At the end of June, the independent equities researcher known as Mollytime (Cannalysts profile, follow him on twitter @mollytime777) filed a response to growing social media buzz surrounding Heritage Cannabis (CSE:CANN) entitled “Heritage Cannabis – Structure and current state.” Mollytime’s dissertation is dismissive of CANN, bordering on derisive, and that’s likely because he knows what he’s looking at: a paper factory that uses the dream of becoming a player in the extraction business to move units.
Any experienced equities researcher – no, any serious equities researcher – knows how to see companies like CANN coming to keep from having to waste their time. There’s no need to pick through trash to determine it’s trash. It’s easy to smell it coming.
But these companies trade in the nature of the public to respond to advertorial stimulation by making the subject of the ad part of the public consciousness. They then leverage the public consciousness with a flood of psuedo-research of varying quality and always great quantity. The Cannalysts make their living publishing for the same public consciousness that has been invited by the aforementioned advertising to ask questions about CANN as an investment. The readers end up asking these questions of Mollytime because he and his team have earned a reputation as good researchers and, in publishing, it’s good business to give the people what they want.
This is why we can’t write about crappy things.
Mollytime gives CANN more of his time than it deserves, covering the key points to build a condensed but comprehensive sketch of Heritage Cannabis. It’s everything that matters, with informed takes rooted in experience. They’re a company that generates a lot of discussion about non-binding agreements and deals for non-revenue-generating assets that they pay for with stock. These deals are celebrated as market cornering coups by a great many social media users whose greatest natural interest appears to be the tremendous opportunity being offered to retail investors by Heritage Cannabis.
Mollytime points out that the value in this company is largely based in projections made of infrastructure that isn’t yet operating, or at least hasn’t been for a period of time worth assessing (similar to what we saw this time last year in deals like Wayland Group (CSE:
MARI WAYL, soon to be CRY), and that those assets are going to have to deliver like a fleet of dump trucks if they’re going to bring value to all the paper CANN printed putting them together. Mollytime brings his readers’ attention to the fact that the deal CANN did with Cronos (TSX:CRON)(NASDAQ:CRON) requires no commitment from the $6 billion market cap Toronto-based cultivator. It amounts to them letting Heritage have a go at producing some extracts, and buying more if it works out. CANN’s media footprint milks the association with that brand name for everything it’s worth, because that’s the sum total of its value at the moment. If they ever sell any extracts to Cronos, and Cronos comes back for more, they’ll worry about using that to generate market buying when it happens. For now, the Cronos deal best serves CANN’s purposes by being something they can inflate into a fake accomplishment.
Mollytime took his June 28 work about CANN out from behind the paywall the other day when the Cannalysts launched a new website design, and the various twitter accounts of totally real people who just happen to suffer from Heritage-Cannabis-specific obsession denounced it immediately. CANN nation can’t quite make up its (centralized?) hive mind between the conflicting ideas that the Cannalysts have shorted this over-amplified $0.475 stock and, laughably, that this seasoned equity researcher just doesn’t understand the shot here, because he “hasn’t done his due diligence.”
The stone tablets of this religious duality is a lengthy “#factcheck” of mollytime’s post by @Iron7221, a 131 follower account that likes to retweet popular cannabis news accounts when it isn’t getting a bit too excited about Heritage Cannabis and certain other smallcap cannabis deals including Zenabis (TSX.V:ZENA).
Iron7221’s rebuttal consists of annotations to Mollytime’s work done in red crayon, makes no reasonable retorts or counter-arguments, and identifies no material errors. It cites company press releases and sell-side research as if they’re peer reviewed consensus about CANN’s ironclad value, and generally goes on making its author look foolish for as long as the reader is inclined to put up with it. It amounts to stepping all over Mollytime’s excellent, concise copy with an extended version of the CANN investor deck, complete with links to all the promotional media he had handy.
As Mollytime expresses in his original post, and as other independent researchers including myself have expressed on twitter, CANN is worth ignoring by virtue of its having committed more than $250,000 and options to purchase 1 million shares to outside investor relations consulting. It telegraphs the company’s priorities with respect to its treasury and cashflows. There’s no way to know if Iron7221 and his 151 followers are benefactors of that spend, or if he’s just a grass-green retail guy trying to defend his investment. One of the appeals of social media marketing is that it tends to create true believers to carry part of the load. If he is on the payroll, then his outfit isn’t breaking the bank on talent or strategy development.
The force is weak in these shills.
Ignoring Mollytime’s missive would have given CANN an opportunity to bury it in whatever stunt they’ve got cooked up next. Going after a respected researcher by questioning his ability and credibility in a hammy, unreadable mess lights the month-old report up and puts it in another news cycle. It also pisses off people like me who, until now, were content to ignore CANN.
If any IR shop who knew what they were doing elected to respond to this, they’d come up with something a lot shorter and easier to digest. It would bring the reader around where they wanted them a lot quicker, and put the company’s potential front of mind for all the right reasons. In fact… let me a have a go here…
WARNING! INCOMING BULLSHIT! NOT TO BE TAKEN SERIOUSLY!
“Mollytime is a great researcher, but he’s a numbers guy and that’s really all he knows. He can’t see the depth of the vision that the founders have for these assets, or their tremendous potential relative to their risk. He’s right about CANN having to issue a lot of shares in the early stages of their extraction empire; that’s what it takes to build infrastructure that can compete in this coming edibles market. The private equity and consumer goods companies who are likely to roll up the cannabis market in its next phase of maturity won’t be interested in small companies. To properly deliver value to CANN shareholers, we need to go big right away. Extracts October is coming, and CANN is going to be READY!”
END OF PERFORMANCE.
Everybody is selling something
IR shops are selling the management of a public narrative.
CANN is selling paper, and they appear to be making some poor choices about the IR they’re buying to do it.
The Cannalysts sell subscriptions to their research. People who are serious about investing their savings in marijuana stocks buy those subscriptions, because the authors are thorough, experienced and thoughtful. They trust The Cannalysts because their allegiance is to their subscribers.
Brokerage firms use sell-side research to sell stock to their clients, and underwriting services to the companies who hire them to do so. This can be confusing, because the name on the letterhead is the name of the firm where investors keep their stock and money, so serious investors pay the Cannalysts $90/quarter for an unbiased opinion on the more popular deals. It’s a check on their judgement, and a component of a much healthier financial media diet, because it contains all natural ingredients.
By contrast, nobody really knows what they put in all these shill twitter accounts. There’s a strong risk of cross contamination, and they’ve been known to cause over exposure to toxic portfolio elements that could cause sudden injury or insolvency. Use with caution.
If you can’t spot the sucker, it’s probably you.
It’s a frequent refrain of the management teams in small cap equities that all venture-stage companies need IR to gain and maintain investor awareness, and that’s very true. Valuations are made out of investor interest, and attention has to be competed for. But how it’s done matters. There is a difference between proper, experienced investor relations and an overblown, gaudy pump job.
A pro shop concerned with building a base that lasts would walk the deal into the popular consciousness with a measured optimism surrounding a plausible, appealing narrative. Professional IR has their eye on the ball. They work the story in a way that is subtle and relatable. It uses anecdotes that are fun things to think about later, and invites an investor’s thoughts to wander towards them. Appealing stories get re-told.
The promoters working CANN aren’t concerned with a lasting base. They’re tacky and obvious. They’ve given up on investors of any sort of sophistication who might see through them.
For serious companies, amateur IR hack jobs like this are more hassle than they’re worth. They build a shareholder base out of investors who are proud to make emotional, low-information decisions. They’re prone to gullibility and get loudly upset when, inevitably, the promotions stops working. These are the investors inclined to believe that the agreement CANN signed with Cronos is a “Monster Deal,” after having read it in a tacky blog post, instead of stripping the press release down to the actual terms and realizing it doesn’t mean much.
It isn’t like gullible investors’ money doesn’t spend, but it comes at the cost of the company having to associate itself with people who describe themselves as “Gurus,” an association that tends to leave a lingering smell.
The Author does not own a position in any of the companies mentioned in this article, and has not taken any fees or established any sort of business relationship with anyone mentioned in this article. The Author is a paid subscriber to The Cannalysts’ equities research blog, and is very happy with the product. You can also find The Cannalysts on Reddit.