October 2016

TheCROW’SNEST

October 2016 Issue

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A hoy Crow’s Nesters,

“Life can only be understood backwards; but it must be lived forwards...”

— Soren Kierkegaard

I’m not one to dwell on the mistakes I’ve made...

If I did, I would have little time to do anything else. Cliché as it may be, mistakes are for learning from — not wallowing in. While I will certainly allow my regrets and mistakes to scratch like rats holed up in the bilge of my mind in those late, dark hours before settling into sleep, generally I like to look forward.

So, I’m about to commit a cardinal sin in the newsletter business — I’m going to mention the times I have messed up.

As some early readers may remember, I once recommended a company called Solazyme (NASDAQ: SZYM) — a wonderful sounding company that was set to produce algae-based food, fuel, and all other types of valuable products.

But the story of the company sold me more than the fundamentals.

To my credit, I looked deeply at the company, studied the share structure and profit margins, and looked into the macro-economic trends. But what I also did was overlook some obvious problems.

Do people want to eat foods made with algae? Probably not...

In the end, I made a bad recommendation — and Solazyme dropped 80% very quickly, where it sits — pitifully — in my portfolio now.

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All told, I won the Turkey of the Year award for the single worst stock recommendation in the office. It’s an ignoble award, but I keep it framed on my desk as a reminder to be as diligent and thoughtful in my research as possible. Whenever I read about a “story stock” I turn to my “award” and dig deeper...

But I learned from that, and have reaped the benefits, as you can see with our recent triple-digit stock run...

And I’m not the only one who has framed his past failures to encourage his future success.

Hideto Fujino, the owner of a Japanese capital fund, keeps a similar memento on his desk. He has 3,240 yen ($31) framed on his desk. That is how much his stake was after the fire sale of the company he ran, Rheos Capital Works Inc.

He had helped build the company from the ground up, yet once the financial crisis hit, he went from the President of the company to a standard employee.

But instead of giving up, he started a new company. And he’s learned from his failures...

The Hifumi fund has gained an annualized 22 percent over the past five years, beating 97 percent of peers tracked by Bloomberg. It’s down just 2.5 percent in 2016, versus an 11 percent drop for Japan’s Nikkei 225 Stock Average, and has returned 231 percent since inception in 2008.

So what did Fujino invest in to get such better returns than his competition?

“I like plain, dull companies. Famous, flashy ones tend to be overpriced.”

The Hifumi fund’s largest position is Ai Holdings Corp., a low-frills seller of office equipment and security cameras. The Tokyo-based company has increased earnings per share by more than 30 percent in each of the past three years, fueling an almost six-fold gain in the stock since mid-2012.

I like this guy — I am also pretty boring when it comes to investing. As you can see, the portfolio is almost completely filled with blue-chip dividend stocks. They aren’t sexy — but they are lucrative and sturdy. You can tell by the results…

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We’re up in the high double digits with “boring” companies like General Electric (NYSE: GE), Aqua America (NYSE: WTR), Piedmont Natural Gas (NYSE: PNY), and McCormick & Company (NYSE: MKC).

These aren’t overnight blockbusters, but if you enroll in the DRIP, these will pay off safely for the rest of your life.

But I do find it funny that after talking up boring companies, I checked out most of their holdings. Around two-thirds of the fund’s investments are small-capitalization growth stocks.

How do you talk about boring, long-term investments and then say most of your holdings are small-caps? Easy, you just look at the trends.

We’re doing it with cannabis stocks now…

While they aren’t the stuff that is tailor-made for retirement programs, it is a great bet on some immediate gains. We’ve seen that as well:

Canopy Growth Corp (CGC.TO) — up 250%

PharmaCan Capital Corp. (MJN.V) — up 215%

Helix TCS, Inc. (OTC: HLIX) – 100% in a couple hours!

Hempco Food and Fiber ( HFF.V) — up 45%

INSYS Therapeutics (NASDAQ: INSY) — sold for 93%

OrganiGram Holdings (OGI.V) — sold for 73%

So I think we’re on the right course: a portfolio fortified with long-term dividend stocks, and swinging for the fences with an industry that is a surefire bet. We’ll have updates on all of our microcaps in this issue.

I just returned from the MicroCap conference in Philadelphia — you may have already read about it, I wrote about it in Outsider Club recently.

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Here’s an excerpt:

As you probably know, or could ascertain from the name, Microcaps are companies that have market caps from around $50 million to $300 million. That may sound large to some investors, but considering that most blue chips average billions, these guys are small fish in a big pond.

The conference is for investors who want to take a stake in companies that could deliver the biggest profits they could ever imagine….

These stocks are the only ones that can skyrocket thousands of percent — but are also the most likely to crash and burn.

That’s the beauty of Microcaps — the companies themselves are all over the map, and I love the hunt for hidden treasure.

At these conferences, you see it all, and are introduced to businesses you never knew existed. Some will be life-changing investments, some will never get off the ground.

I found a few companies that I’m currently vetting, so stay tuned for those…

In this issue, we’re going to check in on our own microcaps and we’re also going to get back into the Plugging the Leaks section of the newsletter. Longtime readers will know that I used to have a section that helped you hang onto the money you already have.

As Ben Franklin said, “Beware of little expenses. A small leak will sink a great ship.” We’re getting back into that this issue...

In the meantime, let’s check in on our current holdings.

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Canopy Growth Corp. (CGC.TO) continues to crush it.

It is up 25% in the past week, 67% in a month, 110% this year, and a whopping 250% since I recommended it. For those of you who got in early I wouldn’t blame you for taking some of your profits off the table if you need to…

250% stocks don’t come along that often. However, this one should keep going up, up, up as Canada moves towards total legalization.

Canopy just got approved for expanded capacity.

The Tweed Farms license capacity has also been amended and the greenhouse facility is now licensed to produce and sell 6,000kg of dried cannabis, valid through January 13, 2017. Cannabis produced at Tweed Farms will be allocated predominantly towards the online store of Tweed.

It has also doubled down on its deal with Snoop Dogg, who is perhaps the most famous marijuana enthusiast in the world. Leafs by Snoop is now available in Canada, and will be selling cannabis flower, oils, wax, chocolates, and even “Dogg Treats” like gummies and fruit snacks.

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“At this stage in his career, Snoop is much more than an artist, entertainer and entrepreneur,” said Mark Zekulin, President of Tweed. “He’s also one of the most trusted voices in cannabis the world over. With this partnership we’re welcoming a cannabis culture icon into the Canadian industry, and as a true partner of the Tweed team.”

The company is even throwing Snoop a private birthday party for him and a thousand of his closest Tweed Friends on October 27 in Toronto.

It should be yet another huge market for Canopy. It’s a great example of the branding it’s been working towards while legalization approaches in Canada. More on that later...

We’re still buying Canopy Growth Corp. long term (CGC.TO) under $7.00.

PharmaCan Capital Corp (MJN.V) has been an immediate blockbuster. It is up 215% since I first recommended it in late August.

PharmaCan Capital just announced a corporate rebranding to Cronos Group.

From the press release:

This rebranding reflects the new strategic vision of the Company as Canada’s first bi-coastal licensed cannabis producer with interests in five Licensed Producers (“LPs”) and three license applicants.

“The rebranding was inspired by Greek mythology. As patron of the harvest, Cronos’ rule ushered in the ‘Golden Age’ and bountiful, healthy harvests. This new name allows us to emphasize our strategic vision of efficiently producing premium marijuana and distributing it across Canada and around the world,” said Cronos Group’s CEO, Mike Gorenstein.

The ticker for Cronos Group’s common stock listed on the TSX Venture Exchange will continue to be “MJN.”

Cronos Group is a holding company for Licensed Producers under Canada’s Marihuana for Access to Cannabis for Medical Purposes Regulations. With interests in five licensed producers and three license applicants, Cronos Group is focused on building iconic brands providing patients with compassionate, personalized care.

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PharmaCan Capital Corp., doing business as Cronos Group (TSX VENTURE: MJN) (“Cronos Group” or “the Company”) is pleased to announce that its wholly owned subsidiary, Peace Naturals Project Inc. (“Peace”), has shipped its first export of premium medicinal marijuana to Germany.

“This export marks an important milestone in Cronos Group’s strategic global expansion and the beginning of a long, fruitful relationship between Peace and Pedanios GmbH (“Pedanios”),” said Mike Gorenstein, Cronos Group’s CEO. “We’re passionate about providing top quality medicine to patients and are excited that, together with Pedanios, we will be able to deliver on our shared vision of compassionate care.”

“With cannabis being approved for distribution in Germany and the forthcoming legislative changes in Germany to classify marijuana as a prescribable narcotic medicine, we believe that the need for product will grow fast and strong,” said Patrick Hoffmann, Managing Director of Pedanios. “With German regulation only allowing distribution but not production within Germany, Pedanios is pleased to have found a high quality supply of cannabis from the Peace Naturals Project. This partnership enables us to introduce premium cannabinoid profiles to German patients.”

“With the approval of Health Canada and German regulators, we are now able to help make German lives a little bit better,” said Jeff Jacobson, Vice President of Corporate Operations at Peace. “We will continue to work tirelessly with Pedanios so that German patients have access to the same quality medicine that we deliver to our patients in Canada.”

Cronos has now more than doubled its acreage for its huge “In the Zone” project.

The closing of its previously announced acquisition of approximately 17 acres of land adjacent to the existing campus of its wholly-owned subsidiary In the Zone Produce Ltd. (“ITZ”) in the Okanagan Valley, BC (the “Property”). An artesian well on the Property, with the capacity to pump 200+ gallons per minute, will provide a free source of on-site water for the production facility.

“We are pleased to be able to more than double our existing footprint at ITZ. This additional land ensures we have enough space for our upcoming expansion plans, which will be crucial to ensure that we are able to meet the coming recreational demand and execute our strategic vision for the ITZ platform,” said Mike Gorenstein, Chief Executive Officer of Cronos Group.

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You can read my interview with CEO Mike Gorenstein here, where he breaks down the whole company philosophy.

We’re buying PharmaCan Capital Corp. (Now Chronos Group) (MJN.V) under $1.75

Both of these companies will be well primed for the Canadian marijuana revolution, already underway…

I’m not blowing smoke here — this will be one of the biggest industries to emerge in our lifetimes.

In fact — in Canada, the legal cannabis industry could be bigger than beer very shortly. And Canadians LOVE beer.

The National Post just released a glowing article about the industry, titled Pot’s retail therapy: The marijuana market could be (and possibly already is) bigger than the market for beer in Canada.

Here are some highlights:

Want to get into the pot retail business? You are going to be making a lot of money.

Of course, no one is yet sure how the retail environment will look once marijuana storefront operations are legal. Right now, the only legal way for a customer to buy pot products is through the mail from a producer licensed by Health Canada. Those producers will only sell to those with prescriptions.

But if businesses are allowed to set up cannabis shops and compete in the same way that other retailers do, Canadians could be buying as much as $10 billion worth of marijuana products a year. That estimate comes from Avery Shenfeld, chief economist at CIBC World Markets.

To put that in perspective, Canadians bought about $9-billion-worth of beer in 2015, according to Statistics Canada.

Michael McLellan, a financial consultant to the medical marijuana industry, thinks retail sales of cannabis products could be much bigger.

“This is a 10-year, bull-market run. You’re creating a new legitimate legal business for what is going to be a $10-billion to $20-billion a year market,” he said.

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You can see how profitable it is based on the revenue per square foot. Currently, medical marijuana dispensaries have a higher annual revenue per square foot than Whole Foods:

Consider this: the most productive retail space in Canada is an Apple Store, with average annual sales of $7,200 a square foot. This compares with $2,961 a sq. ft. at a Lululemon store and $1,490 a sq. ft. at Costco.

At the other end of the spectrum, the comparable figure for Sears, Dollarama, and Canadian Tire is less than $250 a sq. ft. In the U.S. states where selling marijuana is legal, sales average US$975 a sq. ft.

You can read the whole article here.

The U.S. market shouldn’t be very far behind. A recent survey has shown that support for marijuana legalization in the U.S. has reached 60% — the highest level ever recorded.

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Marijuana use is currently legal in four states and the District of Columbia, and legalization measures are on the ballot in five more — California, Arizona, Massachusetts, Maine, and Nevada — this November. As a result, the percentage of Americans living in states where pot use is legal could rise from the current 5% to as much as 25% if all of these ballot measures pass.

If California passes, I think we’ll see a quick domino effect. You can read the entire poll here.

That should be good news for MassRoots, Inc. (OTC: MSRT), which will be able to expand once more states legalize it.

MassRoots, Inc. (OTC: MSRT)

MassRoots hasn’t had a great run since we first recommended it way back in September 2015.

We’re down about 50% on the “Facebook of Weed.”

It’s a sharing app, like Facebook, Twitter, or Instagram — except it specifically targets marijuana smokers and suppliers.

Basically, it lets pot smokers interact semi-anonymously, messaging one another and sharing pictures without revealing their true identity. And it creates a forum for marijuana vendors to advertise directly to their market.

We had hoped that it would become the first cannabis company listed on the NASDAQ. It didn’t work out that way, and the shares paid the price.

You can read my interview with MassRoots CEO Isaac Dietrich, explaining that issue right here.

But it was now positioning itself for the eventual legalization of marijuana here in the states.

MassRoots just completed a $5.0 million equity offering, led by Isaac Dietrich, with participation from former MyPoints.com CEO, Mr. Steve Markowitz, Aphria, The Delavaco Group, and several family offices.

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“Management believes that these funds are sufficient for the Company to reach cash-flow positive and to scale our commercialization efforts to a much wider audience,” Dietrich said.

“We are confident that the current political climate coupled with increasing demand in regulated cannabis markets presents a tremendous growth opportunity for MassRoots. Going forward, MassRoots will remain focused on introducing new monetization channels within our mobile applications while exploring strategic partnerships to expand our platform’s capabilities.”

The equity offering has given MassRoots its largest amount of cash on hand in its corporate history as it continues to grow its user base. Further, during the 2016 election cycle, nine states with more than 30% of the United States’ population will be voting on regulating the sale of cannabis for medicinal or recreational use. The company anticipates that the passage of any combination of these initiatives has the potential to significantly accelerate MassRoots’ user and revenue growth.

From the press release:

The regulated cannabis market in the United States is projected to reach more than $7 billion this year, according to a report by New Frontier and ArcView Market Research. That represents 26% growth over the previous year, driven largely by adult recreational sales of marijuana researchers found. Regulated adult recreational marijuana sales topped $998 million in 2015 compared to $351 million in 2014 — growing 184% year-over-year. America’s 2015 marijuana sales were higher than those of Dasani, Oreos and Girl Scout cookies. (1)

SeeThruEquity, the leading independent equity research firm focused on small-cap and microcap public companies, gave the company a 12-month price target of $2.40.

Here are some excerpts from that report:

• We see several catalysts ahead for MassRoots over the next several quarters, both from internally driven actions, such as the company’s expanded digital advertising initiatives, as well as industry factors, which should affect all cannabis market participants, such as pro-cannabis initiatives in several state ballots in the 2016 election cycle. Indeed, during this election cycle nine states with over 30% of the nation’s population will be voting on the sale of cannabis for recreational or medicinal use.

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• We have been impressed by the rapid user growth demonstrated by MassRoots. Since launching its platform in mid-2013, the company has already accumulated more than 900,000 users - a notable percentage of the 10mn legal cannabis users in the United States. Significantly, MassRoots has also accumulated an active and highly engaged following, with enthusiasts who engage more than 300,000 times per day on the company’s network. In our view this highly engaged platform is a strategic asset in the new and rapidly growing cannabis industry, which is projected to reach $7 billion this year (including legal adult recreational use as well as medicinal use), and is expected to grow to $23.1 billion by 2020

• Recent results show that MassRoots is beginning to translate its large and engaged user base into revenues through advertising and premium subscriptions. Initially, MassRoots did not seek to monetize its business with advertising solutions until the company had reached a critical mass of 500,000. The company recently embarked on its first efforts to generate sales and commercialize its consumer data in 3Q15, targeting cannabis industry companies, such as offering ways for cannabis dispensaries to reach interested consumers through ads and placement. The company has expanded its products significantly in 2016, with new tools including Dispensary Finder & Menus, Product Pages & Reviews, Sponsored Posts, and Enhanced Business Profiles. The results of this have begun to show, with the company reporting record 2Q16 quarterly revenues of $0.5mn, including its first non-cannabis industry clients - Uber and Fusion.

If shares hit that $2.40 target, that would be a 200% gain in a year.

We’re buying MassRoots Inc. (OTC: MSRT) under $0.95.

Hempco Food and Fiber (HFF.V) (OTC: HMPPF)

Our recommendation for Hempco is chugging along nicely. We’re up about 40% in a mere few weeks.

For those who missed the recommendation and update, here it is:

We’re going to buy into another cannabis-related industry.

Hemp-based products.

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Now, many people are confused as to the difference between hemp and cannabis. It’s actually rather simple. Medical Marijuana Inc. describes it like this:

Hemp and marijuana are actually both members of the same plant species, Cannabis sativa L. Cannabis sativa L. can contain a wide spectrum of cannabinoid concentrations, including wide ranging compositions of THC and CBD. Still, there are many practical differences between hemp and marijuana, and clear lines drawn between the two.

In practical use, “hemp” is the term used to describe the food and fiber variety of the cannabis plant, and “marijuana” is cannabis that’s grown to enhance the chemicals that make you feel high or stoned.

Cannabis has both male and female plants. When growing marijuana, male plants are removed and only female plants are cultivated. This is because when cannabis is fertilized, it lowers the concentration of THC–the main chemical that gets you high. Thanks to selective breeding over many years, ideal concentrations of THC in marijuana range from 10% to as much as 30%. This will be important to remember in a moment when we compare marijuana to hemp.

Marijuana is usually grown indoors so that conditions can be monitored very closely. Marijuana is encouraged to become short and bushy and grow lots of flowers. That’s because THC is concentrated mostly in the trichomes — little resin-filled glands — on the flowers of the plant. Although you can find THC throughout cannabis, it is the flowers or “buds” that are harvested for recreational marijuana.

Hemp, on the other hand, is as close as you can get to how cannabis grows naturally. Hemp is grown all over the world for food, oil, and fiber — so, the whole plant can be used, not just the flowers. With the hemp type of cannabis, male and female plants are sown very closely together, allowing for easy wind pollination and easily crowding out weeds. This results in very tall, hardy plants with less branching that look very different from the short, bushy marijuana plants.

Another key difference between hemp and marijuana is that hemp naturally has almost no THC. Its flowers must contain just 0.3% THC — which is 33 times less than the least potent marijuana. Meaning, it’s impossible to get high from hemp, although many people have tried!

Hemp also has more CBD than THC naturally, making it an ideal source of CBD from cannabis and one of the reasons why hemp oil is the preferred source of natural CBD for thousands of people.

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With that out of the way, let me introduce you to our new recommendation: Hempco (TSX.V: HFF)

This company creates foods, beverages and oils from hemp.

PlanetHemp is led by Charles and Angela Holmes — long-term pioneers and innovators in hemp research, advocacy and education. Charles spent years learning from experts in food and nutrition about natural solutions to his personal health challenges. Working with his father Ken, they developed and brought to market a series of innovative firsts: hemp protein powder and protein powder concentrates, and hemp non-dairy beverage, ice cream and yogurt products.

The Holmes family business, Hempco®, produces a growing range of hemp-based foods, snacks and oil under the brand name PlanetHemp. Hempco® has a vertically integrated “Seed to Shelf” model that allows close monitoring of the hemp seeds at every stage to ensure the healthiest and highest quality finished product.

I also am well versed in the natural health space — as anyone who reads my Health Wire and Atlas Health Report newsletters knows — and I have seen a huge uptick in hemp products over the past few years. What was once the small market of hippies and natural health enthusiasts has grown into a full-fledged industry.

A recent report has shown that the global hemp-based foods market “to grow at a CAGR [compound annual growth rate] of 20.3% during the period 2016-2020.” And Hempco is at the forefront of the industry.

The report cites the emergence of hemp as a superfood that will be a key driver for market growth.

Here are some quick facts about the value of hemp based foods:

Hemp is free from allergens, gluten, genetically modified organism (GMO), lactose, soy, phytoestrogen, and pesticides. Hemp, as an ingredient, is now being used in nutrition bars, tortilla chips, pretzels, beer, salad dressings, cheese, and ice cream. The market potential for hemp-based foods emerging as superfoods is based on its blending capacity in terms of taste and functionality with other common food ingredients.

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In other words, it is a superfood.

Over the course of the year, Hempco will be rolling out hemp-based meat alternatives and hemp snacks. Regardless of your feelings on hemp or health foods, these are all huge industries that Hempco is primed to capitalize on.

Here is the rundown of Hempco since inception:

Year Revenue What Happened?

2008 $750K Starts hemp protein, oil, nut processing at facility in Watson SK

2009 $1.2M Launch Hempets Brand and complete R&D on biodiesel generator

2010 $1.7M Develops hemp protein concentrate — begin SAFE soil program

2011 $2.0MMove to 20,000 ft. facility in MacGregor MB — production capacity x 2

2012 $2.5M Launch “Omega” Retail Brand, begin R&D on meatless products

2013 $3.1M Begin purchasing equipment to double production capacity

2014 $3.5MUS hemp law changes, drug stigma lessens, Hempco receives 6 offers to sell company

2015 $4.1MBegin RTO for public funding, PLANETHEMP® re-branding, complete renovation for HACCP & GMP and double manufacturing capacity

2016 $5.6M

Key hires, completed meatless products R&D, PLANETHEMP® launch: UK and Canada, secured $3m /yr contract with Seoulotions in Korea, doubled production capacity in MacGregor MB, R&D fibre side

2017 $17M

Key hires, completed snack products R&D, PLANETHEMP® growing distribution and sales: UK and Canada, Seoulotions in Korea supply contract $9m/yr, MacGregor MB facility is now a co-packer, new AB 40,000 ft facility, $2.1m raise to install new seed processing equipment

2018 $29M Expand production for processing food products, apply for Gov funding to diversify into hemp fibre products development /processing Maximize Whole Crop Utilization Strategy — hemp food, fibre and medicine

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And its expected revenue growth:

These guys are the real deal, and I expect them to do very, very well as the health food trends continue.

Here are the vitals:

• 19.73M market cap

• $5.6M in 2015/16 revenues

• $2M in total assets

• $1M in inventory

• $0 debt, $400K LOC

This is a small company, as you can tell, but the fact that it is already bringing in money with no debt is very encouraging as the rest of the trends play out.

A new report from Ubika Research states, “With international sales growth and a retail launch, Hempco has become a leading contender within the hemp-based foods industry and is becoming a serious acquisition target.”

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That would be huge for this small stock.

I sat down with CEO Charles Holmes to discuss the company and its prospects going forward.

Here’s the transcript:

Crow’s Nest: Hi Charles, thanks for joining us. Can you tell me the genesis story for Hempco? And when and why you took yourself public?

Charles: We started looking at the trend of the growth curve and after six companies tried to buy us, we realized that either we are going to go for it or not. We had to belly up with some money to expand our processing, which was the bottleneck, and seriously consider what the next steps were for a major building that we had to get into.

The next steps of value added products that we wanted to make. Private money would have put us into a position where we would have lost control of the company, and I’ve done that before and I didn’t want to do it again. Even though we probably were early in going public, we’re not now. It was actually good timing for us and it turned out really well. We’ve been trading since April 20th.

In the last two and a half years, we’ve had six offers to buy our company from medicinal marijuana companies, and we turned them all down because we really felt that it was a really important growth time. We wanted to get as much as we can ahead of us and take a piece of this.

Crow’s Nest: Is that the end game? Be bought up as the hemp market rises? I’ve heard about this for many, many years and I also do some natural health publishing, so I’ve seen it more and more when I go to conferences. It seems like it’s building. Is that pretty much the idea is just when it finally becomes totally mainstream, sell this off to somebody huge?

Charles: Ideally, we are going to have some sort of a partner come in with us. I don’t know what that looks like yet but we’ll... I’ll have a partial exit strategy, at least for myself and my family to do some other things we want to do. We love this industry.

I’m going to be in it until the day I die.

Crow’s Nest: Can you give us the status on building the new facility? Have you started deploying capital for that yet?

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Charles: Well, we have the capital in the bank. I’ve been buying equipment for the last three months. There’s been a bit of a delay in purchasing the building. We started off with a lease to purchase, which, the lease improvements company that was going to do the lease with us, their bank wouldn’t support them so we decided, and they decided, it would benefit us just to sell it. We are buying it right now. I’m just doing the financing. I’m probably two months behind setting up that. Our target was to be up and running by December, January. Now it’s more like February, March.

Crow’s Nest: And can you elaborate on the capacity of that facility?

Charles: The capacity of our building right now in Manitoba is about $15 million worth of street pricing for Hemp Nut.

About last August, September, about a year ago, we placed enough equipment in there to do about $7,000,000 a year. Now, it’s doubling that. About 250,000 pounds a month. The new facility is going to be able to do that times six.

Crow’s Nest: Are you guys currently having trouble keeping up with demand?

Charles: Our bottleneck’s all in the processing site.

Crow’s Nest: Just for my own curiosity, can you tell me what is the hemp seed process like as opposed to growing the flower? Are you just germinating seeds? How does that work?

Charles: Compare it to a marijuana plant. There’s still seeds on that plant. We grow males and females at the same time. The females don’t produce a bunch of resin. They do produce a lot of seeds. When we take it through the ripening process, we get a pound of seeds off of every head. Maybe a foot and a half, two feet long full of seeds. For us, by the time the fall comes, all the leaves have fallen off that plant. It’s just a head of dry, brittle leaves and small little brackets and stuff around the seeds and all the seeds. When we harvest, we cut off the tops of these plants, separate those seeds, and that’s what we take off the top. We get about a 1,000 pounds an acre of seed. There’s also 1,000 pounds an acre of chaff, which is full of the CBDs (cannabidiol).

Crow’s Nest: Are there any secondary revenue streams in addition to the hemp seed? Are you selling any other part of the plant for any sort of consumption or anything else really?

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Charles: I do sell the hulls that we generate for animal feed. We get only a small amount of money. Right now, it’s got lots of opportunity for more value add, which we are investigating right now and pursuing. The next would be, we call it whole crop utilization.

There’s really three industries in this plant...

There’s food. There’s fiber. Hemp was the largest domesticated crop on planet earth for fiber around 1900 until they started making clothes and rope and things out of plastic. The oil industry became a competitor.

It was the most important crop we’ve ever had on the Earth.

Then there’s also the medicine side now. I have a contract with those farmers for that plant. We are investigating other areas in food right now for income streams, but our main is food right now and we’ll be getting to the other ones as soon as we get settled in our food side.

Crow’s Nest: Are there any laws or policies governing the consumption of hemp seeds like there are for smoking or medicine?

Charles: Only processing or handling hemp seeds because technically, they believe you can have a hemp seed, hybridize it, and make a marijuana plant with it. Genetically, it’s impossible, but our government is slow to make changes.

Crow’s Nest: What type of revenue are you looking at now?

Charles: We’re projecting just under $18,000,000 up from $5.7 this year.

Crow’s Nest: Is a lot of that revenue?... I saw you had a deal in South Korea. Is this more of an expansion internationally to where it can be a little more forgiving in terms of the legal obligations?

Charles: Yes. Correct. Just so you know, we are launching... We just launched our retail lines in Canada and the UK. The EU is legal for CBD products. We intend to launch a CBD product in the UK very soon.

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Crow’s Nest: Can you help me understand how hemp consumption consumables companies are valued on a sales multiple, like across the industry? How are other companies like yours valued?

Charles: Two companies got purchased last year. Our main competitors that are larger than us. One sold for $132 million.

Crow’s Nest: On how much in sales?

Charles: About $38 million at the time.

Crow’s Nest: Is that Manitoba?

Charles: That’s correct. The other one was Hemp All Canada. They got bought out about 2.5 times sales, about $18 million in sales, and they sold for $42.

Crow’s Nest: So you guys seem undervalued. You’re only trading at 1 times sales theoretically, right?

Charles: Right. We’re pretty comfortable to say that we’re undervalued.

Crow’s Nest: In addition to the new facility, what’s the plan for the capital markets? Do you have a marketing plan in place for that?

Charles: With our launch into the retail market... The reason that we’re doing that is twofold. We want to diversify, and we want to create more margins because retail’s going to produce 40%–60% margin. We’re getting, on average, about 35% margin to bulk. With that, we want to develop and innovate better products that are going to the street.

We’re doing traditional hemp protein powders, nuts, and oils. Now we’re going to get into meatless items. If you think of veggie burgers and stuff like that that sells at Target and such. That equipment to buy is going to be about $5,000,000. That will be our next raise in the spring.

Once we get that facility running that’s doing all of our bulk processing again, so primary processing, we’ll start into the secondary processing in the spring.

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Crow’s Nest: My favorite part is that you’re making money.

Charles: We came into this as a profitable company. We didn’t actually need to raise money so we could grow really fast.

Crow’s Nest: I’ve read into Manitoba and a couple other hemp seed companies that are developing consumer products for pretty much health-conscious people. Are you guys worried about differentiating yourself in the market, or are you just more worried about getting everything by providing the materials for people? Is it more of a branding thing or a manufacturing thing?

Charles: It’s sort of both. I put it this way to people. I said, “We’re in the food business.” I’m a hard-core foodie so is my team... My sister’s a herbalist who’s a master at food development. We’re really strict in our nutritional, personal eating programs. We have other businesses that are associated with that. We have, in our opinion, the highest quality of food in the hemp seed food world possible. We are innovating new products, we’re not making up an item.

Let me give you an example of how it works. If you want to make something called a meal replacement, you have to have certain bunch of nutrients in that food to call it a meal replacement. They add a bag of ground-up rocks. They don’t add broccoli to give you calcium. They add in other things that your body can’t get access to. It changes your ability to get at the nutrients. We don’t do that. Ours is all whole, simple foods. We don’t add weird fillers and weird concoctions to keep it on the shelf. We do it all naturally. We are very good at it.

Crow’s Nest: That is the trend too. The customers that are buying these things — it means a hell of a lot to them.

Charles: We help set those trends in the last 20 years. That’s all we’ve been doing. We’ve been waiting for this day for a long time so we’re very excited about the world catching up to us.

Crow’s Nest: Yeah. It seems like you’re doing things the right way.

Charles: I’d like to think that.

Crow’s Nest: We talked much about the food, but where does the fiber come in? Are you guys developing clothes and papers or... I was more familiar with the oils and the foods.

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Charles: We are probably focused on some basic, primary processing materials like horse bedding or kitty litter. Let me give you an idea. There’s 90 million cats in the United States. They each use a cubic foot a month. Hemp is 6–10 times more absorbent. It’s organic. It’s got chlorophyll in it naturally and it makes it so it doesn’t smell. They can compost it where you can’t compost out all the other kitty litters that have clay in them.

Crow’s Nest: That’s huge. That’s a nice little niche topic. Is kitty litter... that’s not something you sell now but that’s perhaps something you could do?

Charles: Yep.

Crow’s Nest: All right. That’s pretty much all I have. I think it’s the wave of the future, and it’s sad that it’s taken this long to really come to grips with how valuable the plant it is. I think you’re hitting it at the right time.

Charles: Now, we’re only 100,000 acres in Canada. We’re the largest producers of hemp in the world. Imagine what it would be like if we were growing as much as flax or chia seeds or quinoa or something else?

Crow’s Nest: Right.

Charles: It’s not far but this is the path.

Crow’s Nest: Thanks for the time Charles. Have a good rest of the day.

Charles: Take care.

We’re buying Hempco Food and Fiber Inc. (HFF.V) under $1.00 or the over the counter equivalent (OTC: HMPPF) under $0.75.

I always recommend buying these on the proper exchanges, due to liquidity issues.

I had some readers that still had issues buying Hempco since it’s on the Vancouver exchange. For those who are having trouble buying these stocks through online discount brokers, please try the following:

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Interactive Brokers

Interactive is an industrial-strength online broker and one of the most popular among active traders and investors. There’s not much you can’t trade online, and you’ll be able to trade in 80 different markets in 19 countries.

It is also one of the cheapest brokers you can find.

PennTrade

You can trade all kinds of stocks on both the Canadian and U.S. exchanges at PennTrade. Your Canadian trades will be on the TSX, but if a stock is dual-listed on an American exchange, they’ll go with the best price.

When you call them, a human being answers the phone. Customer service is excellent.

But that good service comes with a price. Their commission is $29.95 per transaction; every 10th trade is free, so it averages $27. Their Canadian market makers charge an additional 1.25% commission, capped at 2¢ per share. Currency exchange is made when the transaction takes place at the current nominal rate plus a 10-point ($.001) spread.

You can trade within an IRA, and you can place good-till-canceled orders. You can also place a limit order expressed in either U.S. or Canadian dollars.

PennTrade does cost more, but if you’re willing to pay a little more for certainty of the trade and for excellent service, they may be a perfect fit.

Fidelity

Fidelity allows for Canadian trading except the ability to trade foreign stocks within an IRA. With reasonable commissions and currency exchange rates, it may be the best choice for many investors looking to trade on foreign exchanges. You can trade directly on 12 major foreign exchanges.

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However, your account must be approved for international trading, which requires either 120+ trades per year plus $25,000 in household assets, or $1 million in household assets with no trade minimums.

These requirements are negotiable, so it may be worth a phone call to see what you can work out.

Charles Schwab

Regular Schwab accounts can trade on foreign exchanges, including the TSX.

With their Global Trading account, you can trade online on 12 foreign exchanges, including Canada and Australia, eight European exchanges, Japan, and Hong Kong.

They are reputable and fairly priced.

Helix TCS (OTC: HLIX)

Well, that escalated quickly…

I recommended Helix last week at $5.60 and it went all the way beyond $11 by the time trading had ended.

We were up 100% in a couple of hours.

For those that missed out, here is my recommendation and a rundown of the company.

I’ve never seen a stock move like that, so congrats to those who got in under my buy price of $6.75.

I wouldn’t touch it right now, we’ll let things settle and I’ll have further updates after I speak to management and get some new details. I have high hopes for the business, but I am never one to chase the dragon...

Helix TCS (OTC: HLIX) is a big HOLD.

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I have received a great deal of mail requesting that I start revisiting more of the common sense, non-stock approaches to growing and preserving your wealth. Especially in times like these where it seems so uncertain…

I’m right there with you. While we’ve been doing great with straight stock picking, in the end, you need to know how to hang on to the money you have and be nimble enough to pick up some cash when the market simply isn’t cooperating.

Here are a handful of “off the grid” investments that could help you truly diversify your assets.

Crowdfunding portals

Crowdfunding portals are like “buyer’s clubs” for smaller investors.

Normally, to get in on “big fish” deals, you need to have a lot of money and connections.

But crowdfunding portals allow you to use the Internet to pool your money together with like-minded investors in order to participate in exclusive deals.

Crowdfunding is a pretty recent development, made possible by the JOBS Act, which was passed back in 2012 but took four years to be enacted (of course).

There are still some restrictions, so the amount you will legally be able to invest will vary between $2,000 and $100,000, depending on your income and net worth.

However, before the JOBS Act, these deals were only legally available to the super-wealthy and well-connected... They are able to throw around large sums of money and end up getting mega returns...

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Like Dick Costolo turning $25k into $10 million on Twitter.

Or how about when Peter Thiel invested $500k into Facebook before it went public... He wound up with a $1 billion payday.

Smaller investors are ignored on these deals, often because they can’t pony up the required minimums, or because U.S. law forbids it.

But thanks to the JOBS Act and crowdfunding portals, you can now invest like a venture capitalist.

With crowdfunding portals, you can get in on exclusive deals in the public market, the private market, and in real estate.

So what are the downsides?

For one, your investment might not be very liquid, meaning that getting out of your position could be difficult or take some time.

Only invest what you can afford to lose. Early-stage companies are risky. Think of it as a fun, long-term investment in a product or service you believe in.

Crowdfunding portals connect you, the investor, to companies raising money.

Options include:

• CrowdBoarders

• FlashFunders

• FundRise

• Realty Mogul

• NextSeed

• CrowdFunder

• SeedInvest

• StartEngine

• Wefunder

Here, the focus is less on which particular portal you use and more about the specific company you want to invest in.

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Most crowdfunding portals will allow you to look through a current list of companies raising money. So you can browse before signing up for anything.

I’ll provide some experiences and feedback as we go, but this is a good list to peruse and decide what you are interested in personally.

Robo-Advisors

A robo-advisor is an online advisory that uses automation and algorithms to help manage client portfolios, while keeping costs down. Some robo-advisors also offer additional services like automatic rebalancing and tax-loss harvesting.

Think of it like a “customized ETF.”

You get broad market exposure and cheap fees like most ETFs. But you can adjust and customize your investment based on your particular financial situation.

Robo-advisors are best used to keep a portion of your portfolio in a set-it-and-forget-it fund. Individual stocks will offer much better gains, but also more risk.

There are many different robo-advisors to choose from. Here’s a quick overview.

WiseBanyan and Charles Schwab have robo-advisors without annual fees.

Wealthfront, Betterment, FutureAdvisor, and Vanguard have fees ranging from 0.15% to 0.89%.

Minimum deposits range from $0 to $25k.

Most are worth checking out, but we think Wealthfront stands out.

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Your first $10,000 is managed for free, with a $500 account minimum. After $10,000, they charge 0.25%. And no annual fees.

Wealthfront also features daily tax-loss harvesting on all taxable accounts and direct indexing on accounts over $100,000.

NerdWallet gives it 5 out of 5 stars.

Automatic Investing

While some are naturally drawn to investing, for others it is a chore... something you know you should do but that just feels like a big hassle, like exercising or eating right.

But my favorite way of getting myself to do something I don’t want to do is to trick myself.

One way to “trick” yourself into investing more is by using a smartphone app called Acorns.

Essentially, you connect Acorns to your bank account and it automatically invests one dollar for every purchase you make, regardless of the purchase price. If you buy a coffee, it invests a dollar. If you buy groceries, it invests a dollar. If you fill up your gas tank, another dollar.

Even if you make — for instance — a larger purchase like a riding lawnmower or a pressure washer (two of my recent expensive purchases) it still puts a dollar into your portfolio.

You can even set your investments any way you like: you could simply invest the “change” from a purchase that rounds up from a dollar, so if you buy a coffee for a $1.80, you’ll get a $0.20 investment.

It’s easy to use and customize for your budget. That’s why Acorn works great as a set-it-and-forget-it investment. Even people on the tightest budgets will rarely miss one dollar at a time.

What Acorn does with your mon ey depends on your financial situation. There are five different portfolios you can choose from, depending on your risk tolerance. The funds were built in the model of Harry Markowitz’s modern portfolio theory, which attempts to find the best allocation of stocks to meet your individual preferences for risk, return, and diversification.

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Here’s how it shakes out:

• Conservative: 40% stocks / 60% bonds

• Moderately Conservative: 51% stocks / 49% bonds

• Moderate: 61% stocks / 39% bonds

• Moderately Aggressive: 74% stocks / 26% bonds

• Aggressive: 89% stocks / 11% bonds

You fill out your goals and Acorn will make a portfolio based on what you want to accomplish.

The app boasts impressive flexibility. You can chose from five different levels of risk, ranging from conservative to aggressive.

Now, I wouldn’t use this as your main investment account.

But instead, use this app to “trick” yourself into saving more.

Think of it like a trickle-up investment. The amounts you invest will be small, so you won’t notice them.

However, over time, they will grow surprisingly fast, and all of a sudden you have an extra rainy day fund.

You see, there’s a sort of “blind spot” in human perception that causes us to miss small changes, until all of a sudden a large amount of small changes turns into something rather big.

Much like the story of the frog and the boiling water. Put the frog in boiling water, and it will jump out. Put the frog in cold water and heat it slowly, and it won’t notice the change until it is too late.

The only big drawback in the Acorn accounts is the fees. Just like a money manager, a mutual fund, or an ETF (exchange traded fund), you’ll have to give up some of your capital to fees. With Acorn, those fees may not seem like much — $1 a month up to $5,000.

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But if you’re paying $1 in fees for, say, $50 worth of investments a month, that is a 2% hit to your bottom line. In the world of ETFs that is a massive fee.

You can simply buy an index ETF of your choice with smaller fees. The Vanguard 500 (NYSE: VOO), which is one of Acorn’s options, is simple to buy on your own. You can play the entire market in one fell swoop. You could have gained 117% over the last decade without doing anything.

Instead of the 2% or so you’d pay with Acorn, you only pay a tiny 0.05% expense ratio for VOO. It also pays off a 2% dividend yield.

RentAFriend

This is a weird one...

RentAFriend can be an interesting way to earn extra cash while doing the things you already love to do — and meet new people at the same time.

For example, a 71-year-old “friend” named Ruth earned $15 an hour... just for playing Bingo!

You can earn up to $50 an hour on some of the options and activities, depending on your skill set and interests.

To be clear, this is not a dating site or escort service of any kind. The owners of RentAFriend are on the up-and-up, and they work to root out people who misuse the service.

Instead, RentAFriend offers a way for adventurers, the curious, and people traveling to get to know new people, a new activity, or a new town.

NBC News writes of one user: “Christopher Barton, 31, of Boulder City, Nev., first tried RentAFriend about six months ago during a business trip training clients for an online university. Living on the road, he hates to eat alone in restaurants and wants to make the most of his downtime.”

“I’m in different cities all the time,” he said. “You kind of get a tour guide to a certain extent.”

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According to RentAFriend’s website, friends have been rented for:

• Sporting Events

• Giving Tours

• Traveling

• Going to the Beach

• Skiing

• Snowboarding

• Concerts

• Business Events

• Shopping

• Wine Tasting

• Golfing

• Amusement Parks

• Museums

• Baking/Cooking

• Pottery

• Religious Events

• Casinos

• Bike Riding

• Teaching Manners (what?)

• Photography

• Hot Air Balloon Rides (now we’re talking)

• Hiking

• Bowling

• Comedy Shows

You get to decide which activities you’d like to be available for. When you sign up to be a friend, you’ll create a brief bio with what activities you are available for and what you charge per hour.

If you have an unusual talent or interesting hobby, RentAFriend could be a great way to pad your income while doing something you love.

Or it could be a good way to make a few bucks while sightseeing in an area you know well. Are you a foodie? Some people just want to know where the best food is in town.

If you’re hesitant, know that you’re not on the hook for anything.

They don’t charge you to be a friend, and they don’t take a cut from your pay. Instead, RentAFriend makes money by charging members (the people who want to contact you) a small fee to register with the website.

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As their website puts it:

“This works to your advantage in two ways. One, like we said before, you get to keep all the money you make and there is no sign-up fee for you. Two, this only allows you to be contacted by paying members of the rentafriend website, meaning you won’t have random people contacting you. Also, if a member contacts you to make plans, they have paid a membership fee and are 100% serious about hiring you.”

They make it a bit tricky to find the sign up, so when you go to rentafriend.com, make sure you scroll to the bottom of the page to find “click here to become a friend and get paid.”

So there you are, some wacky ways to make a few bucks outside of the stock market.

That’s all for this month, crew. Next month I’ll have a few new recommendations for you.

Happy Halloween!

Godspeed,

Jimmy Mengel

Investment Director, The Crow’s Nest

The Crow’s Nest, Outsider Club LLC Copyright © 2016, 111 Market Place, Suite 720, Baltimore, MD 21202. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. The Crow’s Nest or Outsider Club LLC does not provide

individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after

consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable

by law.

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