Five years ago, when I first started following publicly-traded cannabis stocks, there was little substance to the small universe of companies that purported to be in or providing goods or services to the industry. Fortunately, now there are many legitimate companies, some generating substantial revenue. Despite this significant progress, there are still hundreds of companies trading as penny stocks on the OTC that have little merit in my view. Today, I want to share my thoughts on just a few of them.
Cannabis Sativa Inc.
CBDS, which files with the SEC, began trading in 2014. The company has 21.2 million shares outstanding as of September 30, 2017 and has not yet produced material revenue ($121,400 in Q3, with an operating loss of $1.14 million). A review of its SEC filings reveals a substantial amount of Form 4s, which represent sales by insiders. The market cap at the recent closing price of $5.35 is approximately $113mm. Tangible book value at September 30th was -$3.47 million.
Cannabis Strategic Ventures
NUGS, which doesn’t file with the SEC, changed its name from Cascade Energy in December 2017 after announcing a business change on July 13, 2017. The company has 284.78 million shares outstanding, though only 3.9mm are free-trading as of 12/31/17. At a recent closing price of $1.71, it has a market cap of $487 million. In 2017, it sold 44.359 million shares for $746,500 ($0.0168 per share), and it entered into a series of private placement agreements in December to sell 2.975 million shares at $0.0666 per share.
The company’s OTC Markets Disclosure for the quarter ending December 31, 2017 indicated that the company has equity of $3.87 million, with sales of just $198,213 in the first three quarters of the fiscal year ending March 31, 2018 ($3.5 million operating loss). It has issued two convertible notes to a single lender, including $164,900 convertible at $0.025 per share and $50,000 at $0.05 per share.
The ownership of stock is highly concentrated, with Chairman and CEO Simon Yu holding 90 million common shares. Yu bought 1 million Series A preferred shares on June 1, 2017 for just $10,000, giving him voting rights equal to 100 million common shares. He was also granted 90 million shares that vest over two years on June 1, 2017. The next day “certain consultants” were granted 126.5 million shares.