Cannabis Capital Letter

December 2018 Letter to Investors

   

Durango Colorado. This is our third edition of The Cannabis Capitalist a monthly newsletter from an Investment Manager's perspective. I'll share insights from our Cannabis Capital Growth Portfolio a diversified approach to investing in the Cannabis Industry for retail investors.


Acreage Holdings $160 Million dollar investment


Acreage Holdings recently made purchase of Form Factory to build a multi-state manufacturer and distributor of cannabis based edibles and beverages, the all-stock transaction is valued at US$160 million dollars. The transaction brings Form Factory’s expertise as a one-stop-shop for developing, manufacturing, and distributing cannabis products of any form factor to Acreage’s 19-state footprint of growing,  "Michigan has been a state we’ve been excited to get into for a long time," Acreage President George Allen said. "Michigan has been on the forefront of cannabis, and we're proud to be a part of the cannabis heritage that is growing."  For an undisclosed amount, the company, which is publicly traded in Canada, has also purchased Blue Tire's portfolio of real estate assets suited for building large-scale vertical operations across the state.


Altria First Mover into Cannabis for Big Tobacco Buying Cronos Group


It was more of a question of when not how big tobacco would make a move into cannabis.  Altria (the kinder name than Phillip Morris) is not splitting hairs on their interest in cannabis.  The cigarette maker made a $1.8 Billion dollar investment into well known NASDQ listed cannabis producer Cronos Group.  After a similar move for E-Cigarette Maker Juul; the big tobacco giant is pivoting away from combustion as a delivery for nicotine and have a solid cannabis partner.   “We believe cannabis is an excellent strategic fit for tobacco,” a Jefferies analyst Owen Bennett said in a research note earlier last week. It’s a logical fit, because “big tobacco knows how to cultivate crop, knows how to deal with regulators, they are at the forefront of vaporization technology, and they also arguably have less reputational risk than other fast-moving consumer goods,” he said. 


Farm Bill Update The End of Hemp Prohibition


After bouncing around in Capitol Hill committees, it looks very probable the new Farm Bill will have language that essentially removes Hemp from prohibition federally as long as level of THC is less than .3%.  Lawmakers are busy in the "lame duck" session to get the monumental farm bill signed into law. The Hemp Business Journal estimated that the CBD market will grow to a $2.1 billion market in consumer sales by 2020 with $450 million of those sales coming from hemp-based sources. That's a 700% increase from 2016. In 2015, the market for consumer sales of hemp-derived CBD products was $90 million, plus another $112 million in marijuana-derived CBD products which were sold through dispensaries – bringing a total CBD market to $202 million last year.


Not Leaving Las Vegas  


Sin City attracts over 42.9 million tourists a year from around the world and now the recreational marijuana state offers an alternative to the cocktail clubbing scene. Planet 13 dispensary was ringing the holiday register on my recent visit over Thanksgiving.  The company is listed OTC as ticker PLTH. "We opened Phase 1 of the 40,000 square foot Planet 13 Superstore on November 1st, and over the first ten days are already well on our way to meeting our expectations for run-rate daily traffic and average ticket on minimal marketing," said Larry Scheffler, CEO of Planet 13.  "In addition  Bob Groesbeck, Co-CEO of Planet 13 added, "In Q3, our Medizin dispensary posted another quarter of sequential revenue growth with a solid gain in average daily traffic."  Planet 13  as a retail dispensary could prelude the coming supersizing of cannabis retail as companies like Walmart eye the space.


Initial Public Offerings aren't available to investors unless you have access through a broker and are an "Accredited Investor". The Cannabis sector is generally oversubscribed by insiders. However, that shouldn't dissuade investors from looking at the company after it goes public. Many of our holdings listed on the Canadian Stock Exchange and we purchased them publicly before trading in the United States. So here are a few that look interesting I'm keeping a watchful eye on. 


The IPO market continues to be attractive to institutional investors as Dixie Elixer began trading and PharmaCielo are expected to trade soon.


Dixie Brands Begins Trading in Canada


Denver based Dixie Brands Dixie is one of the cannabis industry's most recognized consumer brands with a portfolio of over 100 products across more than 15 different product categories. Founded in 2009, the Company currently operates in four states (Colorado, California, Nevada, and Maryland) and has international distribution and manufacturing partners in Australia and Canada.    Also, the Company has developed and launched two additional businesses focused on the fast-growing market of Hemp derived CBD wellness products; Therabis a highly formulated portfolio of indication specific pet supplements, and Aceso Wellness a full portfolio of CBD based human dietary supplements. 


PharmaCielo Ltd Coming Public


PharmaCielo Ltd is a global company privately held and headquartered in Canada, with a focus on processing and supplying all natural, medicinal-grade cannabis oil extracts and related products to large channel distributors. PharmaCielo is located in Rionegro, Colombia. The company could see an expected medical patient count of over 5 Million. The company has raised over $60 million dollars in private placements. Although no announced date for going public yet we're watching this one closely. We may accumulate shares in the open market after the issues seasons.



Thank you, Jaime McMillan Portfolio Manager Cannabis Capital Growth

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