Cash Is Again King In Cannabis Industry (Podcast)

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By Rena Sherbill

Shiry Eden is CEO and founder of Nishot, a strategy and analysis firm focusing on the global cannabis industry. Shiry has over 20 years of experience as an economist and strategic advisor for medium to large-scale corporates, with expertise in the capital markets.

Topics include:

  • 6:15 – Nishot is an advisory firm focused on global cannabis industry. Also an advisor to Israeli mutual fund, Sela Cannabis and doing buyside analysis for that fund. Also provide due diligence for investors and companies interested in Israeli cannabis companies.
  • 8:35 – Domestic market in Israel – Ministry of Health created reform last year in how patients get their cannabis – can now only buy from pharmacies, not growers. Dozens of new licenses were handed out for growing and extracting. Industry in Israel is booming – 6 of 8 growers listed on Tel Aviv Stock Exchange.
  • 10:30 – Israel’s role in international cannabis – main advantage is in R&D because of how long medical cannabis has been legal. Still several obstacles to exporting cannabis – no Israeli company has yet been granted the EU GMP. Closest to getting it are Siach and Panaxia. Once that happens they can start exporting to Europe. Israeli domestic market has 6,000 patients for medical cannabis which is about the same size as Germany. After reform will be fully implemented, could see 200,000 patients within 2 years. Lots of room to grow. Also in innovation and ag-tech, food-tech technologies. Big surplus of medical cannabis cultivation in Israel so could be one of the biggest global medical exporters.
  • 15:00 – Noone talking about completely legalizing it in Israel during these elections, but do see full legalization happening eventually. Public opinion has high support for legalization because people have seen medical benefits first hand.
  • 17:00 – Have to distinguish in Israel between growers from 2008 and new growers. From veteran companies, largest company is Siach, market cap is $17 million; 2019 revenue of about $8 million and they’re profitable. PharmoCann market cap is $47 million and income of $6 million. In terms of multiples, they’re close to Canadian small caps; if you compare PharmoCann to 48North (OTCPK:NCNNF) whose market cap is $48 million and whose income last year was $4 million – similar price per revenue.
  • 19:00 – 90% of fund is in international stocks, primarily North America. 10% in Israeli market. Canadian companies’ valuation is lower even though US companies’ revenue isn’t less than Canada. Not clear which company is largest in terms of revenue. Curaleaf (OTCPK:CURLF) has pro-forma revenue of $127 million in last quarter, much more than Aphria (NYSE:APHA) and Canopy Growth (OTC:CGC), but advantages of Canadian market is their global vision. US MSOs rightly focused only on US, but Canadians are multi-continent operators. Seeking balance, Shiry’s fund if 40% Canadian, 40% US companies. HMMJ is 70% Canadian and 20% US companies.
  • 20:30 – Because cannabis sector is fairly new and there’s a lot of distortion. Not traded on Nasdaq or S&P, not a balanced valuation. So still a lot of benefits to actively managed ETFs. Have to be more balanced between extraction and cultivation companies; MSOs and biotech companies – pharma sector has a lot of potential. When it’s actively managed, you can look at the global market more easily and see a more global picture.
  • 23:00 – Assessing international companies for inclusion in the fund. Khiron (OTCQB:KHRNF), Aphria. Looking at China’s hemp production; when it will start producing commercially – has a huge CBD/hemp domestic market.
  • 26:00 – Aurora (NYSE:ACB) losing licenses in Europe; worried more about Aurora because of its debt, not because of its global expansion. Looking to see a restructuring of the debt; if the manage to postpone and restructure it, they can overcome the troublesome situation. Aphria has the highest exposure in Shiry’s fund – they’re doing a lot of good things in South America and Germany. Its valuation is relatively low and could be the big gainer of the Canadian LPs. When more good news about the sector comes out, the sector in general will start to recover.
  • 28:30 – Who Shiry likes in the US – mostly Trulieve (OTCPK:TCNNF). Medical cannabis standards in their products and uniquely profitable – put their shareholders and customers first, unlike many other companies. How the fund invests: looking at companies’ strategies – some companies have no strategy for expansion or growth and some have too many expansion expenses. Now looking at balance sheets – 2 years ago it was so easy to raise money they never looked at it. Looking at products themselves; monitoring coverage and reviews – sometimes that comes out before capital markets know about it.
  • 31:00 – Bullish areas in international markets – Germany, France, Italy. There’s no big European producer so Europe is dependant on cannabis from abroad. Germany has been a bit disappointing, but if you look 2 years ahead it could be 2 million users and in 5 years it might be fully legalized based on the success of the Green Party there.
  • 34:00 – What is something you’ve changed your mind about? We never used to look at cash because we thought they’d always be able to raise money, but now cash is king. Capital markets always come before legalization and Shiry sees capital improving in 2020.
  • 38:30 – 2020 trends – lots of opportunity in US market because increased legalization expected, but don’t discount Europe’s potential for growth.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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