Rena Sherbill: Hi, everybody. Welcome back to the show. It's great to have you listening with us today. I'm excited to bring you Alan Sumler, who I know from writing on Seeking Alpha about cannabis stocks. He's a great writer about cannabis investing, a great deep dive into a bunch of cannabis stocks. Surprise, surprise, he likes Canada.
Interesting to get into that a rare point of view on this podcast, at least liking Canadian cannabis stocks. And a great take on his investing philosophy, and a lot of great nuggets about investing in the cannabis industry, as we stand here today, with so many, if not every stock down, how we should be looking at the sector, how we should be thinking about these things as investors. I bet you glean a lot of great insights from this episode as I did. I hope you enjoy it. Hope everybody's enjoying their summer. Hope everybody is staying well.
Alan, welcome to the Cannabis Investing Podcast. Super happy to have you on the show. Thanks for joining us.
Alan Sumler: All right, thanks for having me.
RS: Yeah, it's great to have you. So I found out about you from Seeking Alpha, because you write on Seeking Alpha about cannabis stocks. But talk to us about how you came to be writing about cannabis investing, and how you came to be writing about investing at all? And yeah, kind of give us your background into where we are today.
AS: Sure, sure. But my background is academia. I'm a college professor. And I teach the ancient world, the Greeks and the Romans. And I publish, and I'm a writer in the field of classics.
My expertise beyond academia is cannabis, and has long been an expertise of mine. I had a lot of long positions in the cannabis companies, and just as an investment. And I knew a lot about the stock market, but I just wasn't reading all of the coverage, right. And when I realised that this whole new sector had been born, I was like, well, I need to write about it. Because I knew a lot about it. I just wasn't a machine myself with the analysis, really didn't know I could didn't really know, didn't have confidence that I could write stock analysis. But then I met a hedge fund guy, and he said, no, you should be writing about these things. And so diligently went to town. He's the guy that got me into Seeking Alpha. He has a trading room. He's a big trader there.
So he encouraged me to go and start writing about me -- say it again.
RS: Who is that? Just out of curiosity.
AS: Yeah, it's Richard Lejeune. Richard, Yeah. His trading room is the High Yield Room. Yeah. And he had been studying cannabis, I just had not been writing about it. I just been just long hold positions without looking at any charts or being an analysis. I was just, at least will do well, someday. Then I started writing about it and got really into it. When I was in my early 20s, I worked in corporate law. So I knew a lot about corporations. I was just did not really get it. My interest in the markets did not peak until I was starting to think about retirement. Not that I'm anywhere close to that. But, that's when I started to say, when I was first introduced to the markets, it was before and after the 911 tragedy, and the markets were doing horribly. And they did continue to do horribly in the early 2000s. And I was very young.
So I didn't think I had any business there. I wish I had thought about trading in those days. But it was it was around COVID that I was getting all my money set up. And then so what I could write about this because I write about a lot of things. So I come to it, and not typical ways.
RS: I'm curious, given your academic background like, what you focus on in terms of where -- what you teach, do you feel like it gives you any perspective to look at an industry like the cannabis industry, right, that's fraught with kind of legal, not legal, helpful, criminal? Does it give you a sense, like looking at kind of an old world and the time and the arc of time and how things grow? Does that give you a sense of perspective that you feel like may benefit you in some way?
AS: Absolutely. So yeah, it's interesting. You wouldn't think the two were related at all. But it's there's two ways that is deeply moved me. And my first book is on cannabis in the Greek and Roman world and it had not been well covered by the academics. Well, as I got into that topic that was a 10-year journey, almost all of it was in the medical world, that all the references to cannabis and common usages were in ancient medicine, which was a pretty advanced science for the times, very much reliant on herbs on plants.
And that made me realize the importance of medical cannabis. And that made me understand when I was writing the book to explain well, there's actually really healing properties. So what the ancients were doing with cannabis was very helpful to the patients. And look, today, we're finally re embracing it.
And so to understand its medical necessity, it's a human micro nutrients. So humans technically benefit from cannabinoids. And this has always been true, whether it was illegal or illegal. So yeah, that was profound to understand that the ancients used it for health benefit, and we should be using it for health benefit, and that there's a big market there. A lot of the people I know I've gotten to use, like cannabinoids, like CBD for health for just about anything under the sun.
Now, the other way that it's very influential in this in the current book I'm writing is about intoxication and drugs in the ancient world. And what I've been writing about is how they use this is not cannabis, these are psychedelic drugs. And they use these for mental health curatives, for people that are insane, that have mental health problems, as we would say. And now we have a whole new sector today that cannabis is very much part of the psychedelic medicine sector, where people are using psilocybin and other psychotropic drugs or psychedelic drugs to treat depression and anxiety, PTSD, and, and things like that.
And it looks like the ancients did the same thing, use these kinds of mind-altering drugs to treat mental symptoms. So I think those connections are very interesting. I know in the book I'm writing right now, on including all this knowledge about the current applications, they're not using the same drugs, because the ancients had some pretty caustic, toxic drugs that they use, but we have much better versions of them.
But it's very much the same. So that surprises me, and does influence me. I'm looking at the psychedelics market, in addition to cannabis.
RS: That's interesting as an investor as well, like with an investing lens.
AS: Absolutely, yeah. Because a lot of these companies are laying out not just the drug, but they're laying out the entire treatment, and the clinics that will treat people for PTSD and whatnot. And it's going to be big, but right now, it's tiny. Like there's the investment like the stocks traded $1 and there's nothing going on. But their ideas are really cool, because they could be the next front of mental health medicine. It can have a huge impact. It's just not happening today. But yeah, I'm watching this as a future.
I definitely look for long-term in both cannabis and in any kind of biotech, I'm looking 10 years, or hoping, being optimistic.
RS: Empirically, I've heard amazing stories from people in terms of how psychedelic psychotropics have helped them in their mental health. I've heard people, just like, have lifelong issues. And micro dosing has really helped. I mean, I've heard a number of stories. It's always struck me -- I mean, I don't want to get too into the weeds of the psychedelics, but I do think that there's an overlap in terms of interest. And I think that there's an overlap somewhat just in terms of talking about how these products will benefit society, and also from an investing perspective, how it really changes the game, right? It changes, pharma changes what people are taking, it changes how people approach things.
And I felt that, I've talked about this a little bit on the podcast, that when the psychedelic sector was kind of just getting started or more getting started or getting a little bit more mainstream, I was like, looking at the sectors and feeling like it's going to be a much smaller sector because of what it's focused on. It's focused on mental health. It's not cannabis. It's not as it's not for the masses in the way that cannabis is. How do you think about kind of either the similarities or the differences in the sectors or how you would think about the sectors at large like how do you categorise them?
AS: Well, I think with the psychedelic sector, so for mental health symptoms, like the people don't get a lot of benefits from the current regimes of medicine and counselling. Although some people have great, great outcomes. And they're redefining these days that is in trauma medicine, what really is trauma.
And people that are diagnosed with cancer, who have terminal cases are immediately traumatized, and so these drugs actually will have a massive use in treating terminal cancer patients end of life situations, because the interesting side of using like, for instance, psilocybin in a clinical setting is you get people to accept their mortality. And it sort of gives their brain a nice massage, as it were to help them sort of see the light of what's before them. Otherwise, like as a limited person, we're very afraid by how you're going to die next week, or you have a terminal illness.
So in that sense, I think the trauma issue is much bigger than just people like suffer from trauma. Like if you see it, I'm saying like, they're, like, one of the studies going on right now is to study COVID worker, clinical nurses and doctors that worked with COVID, because they're traumatized from that huge idea that everybody's about to die. And we're the only hope. So these people were very traumatized, and they're doing PTSD studies with psilocybin on these folks to see if they can cure it. So this would be interesting if they could cure trauma as a -- because humans suffer from it a lot. So for me, that market is huge, but maybe I've read too many reports, because to the people in the industry, the markets are huge.
Cannabis, of course, as you say, is a global market with a massive it's got a lot of people using it both medically and recreationally. It's got way more money at stake globally than just an up and coming biotech sector. That's huge. And that's a different story. Although, cannabis isn't legal everywhere. It's not yet a global product. It still suffers from a lot of regulation. And even in we see places like in Canada, where it's totally legal that the markets get filled up pretty fast. And then cannabis has done its job. And now it's kind of tight in prices, and the ability to make money.
So we have a long way to go with cannabis before it's really a thriving sector. It's very, it's very much shattered these days.
RS: Yeah, it's interesting. I mean, it's almost like we haven't seen what either industry can do really, right. We're still it's like you're saying you're looking 10 years out. Like I think there's a lot still to come.
AS: Yeah, yeah, I'm trying to try to think of it that way. Because in the short term, cannabis is of course down year to date. It has a lot of criticism by the stock raters and analysts. Of course, there's also a lot of problems in the way people cover cannabis focusing only on legalization, right, where for Canadian companies, that's it's only going to make so much of a difference. It'll be a big stock day for them, but it's not going to up their revenues if America legalizes. So this whole focus on, they're going to legalize, they're not going to legalize the stocks are up, they're down. I think the right investor is going to look deeply at the company, how they're performing and what they're doing.
And you have to kind of ignore the whole legalization debate because that's not that's not the only topic on the on the plate. And then interesting enough cannabis stocks have the ability to do uptrend and to be on the up and up. That is the stock price. They're not just going down even though they are down. So I think I think investors have to look closely, but in the short term everyone says sell you know sell your cannabis stocks is there's no point. I don't feel that way, unless you have billions of dollars in cannabis stocks, you've lost all your money then I guess you have to sell them but I see it differently.
RS: I was going to say everyone but the people that come on this podcast because everyone that comes on his podcast is like don't sell don't sell now. And it seems yeah, exactly what you're saying like unless you absolutely need to it's a silly sell at this point.
It's interesting in terms of the Canada and the U.S. legalization in that whole play. It's I think that's that might be a nice segue to get into what you cover and how you cover, because a lot of your articles on Seeking Alpha are about Canadian stocks, some global stocks, but a lot of Canadian stocks and which have fallen out of favour with a lot of cannabis investors. Do you want to talk about kind of why you talk about those stocks or Canada, the U.S. your philosophy there?
AS: Sure, well, I mean, I've done my diligence of studying the MSOs, the American multi-state operators and I do have positions and all these stocks. For MSOs, I think they're limited to their growth, I think they're the best players. But because they have to work with cash, and they can't work with the federal government, like they can't work with the banking system, they're limited in growth, although they are awesome. They're probably the most awesome cannabis companies ever. The American MSOs are doing awesome things and making tonnes of money. But for any kind of short term gain, I don't see anything with them. I have long-term positions with them. But they've only lost and unfortunately, they've lost a lot of them have lost more than the Canadian LPs.
So the Canadian LPs are the most famous, that's why I focus on them. There, they've been around the longest in terms of being publicly traded. And when people think I'm going to play cannabis, they're not necessarily going to read every single company, they're going to play the big dogs, even if those big dogs aren't performing so well, Canopy Growth. They have great revenue, but then their cost of revenue is through the roof, so they can't seem to turn a profit. But people still think that's the company.
So I definitely focus on the Canadian LPs. I feel like a lot of them Canopy Growth (NASDAQ:CGC), Tilray (NASDAQ:TLRY), Sundial (NASDAQ:SNDL), they have the cash and they have the vision, they have the advanced process, they're already in the middle of the game. So I feel like they're going to be continued winners, right? Although I would love to see some changes with their business strategies.
I like Clever Leaves (NASDAQ:CLVR), because they're going with the global export model. And they have their own facilities. And although they're losing money, because they have not fully fulfilled their whole business strategy of dealing of selling here and there, they're still in the process of getting everything working. They have these great facilities. When they're in full steam, that company is going to look amazing.
So I don't focus on American MSOs. I will when they're allowed to bank when they get there. I know that when the banking laws come into play, those MSOs are going to go crazy wild. And I'm definitely ready for that. But for now, my coverage is on Canadian stocks. Yes, that's right. And I'm most interested in their potential. Yeah. And of course, I was there like everyone else, with some of the stocks were hitting $30 a share. And I do think those days will come back not soon, but that's the potential.
RS: So can you talk a little bit about that runway for growth, because some people would say the runway for growth is much greater in the States. So that's why we're focused there. And you're saying kind of, there's more limitations there? Or you're just waiting to see how the banking opens up?
AS: Yeah, I think when the banking -- like I think, when the banking. And we should, we should understand that. I'm looking I do look at short term movements, too. And this Canadian LPS offer short term positions and winning, I will say that, but for MSOs. I think once they get to the stage of banking, then they're going to be able to really grow their companies and start to not sure how to explain it exactly. The MSO stocks have really, they really take a beating. And it's smart to hold them because the stocks are very cheap. That's good.
There are a few exceptions, by the way, that that are doing incredibly well. It's a $23 to $30 a share range, but a lot of them are under $1 a share. I guess I'm just waiting for them to really enter the larger room. I want them to come into NASDAQ and all of this. I mean, I want them to go to the next level. But it's to me, I guess it's not just a question of which one will make the most money because for me MSOs I mean, I play options, calls and puts. I don't really do that on over the counter stocks, I mean, OTC stocks, right, so I can only hold them on. So I will say that I just don't, I don't have as much fun with them as I have with the Canadian LPs where I can buy calls and puts and hold positions and make some money selling for instance, covered calls and stocks are going up. And things like that with the emphasis is just to be very static.
Now that's not the most professional answer. I would agree there's might be a more professional answer. I will just kind of swing back to what I was saying before. I think the MSOs are the coolest performing companies, because they are really working against all the odds to set up multi-state operations. And these days now a licence afforded to sell cannabis as a cost a few million dollars. So their assets are going to go through the roof, right. And that's why I hold small positions in all of them.
But my coverage is on the Canadian LPs, sort of like professional versus up and coming. But that doesn't mean I don't like the MSOs, I love them. But they don't move me enough to write about them at all. And to be honest, Canopy Growth and Tilray have not done much for me to write about either. I've been writing a lot about 22nd Century (NASDAQ:XXII), which is a nicotine, a company growing tobacco, who also grows hemp.
And they have this huge setup where they're very low nicotine products are about it are entering the American market are about to be all over the U.S. And the federal government is mandating that nicotine is taken out of these cigarettes over time that they are the nicotine is bred out so that they are less harmful. And so 22nd Century has been on the ball for like 10 years with this, like they're ready with the product. And all the other tobacco companies have not got on board.
Now, I did not get in a 22nd Century because of their tobacco play. I actually was getting into them because they do they have they do. They work with genetics, they perfect them using artificial intelligence, right. So they use computers that help them find the genome of the plant. And then they figure out what genome they want and what genetic traits they want. And they do not modify these traits naturally, but through breeding, they produce plants to have all the traits they want.
And again, they're powered by artificial intelligence machines. And a lot of data from other of course, people that grow these strings. This is they do hops, cannabis and nicotine. So they have this interesting scientific approach. And they're what they want to do a cannabis in both hemp and psychoactive cannabis, they want to make these strains that has specific genetics, for all sorts of different things. And that's a play that a lot of biotech companies are making, by the way to modify the genetics, so they're better for the industry.
But Clever Leaves is very interesting in that. So they have a tonne of room for growth. And they're not doing that badly. They don't, they're not a company that overspends they, they, they just only now we're making revenue beyond they were just selling research cigarettes for years to the government.
Now they're actually selling their cigarettes on the market, and they're selling hemp and CBD products and they're licencing their genetics to a cannabis players. And then they're getting into the global hops market, which is where we get beer from, right helps flavour beer well, all the hops growers, they want strange, specific hops for their beers that have specific tastes and traits.
So to me, that's really interesting. 22nd Century has had a lot of growth recently on its stock price, too. Although they had the same downtrend everyone else has. And they're doing historically low but their stocks a very interesting watch. So that's not the big Canadian LP. They're an American company. They're definitely interested in second and doing psychoactive cannabis, in terms of servicing the US cannabis industry with good genetics.
So I like -- and Clever Leaves, Clever Leaves is Canadian, although their operations seem to be focused in Colombia, but their headquarters of course in Canada, they have operations in Canada. So Canopy Growth and Tilray are not big winners right now. They're probably not even fitting the great way that I've described them. They're not doing that well, but I still watch them play them and feel instinctually that they have the most to give the investor long-term.
Yeah. But again, a good cannabis basket is going to have a little bit of everything in its investment basket. It's not going to just be the MSOs right, so I have a little finger in everybody. Now there's a tonne that I don't play at all, that I don't think are going to make it through the long-term. But those are not the MSOs those are Canadian cannabis companies like Hexo (NASDAQ:HEXO), Neptune (NASDAQ:NEPT) although performing well Cronos (NASDAQ:CRON), they're all not doing as well as I would hope.
RS: Why do you think -- I have a couple of follow up questions, but let's start with why you don't like those Canadian players, as opposed to the ones you do? Like, what are they doing wrong?
AS: They're just losing the sort of -- they're losing that -- they're not bringing in enough revenue to overcome their net loss. So they're never going to get this as a stance. Some company like Hexo is probably not going to make any investor happy, no hedge firm nor, like they might, their retail investors might play it. But their fundamentals, their financials are just not good enough. And then it looks like, Hexo is having debt problems. Neptune just underwent a split.
And after the split, their stock is now tanking. SO it's like they don't -- we want like, I think of a good stock is one that, of course, the fundamentals are awesome with the company and the hedge firms want to buy it, it has that momentum, that everybody's buying it. I guess that's the thing that I'm looking at this beyond fundamental I do both. I look at the analytic, I look at, how's the stock doing the momentum is hedge funds hold or hedge funds holding it? Also are the fundamentals, the financials meeting the expectations of stock writers?
So for me, Neptune and Hexo are not, they're not meeting the expectations. Anybody could say, Canopy Growth and Tilray are not either you can look at Seeking Alpha, headlines today, and you'll see they're saying, sell Canopy Growth sell Tilray. But no, I liked the stocks beyond that. So the ones that are doing that, I just feel like they're not going to be picked. I think that the stock needs both. It needs good fundamentals. And it needs the trading momentum. It needs the hedge firms to choose it and hold it and think and they think it has great potential.
Now if we go through all the stock writers of the banks and hedge firms, they're not really into Canopy right now either. And it's appears to me from just doing the analytics, that Clever Leaves is the new darling, that seems to be the new darling of hedge firms. That's just my -- that's not like that's just what I've seen, it's got. And the reason I say that it's because their momentum, their trading momentum has been through the roof over the last two months. And, you saw they had a rally that was hitting $4 a few months ago. Of course, their stock has fallen through the ground like everyone else. But it just looks like people were interested in them because of their unique global export strategy where people might be feeling about Canopy Growth and Tilray the same way that I'm feeling about Hexo and Neptune that maybe there's nothing to come out of these.
But hey, Sundial is really the question mark, right? Because they're now becoming a liquor company. They're going to sell cannabis liquor and have cannabis retail. We have to see what's going to happen there. Because that's something that Canopy Growth and Tilray have not done. That's not 100%.
One of those companies has a bunch of breweries that they own. So they've all gotten into alcohol and America as a way to get ready for legalization, but canopy just, I mean, sorry. Sundial, I mean, they just bought that liquor company, Alcanna, I mean, it's like one of the biggest liquor distributors in Canada, it's crazy. So a SUNDIAL, like everyone hates Sundial, but I love SUNDIAL, there's there could suck, if they don't reverse split, there will be a great party at the end.
RS: And in terms of Canopy Growth and Tilray, you were bullish on their long-term strategy, like do you feel like that's where people get it wrong? And also just following up on the global angle, I feel like that might be something you could point to Tilray as kind of having some foresight in terms of how they got into the global picture. Is that something that you like about them?
AS: They are in the global picture. And yeah, they're trying to enter the, for instance, the European markets, and I like that. Yeah, I think what's going on with Tilray is that they have the merger with Aphria. And I think it's just going to -- even they say it and not necessarily in this month's reports, but in previous quarterly reports, they said it's going to take time for those two companies to fully go back to the full steam because before they were two excellent operating companies, and then they came together and nobody likes this or at least their stock did not perform. But yeah, I think that Tilray has a tonne of potential. Yeah, I liked them.
Canopy is the one that started to really turn people off because their last report was very low, like they did not make enough money and they spent way too much money to make not enough. I mean, their, their cost of revenue was like, way higher than their revenues. And then their net loss was like very, very are high in the hundreds and hundreds of millions. So that's not going to make anybody happy. Hopefully they're trying to figure out how to fix that glariness.
Canopy Growth, if you watch, if you watch the stocks every day, Canopy Growth has a lot of up momentum, it has probably the highest and trading momentum of all the cannabis stocks. So I think sometimes the reason why my thoughts on cannabis are a little different than the others is that I look at that technical analysis that I do both that I very much study, I someday study technical, more than I study fundamental. So to me, the technicals very important. And I see that canopy just has a lot of momentum.
We see this and other stocks and other sectors where people play the big players, even if they're not, like, how do you play? Do you want to play Twitter (TWTR) today or Snap (SNAP)? Which one's really going to do better? Right, that's sort of the game in cannabis stocks, is it Tilray or Canopy Growth, I really see Canopy Growth beating the rest and momentum but not in performance financially.
Tilray is doing good and financial performance, but they have a ways to go. And again, the question mark is Sundial, we if they reverse split, their stock momentum is probably gone. But if there's some miracle, they get to $1 buy their next earnings report. And that will be amazing. Because they don't have any debt. They're filled with cash. They too have over their operations are too big. So they're there they work it in that loss.
But their last two acquisitions, put them in the cannabis retail and liquor retail sectors, beyond just producing and manufacturing and wholesaling and putting products out there. And they now have their own retail and have liquor and cannabis that's going to do that. If that doesn't work, I don't know what will because that's an amazing plan. Their revenues set did pretty much double and but of course their net loss might get higher as well. If Sundial was over $1 It would probably be the winningest the best one out there for the Canadian LPs.
Now we haven't discussed Village Farms (NASDAQ:VFF) that's another interesting player that I liked Village Farms but they're not they're not doing so well either. Village Farms sells besides doing the whole cannabis play, they grow vegetables in America and sell them and then they're ready to convert all that American gross space and South Texas into cannabis space upon legalization.
So that's kind of a cool plan, we're whereas Canopy and Tilray just have, they have options to buy American and MSOs upon legalization, village farms, which is a Canadian LP in cannabis, Village Farms, they have their manufacture their growth facilities ready to go. So to me, they're one step ahead.
Although other companies have some American facilities, but Village Farms is a favourite of mine and other people. That is the stock writers like it as well. It's other people think that stock has potential, but it's price action on the markets, it's been down pretty hard. And it doesn't look like it's going to do much like get beyond $3 a share. And I remind everybody, including myself that, all the cannabis is down here today, there's not been, it's really down beyond year-to-date, it's almost down 12 months across the board. They've all just hit their 52-week lows. So some of us feel like they'll start to bounce a little bit now. They for -- companies like Canopy and Tilray there's not much more to lose, because they're trading very much at what they're worth book value.
And that's something Sundial made in their last quarterly report, that their book value is $0.52 a share that's what the company's worth. Highly diluted, by the way, obviously, probably one of the most diluted companies you'll ever trade because they have so many shares out there. But did you send to share their trading today at like $0.34 to $0.38, so the company is undervalued. And this is why when we see them hit their bottoms we know that they're going to start to move up a little bit because there's value in that low price that discounted price.
RS: Do you think that some of the Canadian names have been swept up with the American names in terms of the price volatility, the share price volatility or not even really volatility it's more just like a slow decline?
AS: Yeah, it has. Well because the Canadian LPs are like the face of cannabis, even if it's not logical, right? I mean, you see it in all like you see it and all the writers like the cover Cannabis, like Cramer, for instance. Like it's all about that, that these Canadian companies represent the potential of the cannabis industry, right? For instance, like, a lot of people like Neo for electric vehicles, but Neo is not in America, Neo is a Chinese company. So, it's like this -- everyone sees these Canadian LPs as the face of cannabis.
And I think it's sort of a, you just want to buy the easy thing in some ways. You don't necessarily want the exact, it's like think about how many articles you've seen the say, when Canopy Growth is down, America hasn't legalized yet, like you see this every day, but it doesn't have any logical sense to it. It's like yeah, so what? That Canopy Growth doesn't make revenue from America cannabis. So, yeah, it's illogical, swept away, right.
So America, like somebody could put out a story about how American Cannabis markets are shrinking that would make Canopy Growth go down that day. So, no, there's no logic to it. But in seeing that, that's why I'm saying everyone's playing Canopy Growth, obviously, as like the no brainer face of cannabis. It must because, again, the momentum on the stock is high, even on its down days. It's if you if you compare its daily weekly performance to something like Neptune, it's like night and day. Canopy Growth is when the volatility is moving away all the cannabis stocks start to move up. And you will see the Canopy is typically beating the rest and then they all go down. Don't get me wrong. None of these have a very extended uptrend.
But yeah, it's illogical, by the way. Like, logically the American U.S. MSOs should be the hardest players, the most well invested with most investor sentiment. But that's just not the way it seems to go.
RS: Yeah, from plant to stock, the whole industry is completely illogical as far as I see.
AS: Yeah. It just is. It just is good. So you understand what I'm saying. Yeah, so I do play with the illogic like, and I've talked to, I mean, I've talked to a lot of people with the MSOs, like, a lot of people think I should be only covering MSOs, recommending MSOs. I know, one of the trading rooms on Seeking Alpha for cannabis only deals with MSOs.
And that's fine. I'm a bit new to the industry, maybe I don't feel as comfortable with over the counter stocks. I don't study the price movements as much as I should. But what I unfortunately noticed is that it's always just down, down, and very much down. But then I do read all the news about their revenues, and the American MSOs produce a great amount of revenue. And they're not like Canadian companies, they're not sitting there at net loss all the time.
But I also want to play with like I like I said, from the technical angle, I want to play with the marketplace, because I have my theory is you have to, you kind of have to follow the leader with like with the psychedelic stocks, they have great potential, but they have been dropped by everybody. So unless you want to stock at $0.40 a share, and it never moves, you don't really get to play that sector.
Although logically it looks great, perfect. So that's an interesting thing about the stock market. And I find that in a lot of sectors, like I said, electric vehicle, you find it, you find it in oil, you find it in a lot of these sectors, that there's not a lot of logic to what's going on. That's why I do both the fundamental analysis and the technical.
And unlike people that will say, I'll give you the advice, and you'll win a million dollars trading? No, I don't have any like, I don't have some kind of secret weapon. I just watch them all, and I try and see what's going to happen. And I definitely rate all of them each month based on some criteria.
RS: What is your criteria? And also how much do you use? And sorry, if I just cut you off... What is the criteria that you use? And how much do you kind of balance the technical and the fundamental analysis?
AS: Well, if I see that well, I do look at the technical analysis, probably first that's what will get me kind of thinking what's going on deeper. At the same time a lot of times the stock on an uptrend just turns into a quick downtrend. So then I'm thinking more like, well, how's the company doing from quarter to quarter, and year to year. But specifically, I look at net loss or net income.
But even going a bit further than that I'm really interested in revenue numbers and cost or revenue and whether the company is beating that specific equation, because in terms of net loss, I think a lot of companies carry it. It's not always it's not the only standard of success because they could be beating it in the revenue game, having really high margins. So I definitely want to see the revenues coming up. And that their net loss is doable.
Many people will say why bother even caring? They don't have free cash flow? Yeah, very few of them have a free cash flow. And that may not come anytime soon. So now I don't use that criteria, mostly looking at potential revenue. And what kind of news is coming with the company? Have they just bought something?
Are they opening a new thing? Is there a new product? So what their current news is, whether they're doing well with the revenues and actually making money off of their business? Even if operations draws them down? And then what their future outlook is, what are they doing, to set themselves up to deal with price compression or to deal with new markets, developing markets? Like, how are they getting into America? Are they getting into Europe? So those are part of my consideration.
But I keep track of, of course, what news developments come about with these cannabis companies and then wait -- and then look to see if that's really a big deal. Or if that just means nothing. If they hire a new board of director, that's not going to make them a successful company suddenly. But if they now beat their, their revenue versus cost or revenue and had high margins, now I'm interested. They figured out how to beat the, let's say, price compressions in the Canadian markets. Because a lot of them are changing their product offerings to try and fit the market better. And I think they'll have some success with that.
But yeah, I look at these sorts of things. But I do start with technical analysis. And let me just point out that that begins with market breadth and larger picture. So it doesn't -- technical analysis begins with how is the larger index doing? How's the sector doing? How is the larger market breath doing? Is it a bullish or bearish week month? So I do actually start real high up from the sky, before I get to cannabis to make a decision on cannabis. So I'm always looking at those larger market indicators. I know that on a bad like, volatile, volatile day, like this morning, that's going to put cannabis in the trash for sure. There's no there's nothing. There's not the cannabis has nothing to save.
But then we also consider that like, every time there's a new story about the Senate or Congress, the cannabis flies, but on legalization, but they said that's sort of a false, that's sort of a false indicator, more interested in their long-term, potential. And if financially they can cut it, right. I mean, if they have to now borrow a tonne of money to continue operations, it could be good or, with like, Hexo, it could be bad. And some of these companies had to cough up bad debt sell their debt to a new company who's willing to stomach it.
So that's not a good sign. But again, getting back to Sundial, Sundial, it doesn't have any debt. They're just not performing as well, as one would want. And their stock is -- even though I don't want it to split is highly diluted, and they have little hope of really overcoming its circumstances. Still, it's a great underdog of everyone else. But yeah, so I do look at both, and there's a lot of different things I want to see. Like, I'd love to see the bigger market become more bullish and the sentiment to become a bit more bullish. I think that will help cannabis out.
RS: Yeah, I think we'd all like to see that. And that would that's going to be nice. When that happens. Something else you mentioned is about, the importance of diversification and a portfolio right, that you're not just taking Canadian names. You're not just taking multi-state operators. Do you also believe that part of that diversification is in ETFs? Do you think it's the smaller us operators, any of them?
AS: Well, I followed the ETFs for a long time, but they just -- they don't seem to say much to me. But then remember, I like options as much as stocks, and ETFs don't offer much option play in my book. So I don't follow them. I will admit them a bit biased towards stocks that have good options. Good option plays that have both good calls and puts.
But diversification, yes, I mean like in both playing cannabis but playing support like playing the companies that produce grow equipment, companies that do cannabis technology, although they're all traditionally down now. I still think you have to have your fingers and a little bit of everything. Also in the speculative cannabis biotech companies doing good research with cannabis. I have a list. Of course, none of them are in the revenue phase, but I like to have a little bit of everything and watch all the difference, let's call them sub sectors of cannabis. Right? Like we can be.
So like we can be so focused on Canopy Growth that we miss something like 22nd Century or, I'm still watching interesting companies like ATNF and I don't think I said that right. 180 Bioscience, they have some great research with cannabis and Alzheimer's, I believe are other end of life like brain illnesses. Those are great, they're not making much money, though, nobody's freaking out about their, lack of revenue, or buy the stock now before it goes crazy. But I do look at all of them. And then in addition, of course, a really good portfolio is going to move into the sectors that are winning and have great potential like electric vehicles, or alternate energy or other energy plays, or some retail plays. Like a good stock, it's kind of a little bit everything.
So cannabis, obviously, no one's surprised by this, it doesn't have enough to hold a portfolio or bring you through. Again, I'm a little biased against MSOs. Now, just because I don't really play options are with them. And I just hold them and they just don't -- I don't know, I don't see it. But I will sooner or later, I promise like that is we know there's going to be a Banking Act passed, Congress is fed up with the lack of banking in cannabis. That's obvious. So that's going to happen. And we'll see big things and no, we definitely want to be in on the MSOs before that happens.
Like, that's, you want a little bit of everything. But things that I'm cutting out of the packet -- definitely Hexo and Neptune aren't looking so good. Cronos needs to do something magical to get back on its popularity list. These companies I'm not seeing much also with the biotech cannabis, yeah, none of them were very impressive. Although, yeah, none of them are very impressive in terms of like potential for immediate short term growth.
So keeping everything in mind, right, short term or long term and potential. Some companies stay on the list, even though it's illogical and other companies fall off the list. I think I don't know what's going to cut through the larger volatility right now. It's been going on for seemingly six months, so and the cannabis downtrend started last year.
So I don't really know what's going to save it overall, like the war could end. But the war has nothing to do with cannabis, you know, but the interest rate issue does affect all the cannabis stocks, because the investors don't want to put money in a company that needs to borrow a lot of money when interest rates are going up. And of course, we know with the inflation that cannabis companies are dealing with any retail issue of the every all the costs are going up. Now your customers don't have enough money.
Meanwhile, your costs are through the roof. You have to raise your prices, your customers can't buy your stuff. Now your revenues fall. So yeah, they're all dealing with that. And I don't know what's going to solve that. I don't think a magical rate decrease would solve that. Like a lot of other analyst, I think it's long-term. And fortunately, for everybody the inflation issue.
RS: Yeah, it's definitely like across all sectors. And because do you feel you feel like it's going to last longer than people think because of how entrenched it is? And how kind of negative it's been leading up until this point?
AS: Yeah, exactly. Like I watch other sectors I watch, I watched both oil and alternate energy and often compare the two performances. Oil is going to take forever to work out. It's not it's just not, there's no wand. The President's not going to just get mad and oil stocks go away, there's huge problems with oil, they're going to cause it to be dysfunctional for many years to come. And that's what the oil companies say like thing for instance, Diamondback Energy. So, they all say it's going to take a long time for this to be worked out, which means it's good for oil stocks right now.
So it's like that with retail that's going to take a while because also beyond inflation, and beyond the rate hikes and the war. We also have massive global shipping disruptions still going on. So I follow all the shipping companies all the freight companies and their revenues because they tend to do really well during these disruptions. Just like oil companies, they work on future contracts to perform their duties. So sometimes they can have really good runs, when the prices -- when the futures are going up.
And the container companies, the shipping industry and logistics still talk about absolute disruption. And this is causing a further problem. So none of this is going to be fixed quickly. Like the war -- the disruption from the shipping industry is post-COVID, it's not the war. Right. So yeah, I think there's a lot of things that are really entrenched that are going to take a long time and having lived through some of these recessions, not that I think we're having one.
Yeah, you really run out of cash to buy anything. So, this causes everybody to like, during COVID, for instance, a place like Target (TGT) was getting bunch of revenue from online sales, they were filling their warehouses filled with, merchandize everybody's buying from Target. But now post-COVID, with inflation Target says, we got to call our prices, it's not working. We've overbought and people are not buying as much from us.
And now we have to slash everything, cut our losses, they get ready, like for Christmas retail cycle. Yeah, so for Target cutting over in cutting the inventory was the answer that sort of a sort of a sign of what everybody has to deal with. It's not going to be fixed quickly. So I hope I hope it to get better, though.
RS: Fingers crossed.
AS: Yeah, right. Right. Right, could just be a bear market for the rest of the year. And, that's fine, too. I kind of -- volatility is kind of an interesting thing to study in and of itself, although it probably doesn't make everybody money.
RS: But I was going to say that coming from an academic, I'm sure most investors will not agree with you.
AS: It's interesting, you can really make some money on short term volatility in both directions. A lot of work. It's not something someone who wants to sit at home and let someone I mean, someone who just wants to win and not look at it. No, it doesn't help them. But yeah, there's actually a lot of interesting short term things going on in a lot of different sectors.
RS: So you're like a trader and an investor?
AS: Say it again.
RS: It sounds like you're a trader and an investor because it's short term and long-term.
AS: Yeah, yeah, absolutely. Yeah, I don't... I trade a micro portfolio. I'm not... I'm a college professor. So obviously, I don't have a lot of means. So I trade a micro portfolio with core positions, both short and long. And I work with call and put options both naked calls and covered calls. And I don't do anything too fancy. But yeah, I look to try and win try to gain income from short term volatility in either direction.
Looking at all the -- as much Fundamental and Technical Analysis as I can definitely. Although well, anyways, I think in the future, we hope to have a trading room on Seeking Alpha for cannabis Canadian LPs. It's just a matter of time, because we just want to see the market do better a trading room and cannabis right now it's like yeah, buy a put now buy another one. Now buy a call. No, no, buy a put. So that's no way to that's no fun. So we are waiting for there to be a better situation.
And then once you have the volatility, let's say subsided, and cannabis is back to doing well. Then ranking these companies will be a bit easier, then separating the wheat from the chaff be a little bit easier. But yeah, I trade. It's fun. I like it. It's not it's nothing crazy. But yeah, I trade and I trade mostly at a micro level, which means I buy proportions. If someone would pay 1,000 shares. I'm going to play 100. You know, I play micro proportions. And I'm mostly looking for retirement.
Yeah. Like I don't, I'm not paying bills with this. I'm mostly looking for retirement like 10 years down the road, cannabis should be doing well. And the stock should be great. That's my theory. It's the old -- since cannabis became legal here, like in Colorado, I've worked with the Gold Rush theory, although because I guess of like, the tech boom, the tech bust, we know that Gold Rush is have their end, but ideally 10 years, 20 years down the road, this will be a big deal.
And by then the stocks, in my opinion will be $100 a share. There won't be there won't be room for new investments. So for me to be, oh, where can I buy 100 shares? I could do it right here, as long as it doesn't fall too much. This is my strategy. So it's a gold rush strategy. The things will become really great. And by the time they're doing awesome, there won't be much room for anyone else.
So that's how I think cannabis will work. Just like today if you want a licence to sell cannabis and some of these city states, they're $7 million to $10 million. So no longer can anybody just open a dispensary in Florida. So I think stocks will do that too. Someday there'll be real high-end cannabis and there won't be, there won't be much for the new investor, like the way oil is now like, if you want to get into oil on a good company, $200 a share. And that's great for someone who has that means, but for someone who's doing micro investment, you have to be like, I need something more proportionate to what I'm doing.
So I think cannabis will be that way someday, including the MSOs. I mean, someday it'll be out of reach, there'll be large cap companies. And that's, I guess, my larger investment strategy, I couldn't buy Apple (AAPL) when it was tiny. But man, you got like, hundreds of cannabis companies to choose from.
RS: Do you feel like and we can kind of close out here and you can add in anything else you want to say, but do you feel like of the top players that you see, be it in Canada or the U.S. how many of those do you foresee becoming like the mega caps of cannabis?
AS: Yeah, a couple, but not many. I do think that I think canopy is the closest one to getting there over long-term. I would say SUNDIAL if they can just turn this the sort of current predicament. But we may not have seen that's definitely a question mark about MSOs. It's like, we haven't seen anything yet. Wait to the MSOs are on the major markets, then they will I think actually the person who wins in the end will be an MSO from America. It's just -- and that's why I'm waiting for them to finally get all their legitimacy. I think once they're in the on the NASDAQ being traded, then one of them is going to be the next big one.
RS: Do you feel probably - sorry, feel like more than one has the potential. Do you feel like --?
AS: Yeah, for sure. But I don't I'm not going to build a cough up any names at the moment. Because the ones that I'm heavily invested in are doing horribly, like MedMen (OTCQB:MMNFF). The really good ones like Jushi (OTCQX:JUSHF), Yeah, that one looks good. But realise like they're all going to get bought up. I guess that's the other thing too, I guess I should be very specific about another bias against MSOs is that once they're bought up by Canopy, then that stock is going to be turned into Canopy stock down the road. So it's to me not always clear where that big wins is going to be. That's why I want to see these companies get through that legalization and banking hoops, and then become legitimate on the big markets.
I think we'll get a winner from one of those. They might even do better than the Canadian ones, that's for sure. But America will suffer from what Canada suffers from price compression. Although Canada has a lot of not in British Columbia, but the other provinces, of course, you sell your cannabis to the government, and the government distributes it to the stores. So that's a limit and growing.
You can't you can't build your industry, you can't build your business beyond what the government will let you. It's just their kind of way. So America doesn't have that a cannabis company in America could grow way beyond what it needs to. And so we'll see that difference at the same time in American Cannabis, recreational markets, there will be price compression. That happened in Colorado. There will be oversaturated markets where now the price of a gram of concentrates is dropping to $8 and staying there.
So that price compression will happen in America, just like Canada, even though the Canadian government regulates a lot causing the price compression. It'll still happen in America. So that's why even like, I think some people are really looking to Clever Leaves, because to be a global exporter means that you really have a lot of chances to grow your reach. But again, it's just yeah, I think MSOs might be the next winter. I just don't know if holding the MSO now is the way to win. But I do have a few positions, right.
So yeah, I think American companies will probably stop the Canadian companies markets.
RS: I was surprised when you are giving examples of the MSOs that you gave MedMen and Jushi. I was thinking that you were going to give like one of the bigger MSOs. It's interesting that that's who you brought up?
AS: Yeah, I watched the tiniest ones. Like, yeah, I almost have to cheat a little bit. I know we're out of time. On the MSOs I almost have to grab my list and look at it.
RS: Well, when I when I talk about like who the mega caps, if they're coming from the MSOs I think like top-five I'm thinking like Green Thumb (OTCQX:GTBIF) like, Trulieve (OTCQX:TCNNF), kind of like the major even Verano (OTCQX:VRNOF). A lot of people like it's not -- big but it's getting there. And yeah.
AS: Let me look real fast at my MSO positions. I tend to look -- like MedMen, I liked although they're not doing good anymore, but their stock was just so discounted. As a micro player, I want to -- if I could buy 1,000 shares, I liked that. So as a micro player, as someone having a micro portfolio, I'm looking for a price a discounted price to get in on. So what I noticed about some of the better players is, although they're great, although I don't see any of the great ones in my portfolio right now, Green Thumb is doing well.
They were -- when I looked at them before they were too expensive, like trading too high out of their value.
So that's why I recommend the less the underdogs. Don't get me wrong, Verano, I like and have, like I played things like Tilt and Red, White and Bloom (OTCQX:RWBYF) and MedMen.
RS: Red, White and Blue. Let me ask you about that, because we've had them on the show. And some people kind of question the veracity of what's going on there. You like them as a stock and a company?
AS: No, I'm not going to necessarily say that. I think what I liked was their price. Because I want to be clear, I get a lot of queries from people about what company to buy. And I see things where companies are saying they're going to be the next thing. And they're going to be the next biggest thing ever. And no, I don't buy any of that stuff. So no, I'm not holding them, because I have some insight now, mostly because they had an impressive price. I also want to be very clear.
I set up my MSO, my MSO basket was set up last year, and I haven't touched it. So I don't short. I don't short the MSO trade, like this one's doing better on now. I just leave it at what it is because I feel that there's somewhat equal, like not that they're all doing the same, but I'm not seeing - anyways. I probably could have set up my original basket better, and maybe they'd be doing better. But no, I haven't touched it in a year. Like I read their headlines, but I don't adjust my and they're all very micro investments.
So when I set it up, I based it on and discounted prices yeah, for sure, which is of course, meant that a lot of them have just gotten cheaper and horrible. Like I play American Green, that one's great. Like a bitcoin it trades like 0.0001, they make a revenue, why not? They have some cash coming in, and they're trying to expand. So I think that's a cool play, though. I mean, that's why I like Sundial, it's discounted, someone who wants to try and turn $100 into $1,000. Maybe that's the way to go.
RS: No, it's definitely it's definitely a nice way to go, especially now. I just say especially talking about like inflation and all that it's a nice way to get into the investing game. It's not as daunting or as overwhelming.
AS: Yeah, absolutely. No, that's very true. That's very true.
RS: Yeah. Alan, I so enjoyed this conversation. I'm really happy that you came on. Also, I didn't know that you're thinking about starting a trading room. So that's really exciting news. Hopefully, we get better grounds for better content like a more interesting market to look at than what we're looking at right now.
AS: Absolutely. I'm very much ready for the trading room. We're just really biding our time I'm looking for people should follow me, I'm looking for more followers. That's the biggest criteria. Although I'm not able to write as many articles right now, because I'm working on my second book, the minute that book's over, I'll be providing more articles.
RS: So people can find you on Seeking Alpha. And let me just unbiasedly recommend Alan's articles. Because I'm not having him on just because he's on Seeking Alpha. I'm having them on because I really love your articles and your analysis. And I've been reading them since you started writing. So thank you for that great content. Can they find you anywhere else, or where can they find your books?
AS: A great place to look at my non-stock research is a website called academia.edu. And I have a link on Seeking Alpha. That's my academic research. It's fun. And my book, my book that's going to come out next year, and toxication in the Greek and Roman world, it's actually going to talk about these biotech psychedelic companies, it's going to be one of the topics of it. Because they like us to make our research relevant to the world. So yeah, so I'm actually going to cover some of that. Otherwise, mostly my finance articles are on Seeking Alpha.
Thanks so much for listening to the Cannabis Investing Podcast. Subscribe or follow us on Seeking Alpha, Apple Podcast, Spotify or Stitcher and we'd really appreciate it if you left us a review on Apple podcasts. It helps other investors find our show and makes us feel fantastic. If you have feedback or questions, we'd love to hear from you at email@example.com.
Nothing on this podcast should be taken as investment advice of any sort along Trulieve, Khiron, Isracann Biosciences, The Parent Company, Air Wellness, and the ETF MSOS. Subscribe to us on Apple Podcasts, Spotify or Stitcher. Thanks so much for listening. And see you next time.
This article was written by