I’m guessing Julian Fantino’s ‘Come to Jesus’ moment came during conversion therapy – where ex-“Law and Order’ types are immersed in reality, and shown the light. Where these simple souls can be helped to picture a world in which one can peacefully live alongside others who make low-harm choices about their lifestyles and enjoy freedom – and choose not be be an intolerant dick about it.

For Julio, It took getting punted from Federal cabinet while suffering from an oversized yet un-earned ego to get to that moment. Apparently now, he sees the light better than almost anyone.

Given the pithy, self-absorbed, low-thinking hubris this clown puts out – it takes a real stretch to believe it. And I don’t believe a word of it. 

In my opinion, he’s a duplicitous and hypocritical ghoul of a man. One whose moral compass is as close as the nearest bank machine – and whose searing desire for cash apparently jettisons his belief system for more lucre than what his government-cheques-for-life aren’t providing for. 

Ok. Enough of that. There’s people who have invested in and work at $ALEF that likely don’t care that one of their founders is a slug – and they don’t have to. I do, but it’s not germane to financial statement analysis.

Their last capital raise was ridiculously expensive and we accurately predicted the Emblem deal wouldn’t last long . This kerfuffle will end quietly, with both parties walking away after some polite mediation and several negotiations I’m sure.

With all those Aleafia bucks from that raise now out in the world, and a medical market that was designed to stay medical, $ALEF is also branching out into education , and completed one of the first several outdoor grows planted last season. For the interested, I’ve spoken with many <ahem> unregulated growers over the years, and $ALEF’s 1,000kg/acre metric isn’t bad for a coming out number.

My understanding is that a good outdoor grow can bring in anywhere from 2,500-4,000kg’s per acre. That’s also done with proven cultivars, great conditions, and experienced growers. For a first crack, it could’ve been worse. I’ve seen a few articles about it, and while 48North came in lower than estimated, so did $ALEF. Still, low (low) cost product that passes QA/QC is something that’ll be a potential market catalyst. It’s unclear where the outdoor harvest will end up at this point, but cheap molecules are still cheap molecules.

Let’s have a go over the latest statements, and see how this outfit looks.

To the financials!

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• 52% margin is good. 
• Cash position is alright. Another $25MM in pre-paids on Port Perry, which is their flagship. Can’t come online soon enough, nor can more retail outlets.
• While profitability is claimed, GoB up wrote earnings by $10.3MM ($7MM of that from outdoor). It leaves them netting ~=$1/g – and if they get that, it’ll stay intact.
• $270MM of Goodwill and Intangibles – out of $450MM in assets – is…..not so good. Hello Emblem.
• SBC in the quarter of $400k. They’ve already sucked $12.5MM out of the shop this year before share prices shit the bed. They couldn’t climb over the vesting periods fast enough. Mercifully, they not only milked the cow hard, they shot it dead and ate it too. More below.
• G&A and ‘Wages and Benefits’ come to $5MM this quarter, $21MM so far this year. Ramping has been expensive, as the ‘Wages’ breakout has been negligible until last 2 sets of fins.
• Like a couple others in the space, look to the clinics and medical stuff to be tertiary to mission. These guys pretending to be medical is nothing more than a data mining operation, and a hangover from early attempts at differentiation. Sub 20% margins with attendant G&A just don’t cut it.
• Look to their deal with Serruya and ‘Flying High Brands’ if you doubt that. $12MM for that was only $2MM more than Wiz Khalifa cost. Doing a google search on it – looks like they’ll get the same returns as if they’d paid for Wiz. Or maybe Gene.
• Lots of inventory (at $5MM). Sales of $4MM from the cannabis sales in the quarter.
• The Emblem buy made them a player. Its’ pickup (at a cost of some $300MM) also brought only $77MM of tangible assets – the rest are in brands and licenses. Not atypical. 
• Some legal wrangling left over from the Emblem buy. Not material, but when one sees a reference to a ‘quantum of damages’ when describing it – one can be confident that the lawyers have it now.
• Crazy that June debenture raise mentioned above is so far out of the money. $ALEF stock is half the price of the warrant strike now. Feature of the sector.

That dustup with Aphria and Emblem is addressed in the MD&A, with what was expected (at least by me) all along: *“There are currently several unresolved disputes between the parties relating to the termination. Emblem will be referring the matter to arbitration pursuant to the requirements of the supply agreement. “* Dreams of ‘damages’ and ‘losses’ will likely remain simply that: dreams. Despite the heat and smoke of the breakdown, there was little chance that $ALEF could (or would) pay for so much supply. Probably a calculated contractual exit that both parties are okay with(ish) – and a deal that neither of them really need at this point. Another reference to it flatly states it was cancelled: “due to Aphria’s consistent failure to meet supply obligations.” Whatever. 

Whoever the genius was who bought Emblem and didn’t think to plan for their contracts screams ‘moron’ to myself. Perhaps the cancellation was the plan, and $APHA helped it along. Either or.

Optionality *was* an issue before their share price tanked. Now, not so much. As we’ve seen with $FIRE, more free money printed on the back of shareholders is only a re-price away. Seeing how companies react (Hello $CANN!) when daddy’s little honeypot is taken away is a great tell into the mind of management. I’m curious to see if they do anything. I’m expecting several to C-Suites to get greedy, I don’t know these guys though, and have no instinct around them.

$ALEF is moving product, and their distribution is good. Definitely top-heavy in intangibles, and the last raise did nothing good for the capital structure. They were probably one of the last ones ‘under the wire’ as it were, and I suspect half of Ottawa is invested in some which way in them.

The big questions are around Port Perry (if on budget, and ultimately, if its’ a capable facility), cash burn, and short-term cashflow. On paper, it doesn’t look undifferentiated from many LP’s in the space. Indeed, in some ways – it looks much better.

Shareholder’s Equity looks like a crime scene, but the rest of the statements are pretty orderly, and have a good level of disclosure around them. 

I’ll capstone this by saying the next 2-3 financials will be the litmus – my belief is that they have to find points of product differentiation, and lever their ‘Symbl’ brand like no tomorrow. 

I’ve never tried their gear – and never will. I don’t believe in supporting a scumbag opportunist like Fantino in any which way shape or form. A man that compares cannabis to murder so shamelessly – then flips the switch when there’s a shiny quarter lying on the ground – is a man that should be held up to public ridicule. That guy is greed and ego defined to me. Yeah, not my most professional moment. I will remain unapologetic.

That said (and beaten to death) – $ALEF is looking better than several peers, provided Port Perry delivers on its’ promise. If it dumps, or takes more than several quarters to dial in, that’s the potential achilles. The education angle is about reputation and marketing and immaterial. Sort of like their medical ‘side’. The outdoor run this year wasn’t a bad run for a test pilot, and distribution appears to be a bench strength. 

I am curious to see how this one tracks.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $ALEF. And never will.