Editors’ Note: This is the transcript version of the podcast we published last Wednesday with Ted Waller. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy!
Rena Sherbill: Welcome again to the Cannabis Investing Podcast where we speak with C-level executives, scientists and law and sector experts to provide actionable investment insight and the context with which to understand the burgeoning cannabis industry. I’m your host, Rena Sherbill.
Hi again, everybody. Welcome back to the show. Great to have you listening, great to have you taking part and furthering your knowledge on the cannabis sector, and happy to be a part of it. I’ve heard from — we got a lot of feedback on the episode last week with Kim Rivers. A lot of people super bullish on the company, some people still can be talking about the company. I think one of the things that I’ve talked about wanting to give forth on this podcast and one of the messages we want to impart is A, a deeper understanding of the cannabis sector and also ways to make that cannabis sector work for you.
And studies show that most investors in the cannabis space are new investors. And I know a lot of new investors are listening to this podcast, along with a lot of established veteran, decades-long investors, as we’ll hear from our guest today, who’s a multi-decade investor in the stock market. But we want to help people make money in the stock market. So we try to cover a lot of stocks.
Trulieve (OTCQX:TCNNF) is at the top of that list for reasons I’ve mentioned and we’ll continue to mention. Ayr Strategies (OTCQX:AYRSF) is another stock that we talk about today. And we had their CEO on the show a couple months ago, Jon Sandelman, and we get into this talk today about the stock. I tweet about it. I talk about our hashtag model cannabis portfolio, the stocks that are in there, why — we also talk about a number of stocks on the show and tweet about them and try and cover a wide spread of cannabis stocks. Certainly, we’re not going to get to all of them but also like to highlight the good ones and remind people what a good investment in the space looks like. So they can use that as a springboard for their own investment and research and due diligence.
In that same vein, we are about Cannabis and Investing. So along with the investing part, we also want to further people’s knowledge about cannabis. It’s a wonder plant, a medicine, don’t you call it a drug. So to that end, I want to talk about just a few of the guests we have upcoming and then I’m going to get right to this week’s guest.
Upcoming guests we have, we have somebody talking from Rize ETFs Rahul Bhushan, who’s going to be giving us the 411 on thematic ETF investing. We have cannabis rockstar, Dr. Ethan Russo, who a lot of you know from his days at GW Pharma (NASDAQ:GWPH) and being a veteran trailblazer in the industry in terms of forwarding the science of the industry. We have him and Dale Hunt, who’s also a noted veteran of the industry. He’s done a lot of good. They’re talking about their new project, but also we get a lot into genetics, and what’s upcoming and the different cannabinoids we have to look forward to.
In that same vein, we have True Terpenes — the CEO of True Terpenes coming on and talking to us about Terpenes, what that means for cannabis consumers and what to look for as cannabis investors in the space. What terpenes have to do with products going forward and what kind of research is out there.
So exciting projects, exciting companies, exciting topics, trying to cover a lot of bases, still more to cover, love to hear feedback about the show, about what you are all wanting to listen and hear about and hear from, always trying to do better. Not everybody that I want to talk to talks to me. So within that we are trying to give you the best show that we can. And we are passionate about bringing you the best show that we can and furthering the cause of cannabis and furthering the cause of making people some money.
And speaking of money, which is something we love here at Seeking Alpha, we have Ted Waller, who is an esteemed longtime Seeking Alpha contributor. He wrote a lot about the D&I sector and in the past year or so has written about the cannabis sector in a very erudite, knowledgeable way. And I think you would agree when you hear from him today. Really excited that he agreed to come on the show.
We have a great talk about investing in the space, what to look for. We really get into the nuts and bolts of investing in the cannabis space. We talk about Ted’s favorite picks, I’m not going to go through that now. But I bet you can guess one of the stocks that’s in that. We talk about when to pull the trigger on a stock, some stocks that he’s looking at that he’s not yet ready to pull the trigger, we actually share one in common. I don’t know if Ted has pulled the trigger yet but I have not and I am waiting for the moment that feels right. And we talk about favoring, how Ted favors the extraction model over flower going forward. We talk about MJ and the ETFs in this space and how he has decided to comprise his cannabis portfolio and how it differs from his regular portfolio which is not cannabis focused.
Great time to be in the cannabis stocks. Ted says that, I say that. We say it all the time on the show. You know, not a fan of hyperbole, but if hyperbole is warranted, then it’s just a true statement. So look into the space, keep looking into it.
Let’s keep talking about what our picks are. I love to see the Twitter threads that are coming. I love to see the comments. I love to see your Apple reviews because that keeps pushing this podcast forward. And all the love that you can give keeps pushing us forward. So let’s keep having on great guests, let’s keep diversifying and producing deeper discussions which leads to deeper analysis, which leads to deeper profits and really excited to have Ted on the show. Hope you guys enjoy this one.
And before we begin a brief disclaimer, nothing on this podcast should be taken as investment advice of any sort. And in my model cannabis portfolio, I am long Trulieve, Khiron, GrowGeneration, Curaleaf, Vireo Health and Isracann BioSciences. You can subscribe to us on Libsyn, Apple Podcasts, Spotify, Google Play and Stitcher.
Ted, welcome to the Cannabis Investing podcast, really happy to have you on the show. Thank you very much for joining us.
Ted Waller: Thank you Rena.
RS: So I know you Ted from your writings on Seeking Alpha. You’re a great surveyor and analyzer about the cannabis investing space. I’m curious how you got to — I’ve noticed like on your Seeking Alpha profile, it’s kind of a journey from like the D&I, retirement world to the cannabis world. Do you want to talk to us a little bit about your investment journey or even your journey to the investment world and then how it progressed?
TW: Sure, sure. As my profile indicates, one of the things I have to offer to investors in general is that I have over 50 years of investing experience. I started investing when I was a teenager. The first stock I owned was GTE back in the 1960s. It was at the time, was the second largest phone company in America and it had a lot of products, Sylvania, light bulbs and so forth. And I had some money from my newspaper route, and I wanted to invest it.
So I had my father asked some of his friends for what they recommended that I buy. And the all three of the ones that he asked, said GTE. So there you go, I put my money and I think it was something like 12 shares or something like that. And I did end up losing money on it.
So right from the beginning I started learning my lessons, I learned first of all that recommendations don’t count for much. And secondly, I learned how easy it is to lose money, which made me extra cautious about that in the future. So in those 50 years since, and I’m investing pretty much that entire time, I feel like I’ve seen it all, I’ve seen a lot of it more than once. When I write — I began writing for Seeking Alpha to research questions that were of personal interest to me, and that’s what I still do today.
I’m not — I don’t have an agenda, I have no bias, I’m not ready to please anyone. I don’t need the money, not that there’s a lot of it, from Seeking Alpha but I’m writing because I find and question interest and possible usefulness to me as an investor, I research it. Put that on paper. That’s where I’m coming from. Now at this stage of life, I’m retired. Most of my money is in relatively conservative income generating equities or bonds, and I am a DGI investor, dividend growth investor as you suggested, but looking back over 50 years, I believe cannabis offers a once in a generation opportunity and I’m not going to pass that up, I’m not going to pass that up. So I started researching it, I started writing on it. And here I am.
RS: You know, it’s funny, I always want to like caution people or listeners when I say it’s like a once in a lifetime opportunity that it’s not hyperbole. It really — it really does feel that way. I’m interested though, when you say that you’ve been investing for the past 50 years is that were you doing that like professionally or were you just doing that always on your own?
TW: No, I was doing it on my own. I have had two careers. I was first a psychologist and then became a librarian. And in libraries, the work consisted every day, searching for, evaluating, organizing and presenting information. It bodes quite well into the kind of writing I do for Seeking Alpha. So I’m an individual investor here and simple.
RS: I love to hear that. I haven’t heard that career combination, yeah, that’s really interesting. Tell me as your background, what do you think of just before we get into the kind of meat and potatoes of the stocks in the cannabis sector, but what do you think like broadly coming from a psychology background about the state of the sector and its kind of trajectory thus far?
TW: Well, I think it follows a pattern, a psychological pattern, psychological pattern for individuals and people as a group that we see over and over again in the investing world. And maybe that more of that later as we talk about the state of the industry, but you have — it is all psychologically driven. You have this initial period of ecstatic enthusiasm for something people are drawn into it, often by greed, both on the investing side and the people who are looking for money. Then you follow that with a period of severe disappointment and retrenchment.
People leave the business on both sides and you have a period of consolidation or adjustment followed by a period of more growth and then that’s because the investment community is made up of people that, that pattern is repeated numerous times. And that’s what you have to be willing to accept in this industry, particularly.
RS: Yeah, you’re right about that. And I try to speak about that on the podcast as well about the necessity to be in the cannabis space for the long term. Trading, it’s almost impossible. I mean, it is impossible to predict what one stock is going to do from one day to the next. I mean, you can base it off certain announcements and earnings, but in general, it’s really the long term game. So let’s get into that a little bit. In terms of the long term game like what kind of stocks are you looking at and why are you looking at those stocks?
TW: All right. Yeah, long term, definitely. I said before that, ideally, I would put together a cannabis portfolio and put it away and not look at it for at least five years. It could avoid a lot of angst, a lot of anxiety that way, and I honestly think it’s going to be that long before people have a good chance of being solidly in the green over the long run.
Before talking about individual companies, I think it’s worth spending a few minutes on what this industry is exactly, the opportunity it presents in general, because a company operates in the context of its environment.
You said we hesitate about calling something a once in a lifetime opportunity. Yeah, I would too, when I look back. But it’s certainly I think a once in a generation opportunity. I think it’s hard to see something that has offered this much opportunity in the past, and very rarely, I think, probably maybe e-commerce is the thing that comes closest.
You’re taking something a new industry from scratch, starting from a base of zero. And at that point, there’s this cache of myth and infinite possibilities that are there. That’s what attracts people, that in cannabis case, so little is known from a scientific study of cannabis. It’s been so difficult in the past that every possibility still on the table. Any propose therapeutic and social benefit is still on the table. Nothing has been disproven.
So this encourages popular enthusiasm and support. This is part of the industry, it’s part of why people are attracted to it. I’ve always liked the phrase, anything is possible. And that sums up the cannabis sector pretty well right now in a very positive sense. So also another thing that makes us unique is the demand for the product is 100% proven by the millions of people who have consumed it, at least the THC version of it for a long, long time.
You might know that marijuana has been used for probably thousands of years and in that entire period, there’s only been 60 or so years that I’m aware of it’s been illegal. So illegality is aberration. It’s not the normal. So as we turn back to what’s more normal, I think that’s another powerful force that’s going to continue to expand. There are other forces as well. I put cannabis in the same category as things like alcohol or tobacco or even gambling, things that are kind of habit forming, the THC side, things that are habit forming, things that seem to satisfy basic psychological needs in people, and if you look at those three industries there, they’ve been right at the top in terms of total return for a long, long time.
The number one stock in total return for most of the 20th Century was Philip Morris (NYSE:PM). That it was number one. So they’re very powerful forces driving this forward. And that’s just a few of them.
RS: So let me ask you, when did you actually start investing in the cannabis space?
TW: Well, that’s a good thing you asked that because I started looking at it in 2013. And…
RS: That’s way at the beginning.
TW: Yeah, yeah. I recognized this opportunity really early. I was very excited early, but I didn’t make my first investment until 2019. Yeah, I look back to 2013, it was truly the Wild West. Seemingly anyone could start a company and put a ‘can’ and name somewhere and attract billions of dollars. On the other hand, it attracted a lot of very shady operators too, CEOs with histories of serially losing money one place after another, getting in trouble with regulators, getting in trouble as a course. I said thanks, but no thanks. I don’t want that. If I’m going to put my money in someone’s hands I want them to be as completely trustworthy as possible.
Now in recent years, in several years in Northern California, the industry has attracted a much higher quality people. And it’s now it’s more subject to the rigors of financial standards and professional analysis and so forth. So which gives me a lot more confident. That’s not to say that there aren’t people with shady characters or inadequate skills doing the job that are out there. But there are people I feel very confident putting my money with.
RS: Well, it’s interesting. I mean, even since you started investing in 2019, we can see like a change in the industry from maybe not the most responsible stewards of growth, if I may borrow from the headline I posted today, companies like MedMen (OTCQB:MMNFF), speaking in California, who are many, there’s many examples who kind of misused and overextended themselves, misused their capital.
And now we’re seeing like — this whole year has seen such a widespread change of management, frequently on the financial side of things to kind of like, make things more serious, make things more responsible, not as many bad actors in the space but not even bad actors, but people that were growing very small companies, may be looking for a quick buck, or certainly in the kind way of putting it, looking to extend themselves very quickly to now where I think people are really pulling in the reins and being more responsible and bringing people on to do that. Would you agree with that sentiment?
TW: Absolutely. And some of them are really being forced to as — and there are certainly leaders who are maybe despised or take shortcuts. There are other leaders, and I think there are more of these that are well intentioned, but don’t have what it takes to build a successful company. That’s an extremely difficult thing to do. And the skills that you need to get the company started that is the ability to present a really good case and raise a lot of money, and have all the skills you need to run a successful company operationally.
So I think there, that’s a more common situation than the people who are shady in some way or people are misdirected. Like in the case, I think of MedMen, where they’re just not very good stewards of the money that they’ve been given.
RS: Right, right. And tell me how you’re — like when you decided to invest in 2019, how did you finally decided to pull the trigger?
TW: Well, I saw the excitement over legalization in Canada where the stock prices of every company were driven way up. And I knew that was unsustainable. But at the same time I looked at the landscape and I saw that the projections for the growth of the industry were just huge. I mean, you’re talking about in a few years doubling or tripling. And I said, Okay, well, a lot of people can make a lot of money here. And I wanted to participate in that in some way. And I saw the prices coming down, down, down. And like many people I was too early getting in when I started and like virtually everyone who’s invested in the space now, I am in the red. I can’t imagine anybody who’s not.
But go ahead. So I was early getting in, but I wanted to get in, but I wanted to be as careful as possible. I didn’t want to be drawn into the hype. Fortunately, I feel like I did succumb to it occasionally. But I thought it was time. And so, generally my investing process involves starting a position in a company at a price I find reasonable, understanding that it’s not going to be the lowest price it gets to, but continuing to increase the size of the investment, as the price goes down and as long as the investment thesis is still valid. So on that basis, I felt like I could get started in 2019.
RS: So when you say that you keep adding as the price goes down, is there a certain number or percentage that it goes down that you wait for? Or how do you base that?
TW: Oh, well, I wish had a cut and dried answer to that but I don’t. I think, predicting price in this sector is pretty much of a fool’s errand. I take the price and I’ve had people, comments on my article say, thank you for not giving a price target for stock X, because I think people are naturally attracted to the numbers when they see the number. That’s a nice concrete thing. It gives people a lot of comfort to see a number. But a lot of times the validity behind a number, if you look at it deeply is not very good. So it’s — I don’t have any rules for that.
RS: Hey, I love an honest answer. You know, I think that’s what people always appreciate honesty, especially when talking about investing. There’s so much smoke being blown in from so many different directions. So it’s kind…
TW: Oh, yeah.
RS: So it’s kind of like a feeling based on where you think it’s going to go and how much it drops and what you think is going on in general? Is that pretty accurate?
TW: Oh, yeah. I look at what the company projects in terms of sales and so forth. And I see, does that still seem valid? That’s a really good sign for me is, if a company meets its projections, that’s important. That gives me an idea they have a good idea, they have a good handle on what’s exactly is going on. But so as long as the investment thesis still seems valid, as long as there are major changes, and I can be confident in my original thesis, I’ll continue to put money in.
I have like overall limits on how much I want to put in to a particular stock or I mean to stocks in general, where or how much I want to start with, how much I want to finish with, I want to make it an amount that’s significant enough that it will make a difference to me if the stock does what I want it to. I’m not playing around. I still think it’s important to have, for my decisions to have an impact on my finances. So even though I don’t have any price targets when I’m buying, I feel like overall, like no more allocation to any one company that I feel I want to do.
RS: And how many companies are you invested in and does it — aside from your kind of income investments that you mentioned at the start? Is it mostly the cannabis space that you’re invested in, in terms of individual stocks or are there other industries?
TW: No, I have a wide variety of the sectors that I’m interested. Cannabis for me is kind of all by itself a little bit because it’s out of what I would normally characterize in my comfort zone in terms of the company size and so forth. As I said, I’m working as a retired person. I’m mostly in — I’m more into companies that are going to give me a total return, especially big component of that being dividends and stability. So, very large companies, excellence and so forth. But cannabis like I said, is a kind of a separate category, since I think that because the potential growth is so huge, my objective in here is indeed capital gains, and to be successful, not of course, to generate some kind of regular income, obviously, that’s not where cannabis is right now.
So I am in — right now in my cannabis portfolio which I started in about a year ago, I think there are eight or nine stocks probably. And there’s a couple more that I’m looking at.
RS: Has your investing thesis for the cannabis section of your portfolio, has that evolved at all in this past year?
TW: It has to a certain degree. I always like having money available for another opportunity, because opportunities always present themselves. I started out and I think my first cannabis related Seeking Alpha article was about Cannabis ETFs. I started out there, I thought that was a really good way to put my toe in the water a little bit and a lot of people don’t really follow the Cannabis ETFs very much because naturally, I think a lot of people are attracted by the tremendous possibility of a buying a cannabis company that will turn into the next Amazon or something.
But my last way to start was, I saw that huge growth in the industry potential which is undiminished by the way in spite of the trouble that many if not most companies are having, making a profit and making sales, the growth estimates for the industry have not budged a bit. And so I figured the ETFs, as an ETF, almost by definition, they represented the sector or most of the sector as a whole. So it was kind of a guaranteed way of participating in the upside of the sector without the variability of individual company performance.
And so, I still think that’s a good thing. As a matter of fact, MJ, the largest Cannabis ETF is my largest cannabis holding. Now it’s down like everything else is down. But I think ETFs do have a place in many, in the cannabis investment portfolio for the reasons that I’ve outlined, is kind of a guaranteed participation in the future of the industry. So I did that and I started that way. I also own two other ETFs that are somewhat different than MJ. And, but I did, I have tried individual companies, some was more successful than others. I think, Trulieve was my first individual company purchase and I’m looking forward, I think I’ve seen that you’re going to have Kim Rivers on sometime in the future. I’m looking forward to that.
RS: Yeah, me too.
TW: And I did fall victim to the hydra MSOs and what they’re saying — how Harvest (OTCQX:HRVSF) for example, said that our goal is to be the biggest cannabis company in America. That’s quite a statement. And so I did, I put a little money into that not a lot, I didn’t think it was worth committing too much to. So, right now it offers a mixture of the individual companies and the ETFs.
RS: It’s interesting what you say about the ETFs, I think you’re right in that, people are reluctant to get into them because they want those super returns from an individual stock. But I do think another reason is that people want to make a play on the U.S. space, the U.S. MSO in particular space, which the ETFs don’t afford because of the Federal illegality. Would you — but you think because it’s kind of like a conservative and broad play on the sector, you think it’s a worthy holding?
TW: I do and as I recall, there is ETFs that started in Toronto that advertises itself as a U.S. centric ETF. I can’t remember the name. [HMUS is the US MSO ETF Ted mentions. Trades exclusively on NEO and dedicates 3% to AYRSF (h/t Payton Thomas).] But that’s a very good point you raised because the U.S. market is the largest market by far. I mean, it dwarfs everything else. If you look at the data on what various markets around the world can be like the U.S. as I said dwarfs everything else, the number two market however is Canada. And Canada is way bigger than any other country. After that, you have Germany but Germany’s also slightly a little blip on the bar chart compared to Canada and the U.S.
So Canada market is interesting and it’s the projections there for overall the size of the market are still as high as they were. We all are aware of the trouble that the regulatory environment has caused. It slowed people down. And it’s hard, it’s almost tragic, how it’s done that. I think such assistance not too long ago that said, when you look at the population in Canada and the number of dispensaries that are open, there’s one dispensary for every 50,000 Canadians. That’s a really, that’s just terrible. And it should be, a 10th of that. So…
RS: Yeah, whereas like in California, there’s 50 dispensaries for one person.
TW: Right. Exactly. And so I guess, in Canada, the potential is there and it’s slow. It’s been much slower than people anticipated a lot of trial companies gotten into trouble because they planned for a certain market that hasn’t appeared yet or is apparently very slowly. So they’ve committed a lot of capital to grow in capacity and so forth. That’s just not there. But it’s going to be a big market. It’s already a big market. The growth in the Canadian sales over the past year, has been something like 250%, which is something people don’t, maybe people might not realize, consider all the bad press.
So I guess what I’m trying to say is that I think there are Canadian companies that will survive. They may — part of the reason those that have big trouble is because so much was committed to Canada in anticipation of legalization. And then a lot of money went in there, way — too much money went in there, and they’re paying the price. But overall, in the long term, I think the Canadian market is going to be very healthy. So I’m not afraid being there.
RS: Yeah, I think you’re right. I think that’s Canada has definitely suffered from a lot of bad press. And I think a lot of it also has pushed them to improve maybe in some areas, because I think they do need improving. I mean, I think they get the bad press for a reason. But at the same time, as you said, like the psychology of the markets there’s a path and I think right now, there’s a lot of bullishness after a lot of bearishness in the Canadian markets and I think for the reasons you mentioned. So what is in terms of the cannabis names that you have in your portfolio? What is it? How does it break down between Canadian and U.S.? And do you have ancillary players in there?
TW: Ancillary players, I do not — unless you want to call Philip Morris an ancillary player. I guess he could, I guess they would count for that. Well, let’s start with the company since we’re talking about it kind of coming from where we’re just, what we’re just talking about one of the country companies that I think maybe my next investment is a company called Ayr Technologies. And I know that you interviewed the CEO of OTCQX:AYRSF a while back.
RS: Yeah. John Sandelman, yeah.
TW: Yeah. And the reason I like them is because they’re a purely — they’re mergers and acquisitions company. The guys who started it were bankers and financiers in New York. The headquarter is in New York City. So they did not start out as farmers like the family of Trulieve did or marketers. They’re in banking and finance. Their goal is to raise money, find good companies in the space to acquire and go from there. And definitely much defines my approach to Cannabis Investing. I want to find good companies, companies that have good cash flow, increasing sales and actually make a profit and those are the ones I want to invest in. And that’s exactly what Ayr Strategies is doing.
They have the advantage of having a lot of experience and expertise in this kind of activity. So I’m happy to turn over some of the responsibility for finding the best companies in those ways to them. Let them do it. And right now, this is the perfect time for Ayr Strategies because the capitalization of cannabis companies is completely in the dump, companies sell for pennies a share. So what’s better for acquisitions oriented company then, or there’d be a fire sale going on in their sector, right.
So, Ayr is very new. I think it was only in last May of last year that they made their first acquisitions and their sales have been pretty consistent. I think they’re kind of an annual run rate of about 100 million. The profits are all up and down. But I think this typical kind of business they’re starting, but I really like it and they really seem to be very disciplined about letting go of investor money. They’re very careful of only looking at companies that are likely to give them good return. So I like to Ayr a lot, probably my next purchase. The other companies that I like personally of course, Trulieve I’ve already mentioned, everybody is seeing right now the big success in the industry.
They were first mover in Florida. Their owners are native of Florida, which was kind of the way the Florida regulations were designed. You had to be a Florida native. You had to be — have a long successful history of in agriculture, of all things. So they kind of structured it, so the local experts could get it on, growing and doing business in Florida were the ones that would cut the initial licenses. But the big thing about Trulieve in my mind is that well, technically they’re MSO, a multi-state operator.
Really, their home state is their focus. They have small presences in a couple of other states of Massachusetts and should be the California Nevada is the other one and they’re only growing those very cautiously very deliberately. They’re a company that doesn’t plan for a market until they’re pretty sure it’s going to exist. They didn’t stay in business all those years in Florida by getting overextended. They’re very careful, just like the Ayr people in a different way. So they did not over reach. The thing that got so many other companies in trouble, they stayed close to home. They concentrated on the business they knew. And they may turn into a big MSO. I think they’re trying it out. And if it’s successful, then they will continue to expand it because they lived their lives in a different business.
So also, by law they’re one of the best environments states for cannabis in the country. So there’s always that but so the other — couple of other companies that I like. There’s Valens (OTCQX:VLNCF), it’s another Canadian company. I have a soft spot for middle of the process companies and less to industries, midstream oil and gas or other B2B companies. Valens is like that, they don’t grow, they don’t sell, they work in the middle of the value chain. They started out as so many companies did wanted to be a grower and a seller but very quickly turned from that to be to concentrate in a couple of ways once on the processing and also focus on CBD, the oils.
So they’re processor of raw cannabis they add value by manipulating the complex chemistry of the cannabinoids. There are over 100 chemicals in cannabis, CHC and CBD being the most common, but there are many others and there’s potential for value in a lot of these other systems, and uses being investigated. So they do that. They create white label products, which are products that they produce, but are branded and marketed by another company.
And they are also profitable. So I like Valens, I like MediPharm (OTCQX:MEDIF), another small company, very similar to Valens but on a somewhat smaller scale. They’re also working in the same middle part of that chain. And they were also profitable for a number of quarters in a row. But the last quarter they had caught the downdraft of the slow 2.0 rollout in Canada. They got caught a lot of inventory in an oversupplied market and they had to mark it — mark that down and took a big loss. So that’s one of the perils of having a small company. One event can change your fortunes drastically. So those are the countries — companies that I find most attractive.
RS: It’s interesting. I have like a comment on almost each one, Trulieve, everybody that has listened to this podcast knows how bullish I am on Trulieve. It’s my biggest holding in the cannabis portfolio that I talk about a lot. Ayr Strategies, it’s really funny that you mentioned them or interesting that you mentioned them because I also agree with everything that you say about them and they are also on my watch list. They’re like number one on my watch list.
And what you said earlier about kind of using your gut to know when to buy into a company, you were talking about reinvesting but in general, like they’ve been at the top of my watch list for a while. And I kind of asked that question with that company in mind because everyday debate, is today the day, is today the day, is today the day and I haven’t pulled the trigger yet and I’m not entirely sure what I’m looking for. Because I know that everybody says if you like a stock you should just get in and not worry about if you saw it $2 down a month ago.
So talk to me about what you feel like will push you to pull the trigger there or if you have any advice for people like me who are suffering through the pangs of when to know to buy?
TW: Here well it’s something that all of us behold. That’s a — I haven’t invested here either. It’s, Trulieve is also one of my top holdings in terms of the dollar value, but I guess that’s largely because the other holdings have gone down so far, one time they’re — there’s the equal to the set of my other holdings when everything else has dropped so far, Trulieve is the biggest. I think you’re right if you think a company is a good buy, generally I say, okay, I’ll go in and I’ll make the buy it. Ayr, I like to also have a high level of confidence and I guess with Ayr Strategies, one thing that holds me back is that there’s so new, it’s been barely a year old in terms of revenue.
I’ve been looking at them for probably six months. But they’re so new and I just wanted to give it a little more time to see if their promise holds up. And it has, like I said, there are profits, now profits are all over the place from being negative to a positive one portion or another, but the sales have been pretty consistent. Now it’s because they bought the established business — businesses. So that’s good. And I think that’s the only thing that’s been holding me back. I’m very concerned, I want to be sure as possible that I’m understanding as the company correctly. And it just needed a little more time in that case.
RS: That’s a good point to make. And I think anytime fellow investors share kind of the struggles in the challenging part of it. I think it’s everybody wins. Because I think everybody goes through that if they’re investing.
RS: Yeah. Another thing that I found interesting, and you wrote about this in your article, and you talked about it just now with Valens favoring the extraction model going forward, how that’s going to be a bigger seller than the flower moving forward. What are your thoughts about that in general with the sector?
TW: In general with the extraction?
TW: Well, they seem very confident in a couple of things and they present a very good case. They see oil as being as dominating in the market in the futures as opposed to flower based products. And there’s a lots of reasons for that. One being that smoking marijuana, it’s a pretty noxious experience, right. I mean, it’s a — it’s not a pleasant sensory experience, right. So people are going to gravitate towards things that are much more palatable, gummies or edibles or soft drinks and so forth. But so that’s one thing they’re concentrating on oil. So they’re going to go where the market is going to be.
The other thing is that, a lot of people can grow marijuana or cannabis. A lot of people can sell it. There’s not a lot of — not much of a moat around those things, as I say. But in the middle of the chain, it’s very interesting. It’s a really complex process. There are many steps to it, variations to it and results from it. This is where really important value-added questions are going to resolve like, how to make an experience when an onset and offset period, psychoactive period or therapeutic, appears closer to maybe two hours like alcohol, something people are familiar with instead of like eight hours.
What are the best techniques for adding an oil-based compound like CBD to a water based medium like soft drinks or beer for products where shelf life is an issue. I’ve observed that the potency of Cannabis can really degrade quickly, just not — just a couple months, maybe sometimes. I don’t have a lot of experience with that. But that’s an observation.
For something where shelf life is an issue, that would be a big question to solve, to address. How to vary the sensory experiences with all the terpenes? The volatile compounds that give it its particular taste or smell so forth, how to vary the sensory experiences to satisfy various personal preferences or make it more palatable to a wider variety of people. It’s things like this where if you find the answers, there’s a lot of value to be added there. You can differentiate yourself and your customers who use these products can differentiate themselves. So that’s — I find that really exciting aspect to this and similar companies.
RS: Interesting. Yeah, I think that, that all sounds like in terms of where the sector is going to be on the right track. Just to follow up quickly on you mentioned MediPharm. Do you think that they can come back from this blip?
TW: I think they can. It, like I said, it was kind of a one time the one-off event, and they’re not going to get caught up with inventory like that again. And I think as 2.0 progresses, the business will come back. And I haven’t looked recently at their financial/capital position. An issue is, do they have enough money to continue to operate and follow a quarter where have a big loss in terms of accounting anyway, that’s the key, and it deserves a little because I own shares and I want to see. But they were consistently good performers before the last quarter. I think that speaks well to their ability. And so I’m guessing that they’re going to be okay.
RS: And I’m interested, I mean, especially because you also are coming from the dividend and income world. I’m curious what your thoughts are on IIPR in particular and kind of REITs getting into this space in general?
TW: Sure, well, as we talked about earlier, there’s so many companies in this space. You can’t be an expert on all of them. I know what IIPR is and I certainly in the rest of my portfolio have a number of REITs in other areas. But I haven’t looked at it that closely. There’s so many companies to look at. When I look at one, I try to really do a deep dive into it. And so, I just — I don’t — I can’t really have much of an opinion on IIPR because I just haven’t looked at it. It’s not something I’ve addressed.
RS: Fair enough. I always appreciate an honest answer.
TW: But you know, in terms of dividends, I mentioned that the MJ ETF pays a good dividend, and so I just reinvest my shares, automatic reinvestment and there is one of the others I can’t remember whether it’s YOLO or TOKE, I just refer to them by their symbols and so remember then their names, has also paid a dividend.
RS: Well, I think you’ve given investors a lot of like really great information in terms of how to assess the cannabis companies within kind of where we are within the trajectory of the entire ecosystem. I think it’s interesting to kind of put it all in context and perspective. Is there anything else that you feel? Well, let me ask you, do you feel like as an investor given the fact that cannabis was deemed essential, do you think that that has done kind of like push the industry way further than you might have expected at the beginning of the year even?
TW: Well, it was certainly a nice surprise when they were deemed essential when you think about it, the fact that in a lot of states it’s medical cannabis and so while that may have made it a little harder, in general, a little bit harder, not much for people to get access to it, they have to get a prescription. I mean, think about it. No state is going to have a special tax on a medical product, right? Medical products are essential. So the cannabis stores are as essential pharmacies. It turned to be a nice plus for them that they were considered essential and all it really makes sense. You know, alcohol stores were also considered essential.
I know in most, many if not most places. So even on the recreational side, that was good. I don’t know, I don’t know that if it truly advanced the industry, I think, in general, the effects of both the virus and the recent social unrest have had a slowing down effect, because the progression of legalization in states was going forward at a really rapid rate. And it was just picking up speed seemingly by the month and when the virus hit and now also the BLM protests and so forth, it completely stopped the legislative legalization process dead in its tracks.
The legislatures had no time to spend on anything like that. So you have places like Kentucky and Alabama, Alabama of all places. And Kentucky, the home state of Mitch McConnell, they had passed cannabis bills in the lower houses, in their legislature by wide margins they were sailing through, then a virus hit, the bills are gone. They’re going to have to start the process from the beginning whenever the legislature finds time, so it really had kind of overall a negative effect in that regard.
But when they have time, when the legislatures would find time, they’ll be especially likely to find time because there are big reductions in tax revenue that occurred everywhere. And obviously cannabis is a big source of revenue for the states. They’re going to want that tax revenue even more than ever. So…
RS: Yeah. Let me ask you, are there any — I’m just interested and curious, are there any stocks that get talked about that, that you hear a lot of people being bullish on where your like that thesis is wrong?
TW: Well, again, I try to identify and focus on the companies that I feel are the best and have the best prospects. So if I see a company that…
RS: Or maybe the flipside, do you hear people very bearish on a stock that you’re bullish on?
TW: Well, other than the socks I’ve mentioned, I don’t think so. There are companies that seem to be in trouble but it looks like they’re troubling me, I just put them aside and move on to something else.
I think — well, there’s one, one that — some people seem to be bullish on is Liberty Health Sciences (OTCQX:LHSIF). It’s in Florida, and it’s kind of a strange corporate history. But right now it’s a very small company. So it was only in Florida. I think maybe the second biggest in terms of sale in Florida. And so for that reason, people kind of identify, maybe it was Trulieve’s success, was selling for I think $0.37 a share right now. So a lot of — I hear some positive talk about that, but I would be real cautious about that. There’s a real — there’s a reason why stocks sell for $0.38 a share and it’s not a good one.
RS: Yeah. Well, anything else you want to leave our listeners with before we go?
TW: Just to reiterate one more time that the companies are in trouble. A lot of them are going to disappear one way or another, but the potential for cannabis is as strong as ever. The projections haven’t budged from these tremendous growth levels, and I think — so I think my — what I’d like to leave you with is hang in there, the good times are coming. Prices, stock prices are great. You want to buy something at a good price or good deal and this is the time. So I would say hang in there. Don’t be afraid to put more money in.
RS: Would you have imagined 50 years ago when you first started investing in GTE, that 50 years later you’d be investing in cannabis stocks?
RS: Absolutely not. Now it was part — I was part of the baby boom generation and I am part of that generation. We are also the first generation to kind of bring cannabis into the mainstream of our consciousness. It wasn’t illegal, but we were way more okay with it than previous generations. And I think that’s kind of carried on to today. A lot of the people from my generation are behind this movement all the way. Yeah. I’m proud to be part of it.
RS: Yeah. Thank you, brother. Thanks for getting that started.
TW: Yeah, you’re welcome.
RS: Yeah, that’s great. Ted, I really appreciate you coming on the show. This has been a really fascinating and interesting conversation. Thank you so much for taking the time and we’ll be looking for your articles on Seeking Alpha as well.
TW: Well, thank you Rena. It’s been a real pleasure.