As we near the end (hopefully) of the financial statement wasteland that COVID has created, I thought we might look back to a couple of Dive Bar equities we haven’t been paying attention to. No, you haven’t missed much (they remain out in the alley drinking from a paper bag).
What has been happening is illustrative to how companies re-jig and tweak their pitch to prospective investors if something isn’t working out (just like folks who put themselves onto singles websites). Does that new pitch change everything about their earnings prospects or capital structure? Perhaps an acquisition or ‘re-branding’ presents a new or revised value proposition?
Let’s take a look at 2 companies who’ve been in the trenches of cannabis pitch deck building for years, with nothing much accomplished since. We’ll also take a look at a new pitch deck of a US-based-Canadian-listed cannabis company that Bruce Linton ended up at after
he was thrown from the window of the Vireo office tower parting ways with Vireo in June of this year.
You might have noticed that StillCanna’s ($STIL) symbol is gone – it’s been replaced by ‘Sativa Wellness Group’ ($SWEL). And not replaced exactly, $STIL’s listing on the CSE was changed, and an existing listing on the Aquis Stock Exchange (AQIS) continues.
This happened by $STIL doing a share-for-share takeover of ‘$SWEL’, a (leading!) CBD product maker in the UK. The combined entity had revenues of $215k CAD over the past 9 months. Queue new pitch decks and roadshow. Nothing new to see here except for another can kicking. For a company that spent so aggressively on stock promotion yet couldn’t build a business…. I expect more of the same from the new company.
We’ve covered Liberty Leaf ($LIB) previously in our Dive Bar Pub Crawls, but it was delisted by the elves last year. In true Dive Bar form, this company has lived down to expectations. What we said about them in 2018?
“This feels like a squatter-aspiring-to-be-taken-out…..(it) has shifted to……business-accelerator-ATM-for-mgmt……If there’s a business in here outside of a cashlessly fuelled pitch deck (written on lots of paper), I can’t see it. Perhaps something will happen someday. Nothing has in the last 365 of them. Excepting SBC of course. It’s been busy there.”
Sure enough, this squatter of a listing found a bedmate – and not only renamed itself – but now offers an amazing once-in-a -lifetime opportunity to gain high returns in……..<drum roll>………psilocybin.
$LIB’s burned through successive raises and pitch decks……and wasn’t able (or chose not) to do jack. If that isn’t enough to give an investor pause – this time around CEO William Rascan (same guy as the last guy) promises this time it’ll be different. Good thing public information is available and cheap. Let’s look at the listing’s history over the past 10 years:
Yep. Now, they have an unfinished/unlicensed indoor facility, and can also sport the phrase ‘clinical trials’ and ‘depression’ whenever the occasion merits. For good measure…they drop the nuclear health and wellness treatment anchor: ‘treatment for obesity’. Big guns there.
I got a ton of feedback from our Xmas Dive Bar Pub Crawls, much of it negative. Our first one was published in December 2017. StillCanna and Liberty Leaf fit well in that grouping – and continue to. The new(!) pitch decks make the promise of international sales or <shudder> psilocybin as the way forward – the same way that they promised their cannabis business would be printing bazillions in returns by now.
I mention these two outfits – because when an investor starts walking down midways – the rides and games of chance change over time – but the folks working them don’t. These people will forever pop up in different industries and companies…always with new pitch decks and new promises. Please understand: the folks who do this do it for a living. And they’re typically very good salespeople who seek willing ears. Which, brings us to……..
Bruce Linton is a BIG name in Canadian legal cannabis. While his tenure at Vireo lasted less than a year, he wasn’t in the unemployment line for long. Enter GAGE Cannabis – a new retail chain in build focusing initially on Michigan. You can find out everything about them in their 126 page offering circular, which can be found on their website, right beside a button that will let one invest on the spot. One can also speak with a representative if you like, or call the 1-800 number at the top of the page, natch.
Gage has 4 cultivation sites in the state, and in April/August of 2019, cut a deal with ‘Cookies’ – a dispensary created by rapper ‘Berner’ and cultivator ‘Jigga’ – the coolness of which must’ve caught Bruce’s eye. Cookies opened another store in Detroit…..‘giving residents a taste of the new-new’ (not my words, honest) to good reviews. The brand is an interesting intersection of weed/music/lifestyle that cross-promotes and cross-pollinates well on the face of it. Very offside if positioning in Canada, but this seems to land well in some US markets (Florida, California, and pockets of Colorado).
From a high level, Linton’s career trajectory in legal cannabis has gone from ‘blockbuster dealmaker’ to ‘ex-pharma-health-wellness guy’ to ‘mammoth blue block parties…..the Cookies Bus is rolling!‘ with each and every new store opening. While it’s definitely all-business-all cannabis, there’s a different set of ‘gages’ on this business dashboard than the ones he was looking at as CEO of $WEED. Meh, maybe not. Bruce’s ‘success’ in the cannabis sector seems to stop at the moment when asked when he’s going to stop losing other people’s money.
Gage? They’ve got numbers in their circular, but it’s largely just the husk of the listing they’re buying. There might be more, I didn’t go deep. They claim to have a 210 person headcount as of the date of the circular.
All of it looks pretty ‘typical’ of MSO formation in an SSO package. Find a brand that resonates (Cookies), partner with it, deploy storefronts and branding relevant to the region/city, and repeat until rich. In trying to differentiate, the circular gives a nod to super-voting shares (Gage says it has investor’s backs here, implying its’ unlike other MSO’s). Gage bought a grow op (Spartan), and began test cultivation in August 2019 (when Bruce joined). They went live in September 2019, having a licensing deal with Cookies through yet another subsidiary (Mayde). From there, the story gets a little less tactile.
I’d spend more time, but one needs cloth to make a suit. Without actual financials, anything I write would be raw asset valuation and thus somewhat subjective. The shell (Wolverine) had some ties into options on Michigan licences, and these and subsequent deals are opaque – I can’t see royalty schema nor licensing provisions nor purchase/sale/trigger options.
From a business perspective, Gage is an outfit latching onto an existing brand (that’ll chew up margin), and presumeably will build out their own. They’re looking for a total raise of $50MM at a notional $1.75/share. I can see about ~=$22MM in 5 year optionality already baked in via options. The folks putting this together are like every other one in the sector, with founders looking for quick leveraged payouts in exchange for their effort and risk undertaken.
For Bruce, another day, another company. This one appears to be in considerably better (operating) position than his last 2 outfits, and I’m reminded of a common trope in corporate finance: past performance is the best indicator of future performance. Many in the financial sector will argue (often effectively) against this phrase being a catch-all, and I agree.
But I can’t fault the reader if they get an urge to short sell seeing Linton’s name involved with this, ‘Cookies’ or not. He hasn’t proven a thing in sector except for an ability to lose money. Yet Bruce probably just wants to be known for more than getting run-off by Constellation. Whether he can see profitability through in a relatively small-single-state-vertical-retail-chain……remains to be seen. In cannabis, he hasn’t proven anything other than being an unprofitable dealmaker so far.
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 any of the companies mentioned in this article.