Midas Letter

420Investor and New Cannabis Ventures Founder Alan Brochstein discusses recent trends in the cannabis space. He notes that there has been an increase in shelf registrations, most recently by Charlotte’s Web Holdings Inc (CNSX:CWEB) (OTCMKTS:CWBHF). Brochstein is critical of CannTrust Holdings Inc’s (TSE:TRST) (NYSE:CTST) (FRA:C9S) recent public offering. He suggests that by offering shares below market price, the company mishandled its financing. He addresses the importance of tracking revenue, but stresses it is not the only valuable metric when evaluating cannabis companies. Brochstein cautions investors to be mindful of large discrepancies between a company’s revenue and valuation. He notes that Cronos Group Inc’s (TSE:CRON) (NASDAQ:CRON) (FRA:7CI) revenue is far below its valuation and merits additional scrutiny. On the flip side, he observes that TILT Holdings Inc (CNSX:TILT) (OTCMKTS:SVVTF) (FRA:0T01) has impressive revenue numbers but complicated narratives continue to bog down the company’s valuation. He believes that retailers are currently undervalued, and highlights Alcanna Inc’s (TSE:CLIQ) (OTCMKTS:LQSIF)Nova Cannabis-branded store, which opened in Toronto in April.

Fraser Thoms:  Joining us now is Alan Brochstein of New Cannabis Ventures. Alan, how is it going?

Alan Brochstein:    It’s going great, good to be here.

Fraser Thoms:  Well, great. Thanks for coming on. I just want to kick things off by maybe talking about trends that happen within the investing space. So, we’ve, at first it was funded capacity, and now there’s a bunch of talk about MSOs, multi-state operators, and extraction is becoming much more of a focal point right now. In your view, how much does that drive actual investing?

Alan Brochstein:    Well, I think these things are important to watch. There’s another trend right now that’s front of mind for me, and that’s all these shelf registrations that are open. We saw  Charlotte’s Web hit the market this week, CannTrust I guess late last month, so there are a lot of these, and I think it pays for investors to pay attention to who has the shelves, because these companies are able to raise capital quickly. And over the last several years, there’s been a little mini-cycle in terms of capital raising, and what happens is, prices go up, a couple companies start to sell some s tock, and eventually more and more pile on, and then the market gets saturated.

And the last time we saw that was when a lot of the MSOs went public in the fourth quarter, but we’re seeing it a little bit  again. I t’s not so bad yet, but clearly, you know, you look at the action in Charlotte’s Web yesterday and CannTrust in late April, and you get the sense that there’s some short-term downside to stocks when they come to market

Pelangio Exploration Inc (CVE:PX) (OTCMKTS:PGXPF) (FRA:67P1) is a junior gold exploration company with properties in Canada and Ghana. CEO Ingrid Hibbard shares details of her history in the space and of the company’s current projects. Pelangio has two land packages in the Timmins, Ontario area: Dome West and Dalton. Pelangio purchased the previously unexplored Dome West land package in January and has begun orientation drilling. Hibbard expects results from this initial hole in a month’s time. The company will use these results, in addition to surface exploration, to plan a complete drill program. Pelangio also recently acquired the Dalton Property, located 1.5 kilometers from the Hollinger site, and will be drilling several holes at that property in the summer. In Ghana, Pelangio acquired a virtually unexplored 284 square kilometre land package near the historic Obuasi Gold Mine. Hibbard also discusses the company’s other project site in Ghana, which has 300,000 ounces in the indicated category with an additional 200,000 ounces in the inferred category. The interview concludes with a discussion of partnership possibilities to move from the exploration to active mining phase.

Ed Milewski:   Joining me now we have Ingrid Hibbard, who’s the CEO of Pelangio Exploration.

Ingrid Hubbard:     Exactly.

James E Wagner Cultivation Corp (CVE:JWCA) (OTCMKTS:JWCAF) President and CEO Nathan Woodworth explains the company’s innovative GrowthSTORM system. Woodworth stresses that the company’s high density, low-cost GrowthSTORM system provides the best way to control the whole plant growth cycle. GrowthSTORM is a multi-part system that uses aeroponics and hydroponic techniques and advances to achieve “the most optimized outcome possible.” When the plants are fully rooted, they are moved to special GrowthSTORM baskets, which are specifically engineered for cannabis growing. The baskets are used for the whole life cycle of the plant and allow it to form complex root systems. Once the plants have reached full production size, they are moved to a low density array until the flowering cycle is complete. JWC’s latest innovation is the Dual Droplet System, an adaptation that distributes a large complex nutrient solution droplet and a small narrow band nutrient solution droplet. In combination, the droplets create an averaging effect which optimizes delivery and uptake of nutrients. Finally, the plants become flat trained, ensuring standardization of yield per square foot and optimizing the quality of the final product. The highly automated system is run through the GrowthSTORM management software. Using the GrowthSTORM system, the facility’s eight grow rooms are each capable of producing 30 to 50 kilograms per cycle, with less than one percent crop loss. The company is currently growing 29 strains with four unique phenotypes, which will only be grown using GrowthSTORM equipment. Woodworth explains that the resulting product has standardized yields, quality, and medicinal content, which can only be achieve with the complete control of the plant growth cycle that GrowthSTORM provides.

Nathan Woodworth, President and CEO:  We learned very early on that efficiency is not always about speed. Sometimes the best way to win a race is slow and steady.

We want to produce all buds that look the same, smell the same, feel the same, and have the same amount of active components to a very narrow degree.

Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH) Skin Unit Director Elsa Navarro shares details of the company’s recent distribution deal with Fedco, one of Colombia’s most established beauty retailers. Navarro notes the agreement is significant because it provides Khiron with the opportunity to introduce consumers to its CBD products at Fedco’s 22 locations in the country. She also discusses the importance of securing an agreement with Linio for online distribution of Kuida-branded products in Colombia. Navarro explains how Khiron’s proprietary CBDERM technology delivers fast absorption rates with a higher percentage of antioxidants, a key ingredient in anti-aging formulas, than traditional cosmetic products. Navara underscores the importance of Khiron’s participation at the world’s largest beauty event, Cosmoprof Worldwide, in Bologna, Italy. Navarro is pleased with Khiron’s recently announced partnership to conduct clinical skin care trials with distinguished Colombian hospital Centro Dermatológico Federico Lleras Acosta (CDFLLA). The deal is the first of its kind for Latin America and puts Khiron in a leadership position in the cannabis dermacosmetics space.

James West:   Elsa Navarro joins me now. She’s the Skin Unit Director of Khiron Life Sciences, trading on the TSX Venture under the symbol KHRN. Elsa, welcome.

Elsa Navarro: Hi, James. So nice to say hi from Bogota.

AAA Medic Montreal Inc CEO Scott Jardin provides an introduction to the extraction focused cannabis company. Jardin explains the company is preparing for “Cannabis 2.0,” when extracted products are legalized in Canada this fall. AAA Medic’s core competency is consumer packaged goods and will leverage its Montreal location for an advantage in the Quebec space. Jardin explains that the company will also cultivate and it just received its industrial outdoor grow license for a 57-hectare site located in the St. Lawrence Valley. AAA Medic is currently undertaking a capital raise to complete the buildout of its extraction facilities, which Jardin believes will be ready by the end of 2019. AAA Medic’s focus on butane (hydrocarbon) extraction sets the company apart from many in the industry who focus on CO2 extraction. He highlights the fuller, more complex taste profile of butane extraction, while noting the process is still regulatory compliant. Jardin discusses the company’s infused beverage offerings and reveals that AAA Medic uses terpenes as a natural flavor element. Jardin explains that the company’s non-infused offerings work well in both the lucrative carbonated water market and as brand awareness for when AAA Medic enters the cannabev space.

Narrator:     AAA Medic Montreal Inc is a Montreal-based, privately held, medical and recreational cultivation, and processing cannabis company. It also manufactures oil and provides cannabis testing and development services.

AAA Medic has a 10,000 square foot facility located in Laval, Quebec and intends to build a second facility in the second half of 2019.

James West:   I’m joined now by Scott Jardin. He is the CEO of AAA Medic, Montreal Inc. Scott, welcome.

Scott Jardin: Thank you very much for having me.

James West:   Scott, let’s start with the overview: what does AAA Medic do?

Scott Jardin: Really, we are a Montreal-based cannabis company focused on the extraction and processing markets. So it’s looking towards Cannabis 2.0, if you will, October 2019, when legalization comes into effect across Canada with respect to edibles, beverages, higher concentrations of concentrates and vapes. Really looking to go after that market, and so we’ve gathered a core competency of both strategic partners and staff, brought them on board with respect to our team, and that’s really where our core competency focuses on consumer packaged goods, but infused with cannabis. And we’re going to target that, play on the Quebec aspect, of course, and being a Montrealer from Quebec, Quebec favours domestic production, and it’s no different, I would imagine, with the SQDC.

James West:   Sure.

Scott Jardin: And looking to build that bottle, start in Quebec, and really be a good Canadian company as well, and branch out from there.

James West:   Okay, so you’re formulating consumer packaged goods for the retail market?

Scott Jardin: Yes, sir.

James West:   Are you growing your own cann

Dixie Brands Inc (CNSX:DIXI.U) (OTCMKTS:DXBRF) (FRA:0QV) CEO Chuck Smith is thrilled with the company’s fiscal 2018 report. Dixie increased revenue 73 percent YOY and more than doubled its revenue QOQ. Smith highlights that Dixie’s margins also went up, a sign the company is becoming more efficient. While Dixie’s net loss was over $21 million, Smith emphasizes that most of that amount was non-cash losses attributed to both the acquisition cost of Dixie’s RTO and of converting debt. Smith believes the company’s recent JV with Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH) provides Dixie with a first mover advantage in Latin America and a competitive advantage in Europe. In addition, it gives Dixie the opportunity to bring a growing cosmetics brand, Kuida, to the American market. Smith notes that the Khiron partnership augments Dixie’s already extensive line of products and suggests that Dixie’s low-dose formulation expertise positions the company favourably as the popularity of CBD products increases.

Narrator: Dixie Brands, Inc. designs, manufactures and distributes cannabis infused products. It makes hemp oil-derived human and animal dietary supplements for use in relaxation, pain relief, immunity development and wellness, under the Aceso and Therabis wellness names in the United States, Canada, Mexico, Australia, and New Zealand.

The company also owns the intellectual property, product branding, formulations, proprietary ingredients and preparation methods related to a variety of cannabis-infused products, and designs and distributes packaging, ingredients, and non-cannabis consumer goods.

Dixie Brands, Inc. was founded in 2010 and is headquartered in Denver, Colorado. Dixie Brands trades under DIXI.U on the CSE.

TILT Holdings Inc (CNSX:TILT) (OTCMKTS:SVVTF) (FRA:0T01) CEO Alex Coleman explains the company’s recent goodwill writedown and indicates it does not impact the enterprise’s value in the public markets. Coleman discusses the company’s strategy to put together assets in each of the 33 states in which the company is licensed to operate to secure its US footprint and to provide customers with products. Currently, most of TILT’s revenue comes from devices, software, and services because the company is established in primarily medical markets with more restrictive demand. TILT is forecasting that cannabis revenue will match device revenue in the near future, which excites Coleman as the company has an 85 to 90 percent gross margin on its cannabis products. Coleman provides his opinion on federal legalization and the problem of the illicit market in the United States. He suggests that consumers will naturally gravitate toward the legal market because that is where value-added products, such as vape pens, edibles, tinctures, and beverages, are and sees dried flower becoming less relevant.

Narrator: TILT Holdings, Inc. is a business-to-business cannabis company focused on the research, development, manufacture, distribution and sale of products and services. The company maintains two primary divisions: technology for software and services, and infrastructure for cannabis products and devices.

Revenue is generated from cannabis cultivation, the sale of flower, concentrates, oils, consumables and topicals, vaporizer and inhalation devices, delivery and inventory management services, and licensed software.

The company has operations in 40 US states, and Canada and Europe, and more than 1,000 dispensaries across the US, Canada, Puerto Rico and Jamaica.

TILT Holdings, Inc. trades on the CSE under the ticker symbol TILT.

Ignite Cannabis President Jim McCormick discusses the Ignite brand and Dan Bilzerian’s for the cannabis space. He explains that Ignite is more than a cannabis company, it’s a consumer products company selling cannabis, CBD,THC, vapes, and sees its brand as being able to be spread across multiple product lines. McCormick reveals Ignite is an asset-light company, while the company is not growing cannabis, its partnering with leading cultivators and white-label producers. Currently, the company’s revenue model includes online sales and dispensaries but is looking to close a national distribution model for its CBD products. McCormick talks about the brand’s leading product offerings, which include vapes and toothpicks. He explains that Bilzerian’s considerable social media following gives Ignite an advantage over other cannabis companies but emphasizes Ignite’s other branding elements, such as packaging, are also key to consumer loyalty. Ignite is a global opportunity and is looking to raise $100 million this year as it rolls out products in the US, Canada, and UK. McCormick hopes to have positive cash flow by 2020.

Jim McCormick: My name is Jim McCormick. I’m President of Ignite International.

James West:   Sure. Jim, when did Ignite start in the cannabis business?

Jim McCormick: Well, Ignite is the creation of Dan Bilzerian, he’s the founder of the company, and it actually appeared in his radar screen around 2016, the middle of 2016, when Dan saw the emerging cannabis space and realized that there was no leading brand. Dan had had the Ignite brand kind of sitting idle, and then in 2016 he saw the opportunity to use that brand in the cannabis space. So the company was essentially born then, but its product launch took place in October of 2018 – so a relatively new company to the consumer products world.

James West:   Okay, and what does Ignite actually do in the cannabis world?

Jim McCormick: Well, you know, it’s funny: even though the company Ignite started as a cannabis idea of Dan’s, we’ve seen in even the short time that I’ve been there, that the brand is much more than that. So we don’t actually consider ourselves a cannabis company; we consider ourselves a consumer products company. Cannabis is one arm of that, and THC products, but also CBD, which now in the US is completely legal and abroad as well, and a $22 billion segment this year. So we see CBD as one of the key components.

We also have a vaping line which also comprises of not just interchangeable THC and CBD pods, but also the ability to sell nicotine in the vaping form. So we’re much broader than a cannabis company, and we see the Ignite brand being ab le to be spread across multiple product lines.

James West:   Sure. Is Ignite a cultivator of cannabis?

Jim McCormick: No. Our model is actually an asset-light model, so whereas the typical MSO in the States or Canada has everything fr

Chemistree Technology Inc (CNSX:CHM) (OTCMKTS:CHMJF) (FRA:CM1) CCO Sheldon Aberman shares details of his extensive experience in the hydroponic and cannabis industries, which includes designing and building facilities, cultivating product, and providing consulting services. Aberman discusses the construction of Chemistree’s 128,000 square foot greenhouse complex and its 40,000 square foot manufacturing and distribution building, in Desert Hot Springs, California. Chemistree is already operating in Washington State, where the company cultivates its premium flower brand, Sugarleaf. Chemistree is expanding the Sugarleaf brand to include extracts, vape pens, and beverages in the Washington market and plans to bring the brand to California when its Desert Hot Springs facilities are operational. Aberman addresses industry concerns about oversupply in the California market and suggests the state actually has a shortage of premium dried flower brands like Sugarleaf. Chemistree is entering the New Jersey market after signing a deal with a vertically integrated cultivator, manufacturer, and retailer in the state and will continue to expand along the Eastern Seaboard.

Narrator:     Chemistree Technology Inc is an investment company dedicated to the US and international cannabis sector, providing turnkey solutions for the regulated cannabis industry.

The company is committed to acquiring and developing vertically integrated cannabis assets to own and operate licensed cultivation, processing, distribution, and retail facilities.

Chemistree currently owns assets in Washington State, prospective cannabis cultivation lands in California, a first investment in the Canadian cannabis sector through Pasha Brands, and they a robust pipeline of assets to grow with pace of business.

As of April 2019, the company’s management ownership sits at 35 percent. Chemistree Technology Inc is listed on the Canadian Stock Exchange under the symbol CHM.

Khiron Life Sciences Corp (CVE:KHRN) (OTCMKTS:KHRNF) (FRA:4KH) CEO Alvaro Torres is thrilled with the company’s Colombian distribution footprint. Torres sees Khiron’s recent letter of intent with Copservir Ltda, the largest pharmacy chain in the country, as key to ensuring the its products reach medical cannabis patients. He explains that many of Copservir’s 900 pharmacies in Colombia are already licensed to sell THC products. As a result, Khiron’s distribution reach allows it to mass market of medical cannabis in Colombia and the company is looking to replicate that plan in other jurisdictions. Torres discusses Khiron’s recent quarterly financial reporting and emphasizes the importance of showing investors that the company is building the right platforms as it moves towards profitability. While Khiron is aiming to hit its targets in 2020, Torres anticipates generating revenue in every country where Khiron operates in 2019. Torres explains why the recent JV with Dixie Brands Inc (CNSX:DIXI.U) (OTCMKTS:DXBRF) (FRA:0QV) is so critical for the company, as it allows Khiron to get a variety of branded products to market faster.

Narrator:     Khiron Life Sciences Corp is a Latin American-based pharmaceutical company that develops and commercializes medical cannabis products. Khiron has core operations in Colombia and is fully licensed in the country for the cultivation, production, domestic distribution, and international export of both THC and CBD medical cannabis.

In May 2018, Khiron listed on the TSX-Venture, becoming one of the first Colombian-based, medical cannabis companies to trade on any exchange globally.

Khiron Life Sciences Corp is listed on the TSX-Venture under the ticker symbol KHRN.