As we continue through the rocky month of September, most investors seem glued to a few key issues, such as:
- What will the Federal Reserve do? Once the Fed responds, what will that mean?
- What is really going on in China?
- Is Europe actually escaping years of sub-optimal economic growth?
We are keenly aware of all of these issues, but our pencil gets a lot sharper as we hyper-focus on the wonderful emerging market, cannabis.
We have fought our way through many challenges, distractions, fraudsters, inexperienced operators, etc. We have seen failures, turnarounds, successes, as the emerging cannabis market learns and grows. Much like a toddler, learning to walk and talk, we see cannabis as a very early stage marketplace with a very long time horizon of pain, growth, sorrow, and joy. This marketplace is one of the long term and we are willing to put the time and energy in that this cannabis fussy infant demands.
We would like to spend some time talking about the less-loved part of the cannabis industry, the public cannabis marketplace. This area has been nothing short of a disaster for the last several years. We could rant endlessly about the bad companies but, for the most part, it’s not worth the time to rehash the vast amounts of garbage that still plagues the space. Instead we want to address what we believe to be “green shoots” or “moments of attractivity.”
We define moments of attractivity as windows of time, where we see opportunity to strategically buy/increase investments in companies we believe to be creating real value.
Through time, we have developed our own proprietary way of looking for opportunities. This strategy adjusts and evolves through time, as we feel that flexibility and open mindedness are key. It is fair to say that 95% of the public companies are worth little to nothing. They are more of a distraction than a benefit. However, confusion in capital markets often leads to volatility and selling pressure. Cannabis stocks are not immune to human behavior. If anything, OTC stocks behave at a multiplied amplitude of market inefficiencies. And here, we come back to the “moments of attractivity.”
We have a very short list of companies we feel are deserving of our investors capital. Luckily, our time horizon is typically much longer than most. Our gut instincts are strong as we stay entrenched in the industry. Therefore, one investor’s poor emotional decisions are another’s opportunity.
Warren Buffet famously states that he only invests in what he understands. If you feel the desire to invest in cannabis stocks that trade via the OTC markets, this is a good wisdom to follow, so do your homework:
- Who is on the team? Do they have what it takes to pass the muster?
- Do you know if they are current in all reporting? Do you know if they are audited?
- Do you understand what the spread means? How volume impacts pricing?
- Do you know what it means to be adding liquidity?
- Do you know who the financiers are in these businesses? What prices are they paying? What structures? When?
- Do you know what prices translates to business values and not just price per share?
- Do you know their current financials? Do you know what multiples to consider?
- Do you know your risk tolerance? Time horizon?
If you can confidentially answer ALL of these questions and more - get your harpoons out and start hunting for your moments of attractivity, as they typically don’t last long in this hyper driven marketplace!
Lastly, attractivity is great for the entry but always keep in mind the other side of the coin-- when to take profits, sell out, and make a graceful exit.