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Our Barron's Rebuttal Re: Cannabis - zpo

By now you likely have read or saw the headline for the Barron’s article titled U.S. Marijuana Stocks: You’ve Got to Be High to Buy Them.  We are asking, what was Barron’s intention in publishing this article?  

This is an article that could have appeared in the NY Post, and not a financial magazine like Barron’s.  The author offered zero financial reasons to buy or sell U.S. MSO’s.  

Below are our thoughts:

  • The article starts off with a horror story from the early days of legalization in 2012, setting the tone for an overly negative, backwards looking article.
  • The article centers on (among other things) the risk associated with insider ownership and liquidation, which is a known topic of discussion among institutional investors seriously looking at the space. If you sold SBUX when the lockup expired you would have missed a 10 bagger.  This is where picking the right team comes into play!
  • “These potential problems don’t seem to be reflected in U.S. cannabis stock prices, which carry a hefty collective market valuation of US$14 billion, despite modest revenues and the ferocious cash-burn rates at loss-making start-ups.” Collective market-cap of $14B pales in comparison to the pre-determined illicit cannabis market of ~$50B, and doesn’t even contemplate the wellness element this industry has, which will push sales in the U.S. well in excess of $100B.
  • Furthermore, the article utilizes backward looking valuation methods, instead of looking at future potential, considering the rate of unit openings, his method was flawed.
  • The writer of this article further shows his novice level of understanding for this industry by missing key MSO’s in the article.
  • His point about quality of management, points out two companies and tries to paint that negativity across the industry. There are definitely bad actors in this space, but there are also great ones, that’s why we are being selective in our choices!
  • Using the term “pot dealers” shows just how ill-informed the writer is about the industry.
  • “But if you’re thinking of experimenting with U.S. pot stocks, it’s better to wait for some of the smoke to clear.” – says someone that can’t actually make a call on who the best management team and strategy is!
  • The article also fails to deliver the message around the growing political momentum for legalization at the state level, many politicians have changed their opinion on cannabis over the last year.

Overall the article is full of holes, misguided statements and broad brush strokes painted across the entire industry due to a few bad actors. There is no doubt this industry has risks. But as we look out at the potential market opportunity and the current companies getting into the space, there are winners that are doing it right.

You just have to do the work to pick the right horses!