGC? Simple, Constellation Brands (Corona, Pacifico, Modelo, Robert Mondavi, Clos du Bois, Black Box, etc.) just invested $4B in CGC. In the nascent marijuana business, $4B is an enormous amount of capital. I trust (possibly unfounded) that Constellation performed due diligence and has a high degree of confidence in CGC management’s ability to productively allocate this principal sum. Again, my position is tiny, about 0.66% of my total holdings. But enough in order for me to continue to pay attention.

I am not recommending any of these companies as “investments.” Clearly, these are speculative positions (that’s why I have kept my positions tiny and why I labeled this post as “Somewhat OT”). I hope Saul will cut me some slack for posting here. But it can not be denied that the marijuana business in the US and Canada (and I’m sure elsewhere to soon follow) will be a huge business. There are some ground floor companies that I feel are worth taking a small stake in just to keep a finger on the pulse as this fledgeling industries expands.

Future growth like a weed is probably an appropriate analogy.


I feel like, due to US federal law/policies and the uncertainty and lack of banking support that results, investors in the US have difficulty easily finding investments or being able to project growth. Imagine if hyper-converged solutions were illegal on the federal level…ha…how do you feel about your Nutanix investment then? :slight_smile:

My thoughts, which I have expressed on NPI and elsewhere, include:

  1. I think “brand” wins at the end of the day. Similar to cigarette brands or liquor/beer brands.
  2. Growth of legal pot = marketshare potentially lost by legacy liquor/tobacco companies.
  3. My crystal ball says we see a lot more like Constellation Brands (Corona parent company) buying sizable stakes in pot companies like Canopy.
  4. I think Beer/liquor companies will go on a buying frenzy, eventually, as their investors will wonder why they aren’t diversifying their revenue streams like their competition. In that scenario, all existing pot companies are acquisition targets.
  5. Tobacco companies, see #4.
  6. Big Pharma, see #4.
  7. Wild card could be the Nabisco/Hersheys of the world creating pot-infused snacks and chocolates, so, again, see #4.

Ever have a grandma or mom that made “beer bread”? Think this through with pot as a legal drug for consumption via smoking, liquids, balms, edibles, etc…

I wasn’t a huge pothead in college, but experimented like many. Haven’t been a user for a couple decades. But a funny thing happened to my metabolism and taste for alcohol in the past 5 years: I get dehydrated more easily and have trouble sleeping, and while the thought of craft beers sounds great to me, I am more often disappointed by the taste. So take all the above and below with a grain of salt as my personal bias definitely has me rooting for legalized marijuana on a federal level.

So who do I like?

Picks and Shovels
SMG - Scott’s Miracle Gro seemed to have a legit picks and shovels angle, but go google some comments from their CEO on progress on the pot side…brutal. Pass.

Growers / Commodities
Canopy Growth
tons of wannabes and likely future big producers still forming.
Problem here is I don’t see the profit in who actually grows the pot…I always come back to branding/retail in the cigarette/liquor analogies.
*But! If you are great at brands, like Constellation/Corona, then buying the supply and selling it under your existing brands makes a ton of sense from an M&A perspective.

Medmen actually has a partnership with Cronos for Canada locations. Medmen may or may not be a long-term winner, but they are what I envision the long-term winner will look like: slick advertising, great brands, great retail locations. They want to be the Apple Store of weed. Tons of news articles about them, but here is one from TMF showing an impressive stat on their revenue per sq foot of retail space: https://www.fool.com/investing/2018/08/26/this-marijuana-ret…

"One of the most important metrics used in evaluating the success of retailers is revenue per square foot. Apple (NASDAQ:AAPL) reigned as the top retailer in the world last year with $5,546 in revenue per square foot, according to market research company eMarketer. Jewelry store chain Tiffany & Co. was also high on the list with sales of $2,951 per square foot.

But there’s now a surprising new winner in this key sales metric. Marijuana retailer MedMen Enterprises (NASDAQOTH:MMNFF) recently reported revenue per square foot of $6,541 at its seven cannabis stores operating in California. And MedMen is just getting started."

But if you look hard enough, you can find opposing views, even from TMF:

I have decided to do nothing regarding investing in this space, and will instead enjoy the journey as a consumer.





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As usual, I mostly agree with you. So why have I taken these positions? Well, first off, let me reiterate, I don’t consider them bonafide investments, they are speculative. But here’s the riff.

IIPR represents picks & shovels so far as I’m concerned. They don’t grow, process or sell pot. But they provide the basic infrastructure to make those activities possible. The management is well experienced in the REIT industry, they are not a bunch of no-nothing newbies trying to jump on a bandwagon before it leaves the station. In other words they are well respected and connected. So far, they’ve been able to raise adequate capital to support measured growth. Long term winner? Maybe, maybe not. But even if not, I venture they’ll be a buyout target.

VBIO represents a shot in the dark at medicinal pot that would be prescribed by a doctor (hence, a hefty price tag). I just sit back and pretty much ignore my tiny position. If they fold, I’ve not lost much.

CGC, as you noted, not the first to get a cash infusion from the alcohol business. Molson/Coors has already pumped tens of millions into some pot venture. I think others have as well. But $4B dwarfs everything else I’ve read about. That’s just an enormous pile of cash for this industry. As for branding? Who knows?

My maternal grandfather was an addicted gambler. Maybe I inherited a tiny bit of that.


I started buying Canopy late last year. It was trading OTC as TWMJF, but has since been listed on the NYSE. It’s a Canada based company in the business of growing and selling medical marijuana, both at physical locations and online (to registered patients). It’s one of the biggest (maybe THE biggest) players in the business, although not profitable yet.

My original position is a 3 bagger in about 9 months, and I’m a believer in the potential of the pot industry. I also own some Aurora.

The Dog