This ad has generated some discussion and a few questions on the site, so I thought I’d help to go through it for you and check on the company being teased — even though it’s not actually a publicly traded stock at the moment.
The ad is from the National Institute of Cannabis Investors, which is a Money Map Press service focused on marijuana stocks… and their “higher end” service that they call Cannabis Venture Syndicate, which seems to deal largely with microcaps or private placements. It’s a huge commitment to an extremely risky kind of investing (the subscription is $1,950/yr, nonrefundable), so I thought I’d walk through it for you and hopefully provide a little context before you throw money at the subscription or the investments they’re promoting. Then if you want to subscribe or invest, by all means, it’s your money — but don’t punch in your credit card number just to learn about a “secret” idea.
And yes, as with all ads, this one sounds tantalizing… it’s about a company that wants to build a huge cannabis superstore/wellness center facility for marijuana sales and experiences near the Las Vegas Convention Center. Here’s a taste from the order form to give you the summary:
“Secure $1 Shares in This Private Vegas Cannabis Deal
“And Potentially Turn a Ground-Floor Stake into a $5.5 Million Windfall…
“Michael Robinson here. I want to thank you for joining me and John today to hear about the unique opportunity opening up in Las Vegas….
“… this company has three critical contracts locked and loaded. Once they put pen to paper, it’s off to the races.
“Deal #1 provides the opportunity to multiply revenue six times over – to $25 million – almost overnight.
“When Deal #2 closes, production capacity will triple almost instantly, putting another $35 million in reach.
“Deal #3 – the planned cannabis resort on the Strip with seven million customers on its doorstep – sets this firm up to be the number-one player in Vegas. Once it gets the green light, total revenue could hit $165 million.”
So that’s what’s getting everyone hot and bothered about the “get rich” opportunity… but what are they actually talking about?
Well, it is a private placement — which means it’s a company selling shares in itself, but directly to investors rather than through an exchange (like the Toronto Stock Exchange or the NYSE). And this newsletter/service is essentially setting itself up as a “matchmaker” to connect investors to the company — I don’t know if NICI has a formal marketing relationship with the company or are directly involved, or if they’re just reviewing the offering materials and passing them along to subscribers with a recommendation.
And it’s a company that apparently has dispensaries in place, and some deals to expand, but the real focus of the promotion here is that they’re going to build a huge marijuana facility on the Las Vegas Strip…
“This 70,000-Square-Foot Resort Should Have a Virtual Monopoly on the Strip.
“In fact, according to the company…
“This will be the only place to get, experience, or enjoy cannabis on the Strip for years – even decades – to come.
“And right here, right now…
“You Can Own a Piece of This Cannabis Resort Before It’s Developed!”
That’s not technically “on the Strip,” but the location they pitch is across the street from the new expansion wing of the Las Vegas Convention Center, so it’s more or less between the Strip (Las Vegas Boulevard) and the Convention Center, you’d have to walk about half a mile before you were “on the Strip,” near the downtown end between Circus Circus and Wynn. Casinos are not allowed to have anything to do with the cannabis business in Las Vegas, the marijuana dispensaries are not even allowed to make deliveries to casino hotels, so that might be about as close as a big dispensary could get to the center of the action. The biggest existing dispensary in Las Vegas is Planet 13, which has its “superstore” location on the other side of the strip, fairly nearby (about half a a mile off the Strip in the other direction, near the Trump International Hotel and the Fashion Show mall).
And they make some hugely bold predictions about the company…
“This Little Company Is Set to Take Over the Entire Cannabis Market in Nevada Before It Goes Public.
“Today, we value this company at about $26 million.
“But soon after this company goes public, I expect the market cap to go up to $2.4 billion.”
And apparently the company already has revenues, they’re supplying “high end” product to other dispensaries in Las Vegas…
“… nearly three out of four dispensaries in Vegas already carry this company’s products.
“One store sells over 6,000 boxes of edibles every month. They can barely keep them in stock.”
And apparently it’s very high quality stuff…
“… the average grower in Nevada loses nearly one-third of their crop due to failed tests.
“But this company’s lab can test down to the microgram level….
“And they’ve never failed a test. Not one time.
“So they don’t have to dump millions of dollars of cannabis in the trash.”
And their edibles are extra tasty…
“The Mastermind Behind Their Popular Edibles Is Actually a Wolfgang Puck Protégé.
“She’s taken her best recipes to make amazing cannabis-infused brownies, gummies, caramels, and rice treats.”
So who is Michael Robinson pitching here? This is the marijuana cultivator and product developer Qualcan, which is selling shares as Mystic Holdings in an Offering Circular that got finalized with the SEC on April 16. This is a Reg A+ offering, that’s the provision in the JOBS Act a few years back that allows small companies to raise money (up to $50 million, which is what Qualcan is seeking) directly from private investors who are not accredited (“accredited” just means “you can really afford to lose the money” — to oversimplify, you have to have a net worth of at least $1 million outside your primary residence or earn at least $200K a year).
And yes, there is a multi-part strategy to expanding the business — they started by building up the Qualcan edibles line of products that are sold through other dispensaries, and over the past year they have made agreements to acquire two dispensaries and their associated licenses from Medifarm/Terra Tech, one in Reno and one in Las Vegas — the two taken together had revenues in 2018 of about $11 million and lost a little bit of money (Reno had a small profit, Las Vegas a larger loss). Neither deal has closed yet and there are conditions to the sale being completed, so they do not own those dispensaries as of the latest filing.
And this is what they said about their planned dispensary near the Convention Center in one of their initial filings for this private placement offering with the SEC (on January 3):
“Planned Convention Center Drive Dispensary
“We are in the planning stages of building beginning in 2021 and opening in 2022 our flagship retail ‘mega-dispensary’ across the street from the Las Vegas Convention Center. It is estimated that 42 million visitors pass through the Convention Center each year. This planned 70,000 square feet retail project would encompass a two-story dispensary and a multi-level, state-of-the-art parking structure. The facility would include an advanced logistics system that fully utilizes the multi-level floor plan for process isolation and is intended to accommodate the safety of both consumers and dispensary staff. The layout of this facility is designed to promote the control of costs through the minimization of human capital necessary to effectively run each department and use the created bonus headroom to provide consumers with a unique shopping experience and entertainment. This facility would utilize the multi-level design to completely isolate the inventory/cash vault from the day-to-day dispensary operations. This is to ensure that the consumer-facing experience is optimized so that product display, customer interaction, pop-up events and education are the focus. The amount of available surplus square footage also would create an opportunity for hosting a consumption lounge should this become a possibility in the future. This retail space is being designed to provide us the ability to facilitate events, classes and entertainment, giving customers an additional reason to return to the store. While the details for this facility and location were submitted for state approval as part of our 2018 retail license application, the location is still conditioned on state and local licensing approvals.”
And then the SEC responded, on January 22, with a comment about that…
“Please revise to explain where you are in the planning stages for the Convention Center Drive Dispensary. In particular, revise to indicate whether you own or lease the land for the dispensary and discuss the funding needed to build a mega-dispensary. To the extent that you do not have funding or agreements in place to build such facility, please also explain to us why you believe it is appropriate to highlight plans for this dispensary in the Offering Summary.”
Which led to the next update of the offering circular, on February 10, including no mention of the Convention Center Drive Dispensary at all.
There’s more than one way to interpret that — maybe they just didn’t want to deal with changing the language further and thought investors wouldn’t care, maybe they don’t want to put in writing just where they are in terms of leases or permitting or financing for that potential project, or maybe they’re dropping the idea of that superstore dispensary entirely…. I don’t know.
My guess would have been door number two, that they didn’t want to disclose just how early-stage that project is or the extent of the financing they’d require to build it, but, interestingly, in their investor pitch deck back in August of last year they highlighted that Convention Center “Concept” and a second large dispensary they were “negotiating to acquire” in Las Vegas… and as of the most recent “current” deck associated with the recruitment of investors (as of April 15), neither of those facilities is included, having been replaced with a smaller dispensary in a different location (more on that in a minute). So the story has changed quite a lot.
And as for the ‘never failed a test’ bit? That doesn’t seem to be true, they do pop up as failing a test in February, though I confess that I have no idea what that means or if it is common.
The goal for Qualcan/Mystic Holdings, they say, is to use this Regulation A offering (which has been in the works for five or six months now) to raise money to build the business, presumably consummate those acquisitions of two existing dispensary operations, and then get a listing on the Canadian Securities Exchange, where many US marijuana stocks are “listed” (that’s a small alternative exchange in Canada, the rules are far less strict than the Toronto exchanges so “technically illegal” businesses like US marijuana companies can get listed there).
There’s no guarantee that they will get a listing, of course, or that the stock will trade at over a dollar once they do and make these private placement investments worthwhile (they’ve done three private placements of increasing size over the past year of either equity or convertible debentures at roughly 3.6 cents, 30 cents, and 60 cents, and those earlier placements included conditional warrants but this one does not appear to — those two tranches of warrants trigger if the company doesn’t get “public trading status” by May 31 and August 31, so there’s probably at least a little motivation to get listed and avoid a bit of warrant dilution).
They’ve so far raised about $22 million, which could theoretically have been adequate to close on the two dispensaries they’ve agreed to acquire so far, but they put that “acquisition of Nevada Dispensaries” in as a $16.5 million cost in the “how we’ll use the proceeds” section of the offering), and are hoping to raise another $50 million in this current offering. If they get people to buy all of those shares, that would be roughly 120 million shares outstanding at a valuation (implied by this private placement, at least) of $120 million.
If they do not get listed for any reason, shareholders are are probably a bit tied up — I didn’t check the offering details on that front, but private placements typically have rules about not being able to sell your shares for a period of time (6-12 months or so, usually), and restrictions on how much you can sell (and since they’re not listed, you’d have to find a private buyer or hope the company will buy them back).
So if you decide you want to follow up with the company about investing in their private placement, or review the details, I’d start by reading the Final Offering Circular. You’d be crazy to think about investing in something like this without reading the full filing, including the risk factors. Don’t just limit yourself to the sales pitch deck they’ve put up on their website. Just call me “Mr. Buzz Kill,” but you gotta read the fine print… and that’s especially true with private placements.
Personally, I try to avoid the temptation of investing in private placements and similar private companies… but if I were to be tempted, it probably wouldn’t be in a company trying to build a brand and maybe a “destination” dispensary in Las Vegas right now, just because there are so many marijuana outlets there and I have no particular expertise as an investor in which are the strongest (and I enjoy an occasional trip to Las Vegas, but I’m not a marijuana consumer or student of that market — I did notice, when I was there last year, that there are a lot of big players in town or near the strip, including MedMen, but Planet 13 has its brand everywhere).
The two dispensaries Qualcan has agreed to buy at this point are small and not terribly meaningful (or profitable), and there are dozens of similar dispensaries just in Las Vegas, to say nothing of the gigantic Planet 13 Superstore that’s set up as a “destination” for marijuana and is trying to add nightclubs and restaurants to its business.
The theoretical Convention Center Drive facility “Concept” Qualcan has talked about (and left off their final offering, though it’s still the core of the big NICI sales pitch) did indeed sound impressive, and the concept for that dispensary could end up making it larger than Planet 13 and in a higher-traffic area, but we also don’t even have any idea whether it’s anything more than a concept, or whether a huge marijuana dispensary across the street from the flagship convention center would be approved.
For me, if I were
sucked in to convinced to buy the non-refundable offer from Cannabis Venture Syndicate primarily because of this “Convention Center” story, it would be worrisome that they have now left any details on that project out of not just the offering circular but also their updated glitzy presentations. The deal that seems to have replaced that in their investor materials of late is a “proposed Sapphire Plan” to open a much smaller dispensary behind the new Resorts World Resort that’s going up next to Circus Circus, where the Stardust casino used to be.
That smaller expansion “plan,” which as I interpret it means that they’re replacing the idea of a mega-destination 70,000 square foot facility by the Convention Center with a proposed retail dispensary pf 10,000 sq.ft. near the Sapphire Club, isn’t in the offering circular, either — it’s a “proposal,” which doesn’t sound all that different from a “concept.” That’s still a pretty big dispensary, should it actually come to fruition, (10,000 sq.ft. is about the size of a typical Trader Joe’s), but it’s not likely to massively change the marketplace (Planet 13’s facility is 115,000 square feet, but only 16,000 sq.ft. is actual dispensary space right now, and before that opened the biggest dispensary in Las Vegas was NuWu’s “nearly” 16,000 square foot superstore).
Planet 13 (PLTH on the CSE, PLNHF OTC in the US), in case you’re curious, is publicly traded, has a market cap of about $220 million right now and carries the value of its superstore (and other minor assets) on the books at about $12 million (I don’t know what the capital costs were for the initial build, but presumably something in that neighborhood) — they have been booking about $60 million a year in sales, both from its products that are distributed to other dispensaries and from their own facility, and just reported a surprisingly strong quarter as they held up well doing deliveries to local residents while tourism evaporated over the past couple months and “walk up” dispensaries were closed, though they’re not profitable (that “relief” quarter is why the stock is up sharply today, in case you’re curious).
I don’t particularly want to invest in any marijuana dispensaries in a competitive environment, personally, but if forced to make a Las Vegas marijuana investment I’d probably carefully consider the established Planet 13 before I risked money on an uncertain private placement. Your mileage may differ, of course, and you may have more of a taste for private investing and risk than I do — if you’ve got thoughts on this cannabis venture, or on other favorite ideas in the space, feel free to share with a comment below.
P.S. As always, we’re curious to hear how investment newsletters and services are working for you — and we don’t have any reader feedback on this one yet, so if you happen to have subscribed to that Cannabis Venture Syndicate, please click here to share your experience with your fellow investors — worth it? Not worth it? Did they send good deals your way or make you money? Provide great research or disappoint? Inquiring minds wanna know.