We’ve seen plenty of “get in before the IPO” pitches over the years, and that has only accelerated as more and more companies have taken advantage of the JOBS Act to raise money under easier rules — particularly the “democratization” of private funding to allow unaccredited investors to invest in small private companies.
Combining that with marijuana really gets the greed juices flowing, as Ian Wyatt is no doubt aware — he has run several promos for these “get in before the IPO” marijuana stock opportunities over the past year or so, and this one drove quite a few questions our way so I thought I’d look for some answers for you.
Here’s how the latest email got my attention:
“It’s no joke…
“Right now, you can claim ‘FREE bonus shares’ known as stock warrants.
“It’s 100% included with this $0.50 cannabis CBD Pre-IPO.
“Go here ASAP – before 12pm.
“So, how does this work?
“You become an early investor in this Pre-IPO – BUYING shares of stock for just $0.50 (versus the expected IPO price of $1.50).
“Plus, for every 1,000 shares of stock… you’ll get 500 of these stock warrants.”
The ad is for one of those interminable “live seminars” that the newsletter pitchmen use so often now, presumably because once they’ve gotten you to listen to their spiel for half an hour you’ll be so emotionally invested in the idea that you’ll willingly sign up for whatever service they’re selling to get that “final secret.”
I’m writing this before Wyatt’s “live event” at Noon on Thursday, but I imagine it will be like all his past events that I’ve listened to — a long presentation about how lucrative this investment could be, followed by a pitch to sign up for a newsletter in order to get the details of the actual investment. I don’t know which service he’ll be selling, he’s got a dozen or so different services he publishes, but newsletters who tout “private placement” investments like this tend to be of the more expensive variety.
[ed. note: now that the “live event” has happened, we can confirm that this is an ad for Ian Wyatt’s Capitalist Ventures, a private-placement service that aims to ID pre-public companies who are raising money, sub. price $1,997/year]
What clues do we get about the company that’s offering these “pre-IPO shares?” Here’s a bit more from the ad:
“One California cannabis insider is launching a NEW company with a bold mission…
“TO BECOME CALIFORNIA’S #1 MARIJUANA COMPANY”
California is arguably the most “established” marijuana market in the US, so that’s a tall order. What else?
“The S.E.C. just approved this Regulation A securities filing. And that means EVERY investor – whether you have $2,000 or $2 million – can buy Pre-IPO shares.
“The price? Just $0.50….
“Now, the deal was approved last week.
“The CEO tells me that 4,200 regular Americans have already requested shares. And the Pre-IPO is now 93% full.”
And one version of the ad included a “redacted” photo of the SEC filing — what Wyatt calls the “official ‘stamp of approval'” — so, yes, your friendly neighborhood Thinkolator can indeed let you in o the secret… this is a company called Juva Life, which fancies itself an emerging “cannabis conglomerate” and is, indeed, doing a Reg A stock offering right now.
This is very much a “back the management team” venture — they have some planned properties, but no actual business yet from what I can tell, and no assets. You can see their SEC filing here, which includes similar information to what would be filed for a IPO… and I’d suggest reading the risk factors carefully, if only to help you “cool your jets” as you imagine the riches headed your way.
And yes, like many private placements this one includes warrants as a little “thank you gift” for taking the risk of backing them and participating in the fundraising — the offering is of “units”, each of which will be priced at 50 cents, and every unit consists of a common share and half of a warrant. Warrants are somewhat like call options, each full warrant gives you the right to buy another common share for 75 cents for the next 18 months (so if the value of the common stock rises by at least 50% over the next year and a half, the warrants will provide some additional leveraged return for you… if the stock does not rise above 75 cents, the warrants will end up being worthless in a year and a half).
(Do note, if you’re not an experienced warrant investor, that warrants, unlike call options, can expire and disappear from your portfolio with no compensation even if they are “in the money” — they are not passive, your broker will probably not automatically exercise them for you if they see the expiration coming, you have to take some action before expiration to either sell or exercise the warrant. Assuming, that is, that the company ever gets a public listing and the warrants become tradeable — if they remain private warrants and don’t trade on the exchange, you’ll have to deal with the company directly to exercise them).
So is this an attractive offering for you? Their intention is to list the company on the Canadian Securities Exchange (CSE, sometimes abbreviated CX), but I don’t know what the timing will be and there is no guarantee that they’ll be successful in that… and if you can’t trade on the CSE, it might not be easy for you to sell your shares or warrants in the future, so you definitely shouldn’t consider investing if this is a commitment you might want to back out of in a few weeks or months (and, of course, the company has no real operations yet, so there is a very real possibility that you will lose most of your money).
Wyatt says that they have gotten interest for most of the shares, and the company claims to have gotten “overwhelming interest” in the fundraising, but the offering hasn’t technically opened yet so I assume no one has actually put any money in — it says on their site that the Reg A+ offer will open on September 3, so they’re accepting expressions of interest now and will presumably start the selling next week.
The investor presentation and website look quite impressive, even beyond the CEO’s awesome hair, but they are also filled with “will” language — they “will produce” high quality cannabis, they “will” have a network of dispensaries and delivery operations… to my view this is not really investing in a company, this is backing a company before it really exists.
That’s not that unusual, of course, startups often can’t get far without raising capital, but the (sometimes) long timeframe of starting up operations and permitting and construction and the heavy investments to be made, perhaps for many years, before they build a business and a brand and generate meaningful revenue are not necessarily something that “regular” investors like you and I are conditioned to expect… and they also mean you’re putting a lot of trust in the management team to establish an economically viable business with your money.
When looking into private placements in untraded companies, you’ll usually be given plenty of reason to get the greed sensors jumping — you don’t need help daydreaming about future wealth, so it’s typically more important to think about how much is at risk, and what the possibilities are for exiting your investment. That includes the usual concerns you’d have about any microcap company in a volatile business, like the worry about the stock falling in value by 90% because the business just isn’t as good as the promotional material indicated, but since you can’t sell tomorrow you need to think about those risks that are specific to private placements… Are the shares locked up for a period of time? When will they list? Will the warrants be listed and tradeable? What if that doesn’t happen on the schedule they expect?
On the flip side, the shares won’t be volatile — because they won’t be traded, and you won’t see the value of your investment fluctuating every day, so you won’t have to worry about whether to buy or sell with each 20% bump up or down. Until it gets a listing and your shares are registered for trading at some uncertain point in the future, this is effectively a “buy and hold” speculation.
So no, this is not particularly attractive to me… but if you are feeling like taking on startup risk and have reason to believe that Juva will establish a powerful brand, or has the potential to establish some other kind of advantage in a very crowded marketplace, then perhaps you’ll be tempted to take the risk — just think it over, and actually read and understand those filings (really!) before you commit to anything. And, as always, do let us know what you think with a comment below.