The overnight birth of an entire industry is one of the rarest, most lucrative opportunities in all of investing. When it happens, we can be sure of two things. One, that many astute investors will strike it rich. Two, many more will slip up and pick failing companies.
Remember the Dot Com boom? That was the last example of an entire industry coming into existence almost overnight. It led to an explosion of investment from the understandable excitement that the invention of the internet engendered. Many shrewd became millionaires, even billionaires. Many others, in a rush to pick any stock with an internet-sounding name, lost out. And of course, those who stayed away entirely, made nothing.
We are now seeing the birth of an entirely new industry, not due to technological advancement, but rather change in government policy. The cannabis industry could easily become the most successful investments in history, and that as not an exaggeration by any means. For reasons that we will explain shortly, we believe one of the best long term investments in the cannabis industry today is TransCanna Holdings (CSE:TCAN).
Before we get to company specifics, we need to put things in perspective first. Consider this one simple statistic. According to Credit Suisse, counting back to the turn of the 20th century, the most successful investment going back to 1900 has been none other than:
For good or for bad, this is the reality.
Every dollar invested in the right companies in the US tobacco industry back in 1900 is worth about $6.3 million now. That’s a staggering return of 630,000,000%.
Now let’s move to cannabis. When you read about the burgeoning US cannabis industry, you’ll typically see analysts go out, say, 5, 10, 15 years into the future and extrapolate a number in the billions. While these numbers may be accurate to a lesser or greater degree, it’s more important to put this into the “tobacco perspective” so to speak. In other words, what about 30 years from now? 50? What will the industry look like by the end of the 21st century? How much will every dollar invested in US cannabis now be worth by the year 2100? And crucially, which companies will be around by then, still making gains for investors?
It isn’t much of an exaggeration to say that US cannabis could easily top US tobacco over the long term, and this is for one simple reason: The medical benefits of cannabis are increasingly becoming undeniable. Tobacco obviously has no medical benefits whatsoever – in fact, quite the opposite. It’s widely regarded as the biggest killer on the planet. Given that, the potential successes of US cannabis, right now at the dawn the industry, could be MUCH higher than tobacco was ever able to achieve. And yes, cannabis could achieve these returns MUCH faster than tobacco.
Now the big question is, when an entirely new industry suddenly pops into existence, how can investors know which companies will ultimately make it? There is no sure thing in investing, but there are certain straightforward, logical steps that any investor big or small can take to help ensure that any decision being made is an educated choice that maximizes the chances of success.
The way the industry is shaping up, it is becoming more and more obvious that companies are increasingly focusing on getting products to market as quickly as possible. There are currently 392 cannabis companies being traded on Canadian exchanges, and investors want to see numbers, and they want to see them fast. The pressure to make sales ASAP is enormous, often insurmountable for new startups on the clock.
But as the saying goes, haste makes waste, and simply getting a product to market does not have staying power long term. As the industry matures, only the best brands with the most consistent quality will ultimately achieve the best returns for investors, and that means two things.
- Carefully and meticulously developing a collection of trusted brand names.
- Owning and controlling every aspect from seed to sale including nursery, grow, extraction, packaging, and distribution.
This is the ONLY way that full quality assurance can be assured for the end consumer over the long term. Because in the end, cannabis investing should not be treated as a short term play, but as a long term investment rivaling the time horizons of Big Tobacco. The most successful investors in cannabis today are not trying to eke out a few pennies in a quick trade. They’re picking the best companies now, positioning themselves for millions down the road.
As the industry matures, those firms focused strictly on generating sales as fast as possible are going to be displaced by firms taking the right approach NOW in order to build the best brands for the future.
That’s why TransCanna is such an exciting play, and could be THE cannabis stock that we believe could rival current industry leader Aurora Cannabis, up over 3,000% since 2016.
Rather than burn investor proceeds by acquiring as much infrastructure as possible as quickly as possible just to impress, TransCanna’s approach is pinpoint, quality-focused acquisitions.
Think about it this way: There are currently 37 brands of cigarettes in the United States, 34 of which are controlled by only 4 companies. This compares to 392 cannabis companies just in Canada, and branding is only in its early infancy. Obviously, not all of these 392 are going to survive.
This means one thing: The industry will quickly head towards centralization, with only the best of the best ultimately thriving. In a branding war, only the best with the most consistent and dependable quality survive. Focusing on quantity over quality at this stage just isn’t going to cut it. In the effort to get to market as quickly as possible, most startup cannabis companies are getting in over their heads. Ultimately, without a dependable brand, the valuations of these companies will ultimately come down to the physical capital they control, which will, in the end, simply be acquired by the companies with successful branding.
Being acutely aware of how the most successful tobacco companies ultimately succeeded in the past, TransCanna’s approach combines two business strategies. First, acquisition of hand-picked quality brands in the early stages, and second, complete ownership of the entire production process, though not at astronomical costs. From that kernel, TransCanna will be able to master quality first, and from an initial vertically integrated cannabis facility, quantity will follow.
The only way to build a brand is from the ground up.
TransCanna only recently had its IPO this past January, and just succeeded in raising the respectable sum of $16M in a brokered private placement after its initial target goal of $10M was oversubscribed. TransCanna had little choice but to increase the offering by 60% in order to meet demand.
“We’re humbled by the demand for our private placement. We have attracted a broad range of investors and are dedicated to executing our business plan as well as delivering value to our shareholders while continually growing our shareholder base.”
~ Jim Pakulis, President and CEO of TCAN.
Unlike many cannabis equity offerings, these shares weren’t simply dumped on the open market trying to take advantage of the “pot stock craze”. As a brokered private placement, these shares were offered to private investors only, for the purpose of the acquisition of a 196,000 square foot cannabis facility in California.
While 196,000 is certainly plenty of space, it is not gargantuan, certainly not in the millions of square feet you hear about in hypish press releases by new companies looking to impress with big numbers. Rather, this is a targeted acquisition as a step towards long term growth in the most populous state in the United States, and the state arguably most receptive to cannabis. After all, California was the very first state in the Union to legalize medical cannabis way back in 1996, a full five years before Canada did the same. So not only is the sheer volume of people ideal for a cannabis business plan, but the culture is one of the most friendly and enthusiastic towards the industry as a whole.
Now, while the facility is not the largest in California, it IS the largest fully integrated cannabis facility in the entire state. That means it is the single largest cannabis facility with capital to control every stage of the cannabis process from seed to distribution, all in a single place.
At full capacity and at current market prices for cannabis at around $1,400/kg, this facility is estimated to generate between $220-$363M annually. Getting up to full capacity will take time, but for the sake of comparison, industry leader Canopy Growth latest annual tally for top line revenues was $78 million.
Alarm bells should be going off in your head right now. How can that be? How is it remotely possible that a facility of just under 200,000 square feet is the largest fully integrated cannabis facility in California?
The answer is simply this: No other cannabis company in California is focused on vertical integration of the entire industrial process. Most are focused on grow operations alone, or distribution alone, or point-of-sale alone. But in order to produce the best, most consistent brands that will last long term, the entire production process must be controlled by a single integrated vision.
And this, alone, is TransCanna’s mission. It is singly and uniquely focused on building the best cannabis brands from the ground up. This way, it can acquire the best names, plug them into vertically integrated capital it controls, and oversee the entire process from seed to sale without relying on any third party at any stage of production. Third party bottlenecks are the biggest impediment to brand consistency in a market where consistency will ultimately prove to be everything.
So keep this in mind when choosing your pot stocks. 4 companies control 34 of 37 tobacco brands in the US. And yes, tobacco has been the most lucrative investment in the US since 1900, where $1 invested back then equals more than $6.3M now, but only in those brands that ultimately succeeded. So the question as to who the ultimate winners in the brand new budding US cannabis industry will be by the end of this century, ultimately depends on quality.
Who can build the best, most reliable, most consistent cannabis brands? In order to win, you first have to actually recognize that this is what will determine the big winners in this space. TransCanna appears to be one of the few that understands this simple truth, and how a $1 tobacco investment in 1900 turned into $6.3M today.
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