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Ive been investing since 2006 before I went to college for economics. I've beaten the market since I've begun, and survived the financial crisis with little experience/training. Focus is mostly on long-term value stocks, but not afraid to venture out my zone when I see something interesting.
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  • Dissecting The Forbes Press Release On Creative Edge Nutrition

    On December 30th, 2013 Karsten Struass wrote an

    "article" for Forbes, "Big Marijuana: Is it the Future?" This so-called article, which the title would make you believe is about the entire industry reads much more like a press release for the only company mentioned in the press release - I mean article - Creative Edge Nutrition (OTCPK:FITX) and its subsidiary CEN Biotech. Strauss, a staff writer for Forbes (as opposed to a contributor) did little to no digging or fact-checking, took the company's CEO, Bill Chaaban, at his word for everything, and then turned around and spewed Chaaban's sales pitch to the world via Forbes. Beware of a company that is capable of getting a credible? news agency to publish a non-credible article.

    The License (or lack there of)

    The first and largest example comes at the end of the second paragraph. Strauss writes that the company was "approved to grow" marijuana and seeds for the Canadian and export markets by Health Canada. This is simply not true, and even CEN Biotech's new website (it was just launched last week), says so. They have received a "ready-to-build" approval from Health Canada, and more than once on the same webpage it says they are still awaiting a drug producer license and cannot distribute anything to patients.

    A spokesperson from Health Canada, Sara Lauer said, "A company that receives a ready to build letter can not be considered approved," and goes on to say that a company cannot be approved until their production site is finished construction. So either Chaaban lied to Strauss about obtaining approval or he grossly misinterpreted what a ready to build letter means. Again, Creative Edge Nutrition is NOT permitted to do anything involving marijuana in Canada, except to build their production facility.

    The Economics

    Chaaban goes on to tell Strauss that the company will be doing "$100 million in sales, with a margin of 80%" Again Strauss failed to dig deeper, or even criticize the statement with common sense. Simple economics and any knowledge of commodities would tell you this is highly optimistic, and at least the 80% margin aspect is probably not true.

    First and easiest to see is any industry with 80% margins is going to attract a lot of competitors. With competition comes price wars. In Colorado an eighth of an ounce (a typical unit for measuring marijuana in the USA and Canada)started at about $50 when their medical marijuana program started. Days before legalization in Colorado, prices were closer to $25 an eighth. In less than 3 years the medical marijuana industry shrank by 40%. So maybe Creative Edge will have 80% margins, but not for long.

    A little harder to predict and extrapolate is the question of $100 million in sales a year. The current Canadian market only consists of approximately 40,000 customers, and Health Canada predicts close to 500,000 in 10 years, with a $1 billion market. If both Health Canada and Chaaban's predictions are true, Creative Edge would capture 10% of the market. There are already over 150 applications submitted to Health Canada, Strauss and Chaaban told us nothing as to why Creative Edge would be able to steal a huge chunk of the market from a large pack of hungry competitors. Also two companies have actually been permitted to grow and distribute already, and they will clearly have a first-mover's advantage. Chaaban might argue here that they have huge potential in the export market, so they wouldn't necessarily be taking 10% of the Canadian Market.

    The Reality

    Strauss goes on to talk about Creative Edge exporting to a number of countries, including "Uruguay, Israel, The Netherlands, Mexico, Columbia, Iran and North Korea." First I'd like to point out that not only did Strauss not fact-check, he did not spell check either. Columbia is not a country, it is a university that Strauss supposedly went to. Colombia is a country. Second is that not one of these countries has expressed interest in importing marijuana or seeds, and have enacted zero laws enabling this. Many of the countries do not even have a medical marijuana program.

    The Uruguayan government has already stated they want to grow their own marijuana whether for recreational purposes, so why wouldn't they try for "medical marijuana" (to which there is no real difference). Israel has its own robust medical marijuana industry, and a traditional medicine industry. The Netherlands, well we already know about them, the Dutch started this whole thing, so why import? Mexico is one of the biggest producers of marijuana in the world, same goes for Colombia. Then Iran and North Korea - umm - seriously where did that come from? I think there are some sanctions to get around there, not to mention that the governments there are not typically progressive on issues such as marijuana.

    The export markets Strauss claims Creative Edge will enter just don't make any sense. Only one place has been reported to express interest in importing medical marijuana, Denmark, and they weren't even mentioned in the Forbes article.

    The Possibilities

    It could be entirely possible that Strauss just completely botched the article on his own, without misguidance from Chaaban. I have been misquoted for the benefit of the story in the past. Reporters are human and make mistakes too.

    But if this was the case Chaaban should come out with a statement and a press release labeled as such, not labeled as a news story. And Forbes should come out with a correction, if they have any ethics.

    All of these things add up to beg the question was Strauss duped, lazy, or worst of all knowingly complicit in pumping Creative Edge Nutrition?

    The company's stock rose 300% in about a week. Trading volume went from non-existent to 200 million shares a day. This was all based off this one article and the misinformation that they were approved for business in Canada. The company could have issued a press release to clarify the misstatements in the article, but has instead refused comment. I'm going to use the duck test here and stay away from this stock. If it smells like a pump-and-dump, looks like a pump-and-dump, and sounds like one, then it probably is.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: FITX
    Jan 23 3:12 PM | Link | 36 Comments
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