After a few waves of bubble riches and dashed hopes, John Persinos thinks we’re on the verge of another “Marijuana Moonshots” market that will lead to 1,430% profits as the US moves to full marijuana legalization… maybe starting with the state legalization votes today and with whatever shakeup we end up seeing in Congress.

And that means, of course, that it’s time for another expensive newsletter — so to capitalize on this moment, he is launching a service called Marijuana Profit Alert ($995, no refunds… as with many pricey letters, the guarantee is “if you don’t like it, I’ll give you another year for free” — perhaps inspired by the restaurant reviews that say “food is terrible, and portions are too small”).

Here’s how he sums up the opportunity in the teaser ad:

“2022 will serve as the line in the sand where a legendary marijuana bull market started.

“One that generated fortunes for the investors who saw it coming.

“And today, right here… right now…

“Serves as both your ‘heads up’…

“And your chance to walk through the door and grab a slice of the profits.”

The argument is basically that Congress has so far introduced several marijuana legalization or liberalization bills, getting closer to ending the Federal ban, and that President Biden is pushing his regulators to “deschedule” marijuana, at the same time that the majority of states have legalized marijuana to at least some degree (at least for medical use), so we’re reaching a “tipping point” for full legalization… and that will unleash another “gold rush” in cannabis that makes the big stock price moves following early state legalization or Canadian legalization look boring. He has publicized some of those big picture ideas more freely as well, including in a free article on their website today.

A bit more from the ad:

“There’s an unprecedented amount of big money, big businesses, and big social interests that support legalizing marijuana….

“I worked in Congress for years, and I had a front row seat to watch dozens of situations like this play out.

“Between the legalization efforts that are public knowledge…

“PLUS the hushed discussions I’m told are going down behind-closed-doors…

“It’s now become crystal clear to me that the Senate could be rolling up a massive omnibus pot bill…

“One which includes the widely supported marijuana banking and tax laws that finally allow the government and big banking to sink their teeth into this industry…

“And one that may well include FULL marijuana legalization.”

And that means, of course, that he has some secret “marijuana millionaire” picks to dangle in front of us, chum thrown upon the waters in hopes of creating a frenzy of hungry credit cards. Here’s some more from the pitch:

“I believe now – more than any other time in history – is the best time to go ‘all-in’ on cannabis…

“I’ll provide an in-depth breakdown of how my new system pinpoints the very best money-making opportunities the marijuana market has to offer…

“I’ll tell you all about the first set of investment opportunities it singled out.

“…. to kickstart your journey to becoming a ‘Marijuana Millionaire'”

Persinos has pitched marijuana stocks before in a free newsletter, but I think the only direct marijuana tease of his that I’ve covered was back in 2019, when he touted Bank of Montreal (BMO) as a cannabis play because they were building up a marijuana banking business. That was a stretch, as you might imagine, but BMO has done reasonably well even though it’s not really a marijuana play. Pretty much any marijuana “pure play” you can think of from 2019 is probably a loser at this point, so he’s probably pretty pleased that he waited to launch this particular marijuana-focused letter.

Here’s a little context, in case you’re new to the marijuana market — many of the stocks went through wild boom and bust periods over the past ten years as various legalization votes took place, with the biggest ones being Colorado, which started the ball rolling ten years ago, and Canada, which passed national legalization four years ago and put the regulations into place to really open up the market about a year later.

I pulled a couple of the old penny stock promotions from my memory just to show that first wave of wild moves — there were a bunch of these 500%-2,000% leaps during the first waves of US legalization, and almost all of those companies have lost almost all their value (many have actually disappeared and no longer trade, of course, these are just a few I could find that are still trading as penny stocks):

And then it was Canopy Growth that really led the way in Canada, becoming the first large cap marijuana stock for a little while in 2018 and 2019… before, again, giving it all up when it became clear that none of the Canadian marijuana companies were actually going to make all that much profit anytime soon. That’s the S&P 500 in there, in purple, just for some context:

And then there’s been a bit of a maturing of the marijuana business over the past few years, with some multi-state operators emerging in the US, and with a few ancillary companies growing in the wake of that march of state-by-state legalization. Here’s what a few of those stocks have done since Persinos pitched BMO as the “Bank of Marijuana” — that’s Canopy Growth (CGC) in blue and their Canadian competitor Tilray (TLRY) in light green, down at the bottom, with the US multi-state companies (they call these “MSOs”) Curaleaf (CURLF) in brown and Trulieve (TCNNF) in green, hitting some exciting heights but eventually falling below the S&P again (that’s the S&P 500 in orange). Bank of Montreal, as I noted, has done OK since Persinos touted it, even if it did OK in spite of any exposure to marijuana, not because of it, they’re in purple… and the only one I could pull to mind that was still a market-beater, albeit way down from its 2021 heights, was the marijuana REIT Innovative Industrial Properties (IIPR, in pink).

So what, then, should we do to profit from this wave of marijuana profits that Persinos sees coming? He has one “freebie” stock pick that he mentions in the ad, and then several “top secret” recommendations that you can only get if you subscribe. The free one is revealed here:

“While this opportunity doesn’t pack the potential of the three you’ll get in my Marijuana Moonshots report…

“It’s still a solid way to start your marijuana investing journey.

“And at around $14 a share… it won’t cost you an arm and a leg to get in on the action.

“It’s the AdvisorShares Pure US Cannabis ETF…

“Or MSOS if you’re looking it up by its ticker symbol.

“Holding shares of 25+ companies…

“Which span multiple industries including agriculture, biotechnology, pharmaceutical, real estate, retail, finance, and other medical applications….

“This exchange traded fund is the first of its kind with dedicated exposure to the U.S. cannabis market.”

No argument there, if you want exposure to the companies who have the potential to become national brands in cannabis, they’re probably in this ETF. None of them are doing great right now, of course, and a lot of the leading MSOs are finding that the cannabis business is not currently as profitable as they hoped it would be, either because of competition with the black market or just because tax-hungry states approved too many licenses… but just like any other sector, certainly spreading a marijuana bet around with an ETF is likely to be much safer than speculating on an individual company.

And then the secret ones? Want to pony up $995 to get those top-secreet answers?

No? OK, how about something more free-ish? Let’s feed the clues he drops into the Thinkolator and see what we can ID for you as Persino’s “three best marijuana stocks you can buy today”…. here’s the first one:

“… the $3 Per Share “Cannabis King”

“In cities and towns all across America, you can walk through the doors of a dispensary and buy marijuana…

“The same way that you can walk into a convenience store and grab some M&Ms and a Coke.

“And that bodes well for the company I’ve dubbed the ‘Cannabis King.’

“Because this $6.5 billion titan is a market leader when it comes to branding its cannabis products (just like Coke and M&Ms)…

“Which is the key to building a moat around any business…”

And it’s not just a consumer products company, apparently…

“I’m just as excited about what this company does on the medical side of the marijuana business.

“Because it teamed up with a $165 billion pharmaceutical giant…

“Who distributes its branded medical marijuana products worldwide….

“It’s working feverishly on keeping the distribution pipeline filled with at least a dozen more breakthrough treatments as well, like a…

“Essential tremor study with the University of California San Diego, which facilitated the first legal export of a cannabis product from a Canadian company to the United States.”

OK, so that’s not really “new news”, that export of medical-grade marijuana from Canada to the US was approved by the FDA a little more than four years ago, when this “secret” stock was, for one shining (or stupid) moment, the sexiest speculation in the world… that’s Tilray Brands (TLRY in both the US and Canada), which is the result of the merger of two of the surviving Canadian marijuana brands last year, Tilray and Aphria.

And yes, they do own a bunch of brands, both in Canada and in the United States… including the acquisition of a craft brewer, Montauk Brewing, just yesterday (that follows their acquisition of SweetWater Brewing in Atlanta a couple years ago, part of the strategy is to establish national distribution and some growing brands in beer and snacks that they hope to expand into THC products if those become broadly legalized in the US).

Tilray has been a long-term train wreck for early investors, but it has survived, and it’s still a pretty big company (market cap around $2.5 billion, sales of about $650 million a year). They still spend very heavily on building their distribution and their brands, and they’ve had some big asset impairment charges on their assets, so they’re both reporting gigantic losses and burning through cash — though because of those writedowns, the cash burn is not as bad as the earnings would make it appear. They’ve also sold a bunch of new shares this year to raise more money, so as of last quarter they have about $500 million in cash, and a good chunk of their $650 million in debt looks like it’s in a bond that matures next October, so they will have some refinancing to do next year, which is obviously a risk with interest rates rising… but right now, their sales are high enough to keep things rolling and they’re only burning about $50 million in cash per quarter, so perhaps they’ll be in decent shape if we do indeed get some rapid progress toward federal legalization in the US and investors get excited again.

If that happens, and we’re able to see national US brands emerge, the companies who can afford to spend heavily on marketing and distribution will have a good head start… and Tilray, with a high profile among investors and a fairly large business already, might be well-placed to capitalize if their stock rises quickly and they can raise more capital for that next gold rush.

Persinos sums it up…

“According to my projections, shares of this tiny $3 company could pop by as much as 463%…

“Whether full legalization happens next month… next year… or never.”

Personally, I’d say there are a lot of “ifs” in betting on Tilray — but there is some appeal in their attempt to build some adjacent brands in craft breweries and CBD products, and they’re probably still a brand to early marijuana investors, which might count for something.

What else is Persinos touting? Here are the clues…

“My S.M.O.K.E. & F.I.R.E. system has also singled out a tiny $1 cannabis company…

“And its business model is so unique – and packed with potential – I’m calling it…

“‘The Disney of Pot'”

Animated princesses, you ask? No, the “Disney” reference is just about vertically integrated brands and slick marketing… more clues:

“… everything this smart player does…

“From growing its own product…

“To processing it…

“Then ultimately selling it in slick, high-end superstores – including the two largest dispensaries in the world – that feature massive interactive digital displays…

“And photo-worthy features like tricked-out VW buses…

“Is about controlling the seven marijuana brands its developed and people’s experience with them….”

And they apparently have big growth plans, too…

“It also has aggressive plans for the future…

“Including doubling the number of retail outlets it runs…

“And doubling the number of states it operates in.

“This company – at a market cap below $300 million – is small enough to offer exponential growth…

“But not so small that it’s not a viable enterprise.

“In fact, based on my research, I wouldn’t be one bit shocked to see its share price go from around $1…

“All the way to $8.41.

“That’s good enough for a 664% gain…”

This one is Planet 13 Holding (PLTH on the CSE in Canada, PLNHF OTC in the US), which operates a famous marijuana superstore just off the Las Vegas strip and is building their brands through expansion in California and Florida. They are a pretty dominant brand for tourists on Las Vegas, and may be building on that as Las Vegas begins to allow on-site consumption in marijuana “cafes”, so Planet 13 has long been one of the more interesting brand stories. California has been a rough spot for legal operators in recent years, but maybe their destination-retail strategy will work there as well, I guess we’ll see, and they’re really just getting their toes wet in Florida at this point.

They’re not profitable, but they’re pretty close to it… and they are small enough to grow pretty dramatically if the market changes, with a brand that would probably have a head start on building a national presence thanks to their Las Vegas and Los Angeles exposure, and they do a slick job of marketing themselves (their last investor presentation is here, if you want a taste). Of course, I thought the same thing of MedMen a few years ago, they looked like a strong emerging brand, with their dispensaries that looked like Apple Stores for cannabis, and they blew that up with awful management… so one never knows what’s going to happen in this space. It will be interesting to see if they can really reproduce that Las Vegas magic in their locations outside Nevada, they also just opened a dispensary in Illinois, so perhaps, if this is indeed the pivotal moment for nationwide marijuana legalization, they’ll turn out to have timed their expansion well… we’ll see. Their next quarterly update is due soon, on Thursday this week, so we’ll get a bit more info then.

And one more…

“‘The Ultimate Picks and Shovels Marijuana Play’

“Better weed – and more of it – with less hassle. That’s the holy grail of marijuana growers.

“And with harvests that are double what a regular greenhouse operation enjoys…

“It’s little wonder some farmers have taken to growing their crops – floor to ceiling – in windowless warehouses…

“Using a revolutionary technique called hydroponics…

“Where they grow plants in nutrient-filled water instead of soil.

“And that’s where my ‘$4 picks and shovels’ play comes in.

“Because it not only operates the nation’s largest chain of specialty hydroponics garden centers…

“It also sells everything from custom grow lighting and climate control systems…

“To plant care tools and harvest machines.”

That’s another stock which has gotten the teaser treatment several times over the years, here Persino is hinting at GrowGeneration (GRWG)… here’s how they describe themselves:

“At GrowGeneration, we aim to be the best in Selection, Service, & Solutions. Currently we are the largest hydroponics supplier in the country with 60+ retail and distribution centers. We carry and sell thousands of products, such as organic nutrients and soils, advanced lighting technology and state of the art hydroponics equipment used by commercial and home growers.”

So… think Tractor Supply (TSCO) or Home Depot (HD) or SiteOne (SITE), but for indoor hydroponic marijuana (and vegetable) growers instead of farmers, contractors or landscapers. Except all those other examples are extremely profitable and have high returns on equity, and GrowGeneration hasn’t been able to establish that kind of business so far. From looking at their income statements, it appears that the pandemic was very good for GrowGeneration, it gave them a boost into profitability, perhaps just because the marijuana growers were adding capacity quickly and so many people were picking up new agricultural hobbies when they were stuck at home, but that was short-lived — cannabis sales softened quite a bit this year, and that trickled down pretty immediately into GrowGeneration’s numbers. To some degree, that wiped out their progress at getting more efficient and profitable, and they’re having to restart that effort as they hope (and wait) for revenue to grow again. They also had a big writedown last quarter, connected to the fact that they overpaid, in retrospect, for some acquisitions in the past, but that’s now behind them and isn’t a cash expense.

The good news is that they were slightly optimistic when they reported their latest quarter yesterday — sales are still slumping, they dropped 39% this quarter because of “soft industry demand,” and comparable/same store sales dropped an alarming 58% (I don’t think I’ve ever seen that a drop that sharp for a retailer)… but they did guide for revenue to begin to recover a little bit, they now think they’ll have $270-280 million in revenue for the full year, which is a good 5-10% higher than their previous guidance, and they think their Adjusted EBITDA loss will be a little smaller than previously expected (-$10-13 million, instead of -$12-15)…. the CEO said that “We remain cautiously optimistic on the broader industry as a whole and are seeing some early signs of stabilization. However, we’re still not prepared to definitively say the worst of the cycle is behind us.”

For some context, GRWG revenue roughly doubled every year from 2015-2019 as growers expanded in new states and needed new equipment and supplies, and as GrowGeneration built out its store network, so they went from about $14 million in revenue in 2019 to $422 million in 2021… and now they’re having their first real pullback since they went public, with revenue likely to fall by about a third in 2022. T

GrowGeneration has closed a couple stores that were too close to existing locations, and opened a couple new ones in strategically important new markets, like “recently legal” New Jersey, so they’re not really growing, and even their little e-commerce business got clobbered this year (down about 70% last quarter)… but they are trying to right the ship, so if the market starts to grow again perhaps they’ll be well-suited to grow with it. They’ve been able to maintain a pretty stable gross margin that’s still in the 25% neighborhood, which is pretty impressive for a retailer and distributor that saw a massive drop in revenues, and they have a stockpile of about $70 million in cash and have avoided taking on debt and have, at least so far, slowed the bleeding when it comes to cash, so that probably gives them a bit more “survivability” (they do have some meaningful lease obligations on their books, so I guess they don’t own their retail properties).

I certainly don’t know whether they’ll thrive in the years ahead, but I would guess that national legalization would help in the short term but might be as much a bad thing as a good thing for this company in the long run — it would give them stronger customers, and it might growth the overall pie, but it would also mean that the market could consolidate pretty quickly into some dominant national brands, and that every state would no longer have to host its own growing operations (right now, since it’s illegal to transport marijuana across state lines, all the pot sold in Massachusetts, for example, has to be grown in Massachusetts… if the Feds legalize, then a lot more pot cultivation could move to much lower-cost operations in Florida or Missouri or wherever, so it’s possible we wouldn’t need as many growhouses and greenhouses in every single state). Still, that’s probably a distant fear, absent some shocking progress on legalization, and the business would probably not react immediately even if there is some meaningful regulatory change (it’s hard to see any political progress coming out of what will probably be a deadlocked Congress next year, but one never knows).

Persinos also throws in a couple extra pot plays that he says are “Last-Minute Opportunity” stocks, so let’s see if we can name those quickly…

“You see, the landslide of statewide legalization efforts has given birth to a flurry of dispensaries that sell marijuana – and related products – over the counter…

“Just like any other store where you shop.

“And that’s exactly what this $5 stock pot stock does…

“To the tune of 137 stores.

“Its reach doesn’t end there though…

“Because it also operates 206 grow sites…

“And even consults with other operators to help them produce cannabis more efficiently… and sell it in their own dispensaries.

“This smart operator could easily increase earnings by 108% in 2023…”

Being a dispensary doesn’t make this company all that unique, so I’m not sure where that bit of the hype comes in, but I expect this is probably hinting at what is generally considered the largest US multi-state operator, Curaleaf (CURA on the CSE in Canada, CURLF OTC in the US). That “137 stores” does match Curaleaf’s count as of a couple months ago, though it’s now up to 142… but the odd reference is that “206 grow sites” — nobody has nearly that many growing operations under one company, as far as I can tell, though it could just be a typo, Curaleaf currently has 26 grow sites. They have the highest market cap among the MSO’s, at close to $4 billion, and the highest trailing revenue, at about $1.3 billion, but Trulieve (TRUL on the CSE, TCNNF OTC in the US) and Green Thumb (GTII on the CSE, GTBIF OTC) and Cresco Labs (CL on the CSE, CRLBF OTC) are breathing down their neck — those are also the stocks that make up most of the MSOS ETF that Persinos mentioned above, and the ones who are probably most likely to benefit if there’s enough regulatory change that they can get a listing on a major US exchange, or begin building their brand power across state borders. I can’t say that I’ve got strong feelings about any of those larger MSO’s, most of them are profitable but growth-challenged at the moment… but if you don’t want to deal with picking a grower, you can always diversify with the ETF.

Next?

“There’s an increasing number of partnerships between the marijuana industry and real estate…

“And the reason for that is simple…

“From growing… to processing… to selling…

“Marijuana operations take up a lot of room.

“And with 1.7 million square feet of space…

“Spread across 12 states…

“All of which they’ve fully leased (some to the 1st company in this report)…

“I think it’s safe to say this ‘last-minute pot stock’…

“Is well on its way to rivaling another marijuana real estate company, Innovative Industrial Properties…

“Which at its peak, handed investors a stunning 1,334% gain!”

OK, so it’s another marijuana REIT — that’s not a very big universe… but which one is it?

Final clue:

“Best of all – because of this $14 company’s unique structure – you can lock in a stout 10.7% yield while you wait for its share price to shoot into the stratosphere.”

So that must be the REIT that is the closest to being a baby clone of Innovative Industrial Properties… Thinkolator sez he’s teasing NewLake Capital Partners (NLCP), which has bumped up a little bit in the last few weeks so is now around $15.50, with a current annualized dividend yield of about 9.5%. NLCP trades over the counter, too, so they don’t get quite the attention that IIPR does as the only NYSE-listed marijuana REIT, and by far the biggest player in the space, but they’re a pretty strong second place operator — and they’re quite a bit cheaper than IIPR. They will report on Thursday this week, but they’re on pace to have Adjusted Funds From Operations (AFFO, a measure of cash flow) of about $35 million this year, so they’re trading at about 10X AFFO. IIPR, which can’t grow as fast but should generally be more efficient and stable, with a larger and more diversified portfolio of properties and tenants, is trading for probably 12-14X where their AFFO will come in for 2022, and has a current dividend yield of about 6.5%.

IIPR will likely remain more growth-constrained than NLCP, in part because NLCP has access to more capital relative to its size at the moment, but both will generally be dependent on selling shares and borrowing money to grow their portfolios of properties, which means that in an era when their share prices are much lower and borrowing costs are much higher, they’ll probably both slow down. NLCP has not yet reported a default from a tenant as far as I can tell, and IIPR has (one of their California tenants defaulted over the summer and they’ve settled out of court — I wrote some about this in the last Friday File), so that’s good news — the biggest near term risk for these high-margin landlords is that their tenants default on the rent and they can’t re-lease on similar terms.

And we’re out of time for today, dear friends, so I’ll turn it over to you… feel like throwing any of those ideas in your pipe for a smoke? Have other favorites in the marijuana space, or think they’re all doomed to fail? Let us know with a comment below.

Disclosure: Of the stocks mentioned above, I own shares of Innovative Industrial Properties and NewLake Capital. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.