Cannabis: Why It May End Up in Your Portfolio - YouTube

The cannabis world is lit up these days so we have to talk about it and the

big news these days has been all about Tilary. We're gonna get to that.

We have Kevin Curran with us right now Real Money reporter and AAP Research

Analyst Zev Fima. Zev we got to talk about Tilray first, the stock was up

20% right after Jim Jim Cramer interviewed him on his Mad Money show.

The next day the stock goes to 90.

Up 90 percent and then what?

I mean, I think that 90% move that you saw was a short squeeze right. A lot of people were

in there, they short the stock and then when the stock just keeps running and

running they decide they can't take the pain anymore so they go and they have to

buy it. They have to buy shares to close out their short and that in turn drives

that the the shares up higher and then you see what happens today. People

realize there's its high price book profits or they decide to initiate their

own short position.

But this is the problem Kevin with the whole thing right

now. It is so speculative and no one understands what to do. I know you just

had a big interview with the CEO of Canopy.

Yeah so Bruce Linton said exactly

the same thing. He was worried about how speculative the market is in terms of

being reminiscent of the dot com bubble. So he was saying to me that there's a lot

of companies out here, there's not enough businesses. People are betting on

companies that don't have any sales so we are gonna see a lot of companies

disintegrate before we find the real Google's in the in the haystack here.

I think a lot of it has to do with education and you guys know that all

morning I've been trying to educate myself. Thanks to you two I'm way better

if it's important that I'm educated about cannabis I am now. Let's talk first

about CBD versus THC. CBD is the part that gives you energy and makes you feel good.

Well yes I mean I think THC probably does some of that as well but

the real thing with CBD is it's not psychoactive right. So if you have

something that's 100% CBD. This is kind of the strain that really got the

attention in the medical world was was the CBD component of it. You can look up

Charlotte's Web which is this little girl in Charlotte who really benefited

greatly from a CBD heavy strain. Because it's helping up so epilepsy and

seizures and things like that right without the high. Without the head high.

So the thing to keep in mind is a lot of different companies want

they're going for different strategies. Coca Cola we saw they were interested

they want the CBD aspect of it.

They don't want to sell you coca-cola that

makes you high. They want to sell you coca-cola that just kind of gives you

relaxing. And I think this is the point that was missed dramatically like

everyone reads the headline right. Can cannabis and coke yeah so of a sudden

I'm gonna have a soda and I'm gonna get high and I'm not gonna be able work the

rest of the day. No well I think I think there's gonna be a disruptor in a couple

different markets. I think Coke for example, they bought Bodyarmor recently

I think that they could use this for something like a sports recovery drink even.

I know that Bruce Linton last night was talking to me a lot about how he

thinks that a lot of markets are worried about this and that includes sports

recovery, energy drinks and even pet markets so it could really go a number

of different ways. It's not gonna leave you on the couch all day.

Whereas THC will.. That's kind of what's gonna get you like buzz right. And the sports recovery

aspect, CBD is good for inflammation so after a workout you want to prevent some

inflammation, that's kind of where the CBD comes in. But yes the the THC is

what you know maybe the alcohol companies are interested in because

they're starting to see them in the markets where where marijuana becomes

legal there is an impact to beer sales. So THC would compete with that a little

because if you are going out you do want that buzz then THC is what you're going

for not CBD. Yeah and I think it was important to touch upon the strains as

well. Go, because I don't even know how to pronounce it. It's sativa versus indica.

Yeah, sativa and indica and as we were joking earlier sativa satellites

it's more of a head high. You can kind of have more of an upbeat attitude and

indicas more of a relaxation into couches people say. So it's a perfect

mnemonic to remember and I think the more people become educated on different

types of strains and effects that'll be..

But it's a strain from what?

It's a cannabis cannabis strain to be clear okay.

The other thing then we start to work a question is the delivery system of this.

Where are you getting it? Probably the biggest issue with marijuana the thing that I think

will hold doctors back from prescribing as medication is smoking is even if it's

marijuana tobacco it's still smoking like it's still not gonna be good for your lungs.

So that's where the delivery system comes in.

And they have, you you can get soft gel capsule. They have vaporizers which

still is probably not as ideal but the cloak that a healthy alternative to

smoking they have like tinctures or you can kind

just drop it under your tongue and then of course there's the edibles market.

Brownies, chocolate, gummy bears, things like that. And I think the delivery

system is incredibly important because that's what its gonna allow us to really

dose out amounts, tell someone how much they should take because what

we were talking about before is like my biggest issue with the Medical Marijuana

space is you shouldn't be told just have some marijuana

You're not told like take some vicodin, take some Oxycontin. They tell you

exactly how much. Well if I can build on that to is you're mentioning brand names

like Oxycontin. I think that that's a huge thing about getting these different

delivery methods as well. If you have raw cannabis you're not differentiating your

product at all. You have an agricultural good, a commodity. If you're making drinks

that are Coke branded or a Pepsi branded or all of these different things you can

differentiate your brand as the premier brand in the cannabis space and consumer

packaged goods. Because at least I trust Coke is what you're saying.

Yeah or Constellation Brands. It's a great segue though. Let's talk

about now the companies like right. We need to know if I am gonna invest in

this, this is not going away let's be clear right. Much to my dismay as a

mother, it's not going away. It's been around for thousands of years.

Yeah I know, but it hasn't been on the street corners as visibly as it probably will be.

But that being said it's not going

anywhere. Is it a dot-com bust. I think to an extent there are there are a lot of

similarities. There's going to be, excuse the expression, a weeding out? Yeah you're

gonna have to kiss some frogs before you find out. You do you have companies that are

public now with you know hundreds of millions of dollar valuations and they

literally just started doing sales. Like within the last two weeks and it I

wouldn't call it like Bitcoin because with Bitcoin you're not expecting sales,

you're not expecting earnings. There's no return on capital anything like that, but

I do think there are similarities with the dot-com bubble and that you're

betting on these companies developing entire new industries. And the problem is,

I mean thestreet.com, this is a company that made it, survived the dot-com bubble.

I mean you will have companies that come through they thrive. They they come out

of this. But for every company that made on the dot-com bubble what like a

hundred disappear. I don't think anybody's doubting the size of the

market and the opportunity here. I mean we have

test cases in Washington, Colorado or even the Netherlands in Amsterdam where

that it's been legal. It's a multi-billion dollar industry in that

country and which has 17 million people you've moved that to 330 million people

where according to Gallup polls 25% of people 18 to 24 use marijuana. It might

be higher but that's a massive that's a massive massive market. It's just gonna

come down to when these companies consolidate, who's gonna win that market share?

So who do you thinks gonna win Kevin? Well right now I'd bet on Canopy.

I think that they have the distribution networks that are necessary to take

advantage of.. And they're using it for medicinal purposes?

Medicinal and recreational. The thing with Constellation like they're really going

after the recreational, but they also have spectrum cannabis which is their

medical division.

But that's Canadian based company. Right but it has regulatory

approval in Canada, in the European Union in Germany for medical marijuana.

And thanks to the Constellation US distribution is completely locked down

was legal. And a four billion dollar head start from Constellation as well.

So that's actually, we were talking about this earlier too. So they have money.

There's money, their balance sheet looks really good because of that injection of

capital from Constellation. Very different from the dot-com era when

everything was just red. I just want to be clear, they are losing money right now.

I mean their earnings, it is a loss. But they have the money there to do that

loss. You have Constellation that has warrants that will give them ownership

rights beyond 50 percent. I mean Constellation is in there and personally

when I was first looking at the space whenever anyone asks me now

or asked me in the past you know which company do you go to .. Tilray I mean

it's a great company and everything they do have a lot of really key deals going on.

But the valuation on Canopy is more attractive and the other thing is

Constellation Brands management team has a proven track record like a successful

M&A activity. Especially as a home gamer you're only gonna be able to look

at a business so in depth but the guys at Constellation they had a very good

look at more than just Canopy I'm sure and they decided to bet on Canopy.

And they have the first mover advantage. They're the first ones. But it's at the same

time it is a very small piece of their bottom line. I mean it's still Corona at

the end of the day. Fair, but they're not betting on where it is now they're betting on

where its going to be. They're skating to where the puck is. I love the analogy that's

a great point. Right and also talking to the valuation, Tilray, we already

discussed why that thing went hyperbolic yesterday.. But it still

could come back and be okay and settle out no? 970 times sales,

as of this morning. It's down now from that but that's about twice what

Canopy's valuation is and I believe Canopy should be about two times the sales.

Should we talk about Cronus?

Cronus is almost an also-ran that's not to the level of Tilray and Canopy.

And then the other option is to talk about the pharma companies.

How does this affect the pharma companies? Does it?

Well they're looking at the space right. Tilray has a deal with

Novartis I want to say it is. They have a deal with Novartis and they

also just signed a new deal with Intelligenx today, which is a very

small Canadian company. But now they have medical delivery method completely settled.

So if you're a pharma company are you worried right now?

I think it depends on what drugs you have. I mean Bruce Linton has come on the record,

first of all the other reason I like Canopy, he has said don't look

at us as just selling marijuana. He said the way he puts it in the investor

presentation from August which you can check out on their site is, look at

marijuana or cannabis as a disruptive ingredient. So we're not they're just

selling the leaves, they're retooling it. I mean there's over I

think like over a thousand different substances within marijuana when

really start to break it down and all of those are gonna have different

use cases. But he's come out saying that they're working on something

to compete with Ambien. So if he's targeting a sleeping pill

that you're not gonna be able to overdose on, you don't really have to

worry about it killing you if you take too much,

it really depends if you're investing in pharma company I would say

it depends where are their sales coming from? If it's appetite stimulants for

chemotherapy for example, everyone knows marijuana and the munchies.

That's an organic natural alternative to whatever they have on the

market today. If you're talking sleeping pills,

you can overdose on sleeping pills and you're not really gonna

overdose on marijuana. I don't think there's even one documented case.

There's an ETF, a cannabis ETF. There are ways to get in this space. Before we

close out right now, Kevin would you if you had money to spare put money in this

stuff right now? Well I think that it's difficult. I think an ETF is

probably a good idea based upon spreading the risk around. As we said

there's a number of companies that might not survive this type of dot-com environment.

I think that we've established which companies we think are

blue chips. But I do think if you're a speculative player and you don't really

know as much, you don't have as much time to pour through the documents as

Zev and I do, an ETF might be your best bet. It's good point

The only pushback I would have on that is my issue with ETFs and I think is you

can kind of look at the semiconductor ETF right now, which is full of secular

and cyclical plays. So Nvidia, it's not doing well today but it was doing good

but Micron was getting hit real bad and the problem with the marijuana ETF

in my opinion is because we've said that there are so many companies out there

that we think are just gonna disintegrate, you're getting exposure to

that as well. So it's a risk?. There is a risk. This is a risky industry.

Personally what I would do is pick your four favorite plays,

and spread the risk evenly. Go a little Canopy, Tilray to come in. Aurora which Coke

has put interest in. That's what I would do but again you know as Kevin

said that's a bit of a more active. approach. You got to work at it or you

could just read these guys at TheStreet.com. Because they're following it.

Anbd of course RealMoney, AAP puts stuff out all the time. Follow these guys, this is

definitely not going anywhere. Again, much to my dismay as a mother..

thank you both.