Journalistic bias is a tough thing to pin down, partly because we’re always looking for it.
Witness Bill Alpert’s deep dive on Canadian-listed US marijuana equities, carried this past Friday in Barron’s (link for Barron’s subscribers, but try opening in an incognito tab). The original title: “You’d Have to Be High to Buy American Marijuana Stocks,” provoked a visceral reaction from the cannabis equities space, who were full of opinions.
Sure. They’re high risk if you don’t get it.
High profile investor and host of the Bailstreet podcast Danny Moses kicked it all off with a hyper-defensive thread that correctly points out that the lobbying and apparent legalized graft in the cannabis space that’s featured in Alpert’s work ins’t unique to cannabis, and is especially prevalent in the pharmaceutical sector, which Alpert also covers.
2/ Amazing that a writer who also covers Big Pharma points out “lobbying” issues and conflicts? Insider ownership a negative? These co.’s have been forced to raise capital in unorthodox manners b/c traditional financing is unavailable; btw the US Co’s have little to no debt and..
— Danny Moses (@dmoses34) February 16, 2019
Pharma stocks of similar market cap carry a similar risk and similar volatility for the same reasons, of course. Operators and investors in the pharma sector have long resigned themselves to success having more to do with relationships than merit.
But the pharma sector is a lot more mature, and (crucially) not subject to the same inter-state and international restrictions as cannabis. There is great risk in drug development, but considerably less in drug manufacturing, which is an established business with an established playbook. Moses goes on to explain that:
4/ economies of scale later; of course earnings and corporate governance matter-but we are in the early innings of explosive growth that will reward investors with returns, patients with relief and local economies with jobs and $
— Danny Moses (@dmoses34) February 16, 2019
Which doesn’t appear to be lost on Alpert, who isn’t writing about patients or economic effects, and is more concerned with how to approach the trade in these early (and competitive) innings, so as not to end up holding the pets.com or WorldCom of the cannabis space.
Moses had CNBC’s Tim Seymour on the Bailstreet podcast this past Tuesday for an excellent overview of the space and the uncommon condition of retail leading the trade. He discussed, among other things, the fact that these companies don’t yet have access to the enormous US capital markets and that such access could be a growth driver. Seymour is characteristically very smart, and we generally like Danny Moses, share his bullishness on the sector. We suggest he’s missing a larger point that Alpert is driving at about timing and weight. (Subscribe to Bailstreet podcast here. You won’t regret it.)
That patented Midas Touch
Alpert didn’t get much help from his editors, who we assume saddled it with that title, which brought the self-appointed defenders of fairness in business journalism riding in on white horses to defend the honor of cannabis companies as an investment. These included Fundamental Hype‘s very favorite weed-equities reporter, The Midas Letter’s Ben Smith, who was keen on telling us all about how the dinosaurs over at Barron’s will just never get it.
Barron’s has been backwards from the beginning. Weird how some organization get a bearish fetish and never relent. I presume Barron’s attitudes stem from quantitative bias—from decades of analyzing the market in old paradigms. Bet they felt the same way about the internet bubble.
— Benjamin A. Smith (@BenjaminA_Smith) February 16, 2019
Smith has appeared in these pages before, and will likely remain part of the Fundamental Hype extended universe for as long as he stays true to his war on numbers, and maintains that this time is different. We might be inclined to give him the benefit of the doubt, and assume he was accusing Barron’s of having bias in its quantitative analysis, rather than a bias towards it, but there’s no evidence of that, or that he actually read the article.
The ironic accusation of a bearish “fetish” coming from an outlet who never found a small cap deal they didn’t like, paired with the overall sentiment that this sector is lost on people who conform to “old paradigms,” could be a bit distressing in the broader context of this bull market, if we use it as a marker.
According to Harvest Health & Recreation, Inc. (CSE:HARV) CEO Steve White, as quoted in that Barron’s article, “The real way you evaluate the companies in any industry is based on their earnings,” and it’s a hard thing to argue with. Equities investing is about money, and is in no way impervious to math or to the fundamental techniques that analysts and statisticians use to compare things, just because it occurs in a different sector.
There are, of course, different things to measure, and that requires lateral thinking, which is precisely what Alpert was up to with this vicious act of journalism. He covers the differences in reporting for Canadian filers that allowed Sunniva (CSE:SNN) to get away with glossing over a previous fraud conviction of their now former CEO, how these equities are responding to lockups and unlocks of insider blocks, and ultimately concludes that:
With a collective market cap of $14 billion, and scarce evidence that they can turn a profit, these Canadian-listed American pot dealers are hard to recommend beyond a small, broad bet.
Which is a totally reasonable thing for a general business magazine to tell a broad audience. Moses, Smith and this very blog make media for very specific audiences who are interested in the sector, its development and the very risky business of trying to tell these companies apart with an idea that they might pick winners from losers.
That isn’t for everybody, and we don’t recommend it for weak stomachs or for people who haven’t figured out how to weight their portfolio accordingly (talk to a qualified investment advisor, people). But we’ll be damned if we’re going to hang Barron’s out to dry for recommending that their readers use caution and a basket strategy with this particular hot potato. As a matter of fact, for a straight bet on US federal cannabis legalization that sounds about right.
We haven’t written too much about the US MJ equities. We have a spreadsheet, and we’ll bring our readers an overview soon. We plan to prepare it using quantitative analysis.