Liberty Health Sciences Inc (CNSX:LHS) Response to Short-Seller Report

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Liberty Health Sciences Inc (CNSX:LHS) (OTCMKTS:LHSIF) (FRA:S6UQ) CEO George Scorsis responds to the second Hindenburg Research report. Scorsis highlights the self-interest of short sellers as well as the many inaccurate statements in the report in defense of Liberty Health’s practices. Scorsis clears up a misunderstanding about an early stage private placement, in which shares were sold at $0.01, by noting that those shares became tradeable over a year ago and won’t cause future downward pressure on the company’s stock. Liberty Health had a strong quarter, reporting a 45 percent increase in earnings and a patient load growth of 46 percent. Liberty Health will open another 7 stores by February, bringing its total number of dispensaries in Florida to 14 by the end of Q1 2019.

Transcript:

Brandon Colwell:   I’m with George Scorsis, CEO of Liberty Health. Welcome to the show. It’s been a very action-packed couple of days for you, and I just want to let our viewers know, just right off the bat, any instances or information in regards to Vic and Aphria, we are not touching on during this interview; this is about yourself and Liberty Health Sciences. So I just wanted to make sure we made that clear from the get-go.

George Scorsis:    Yeah, I think it’s important to note that, you know, what short-sellers actual intentions are. I think that’s the most important aspect out of what we really want to discuss. Short-sellers are not there for the actual overall interests of the common shareholder, they’re there for their interests of their specific individual or the activity that they do.

You know, it’s extremely important to look at the fundamentals of the business, first and foremost, for any shareholder, but when we take a look and we look back at this group specifically, or any other group of this nature, we see that facts are inconsistent, they may be outdated, in many times, and they may not fully prepared, or investigated properly.

This group released several reports this week and other reports that were tied to other companies, and I think they demonstrated that, you know, they were using wrong addresses of individuals. They’re tying wrong people to the business, there was inaccuracies in their statements, and that really followed through to what happened yesterday with Liberty Health Sciences.

And when there are certain aspects of it that are clearly inaccurate – when we look at, they presented an individual who’s the director of the business who’s never been a director of the business or a Board member – that’s just one simple callout that we can see inaccuracies. We consistently see share counts that were presented to demonstrate nefarious activity, when there was corrections made to a Form 9 with Vic Neufeld that didn’t have 2.4 million shares, but 240,000. Also, allegations of ties to certain individuals that are non-existent or don’t participate in our business.

You know, the foundation of the business is extremely critical for us to really understand, is it a strong business? Is this a business we want to support? Is it a business that we want to invest against? And Liberty Health Science demonstrates that, and today was a great example of it. Our quarterly earnings were presented, we had 45 percent growth, which again, we are on pace to have a great year. We’re on pace to deliver against everything we’ve said. We have $20 million cash, which will bring us to fulfilling all of the deliverables that we suggested. We are moving forward into Ohio, and those are truly the facts. We’ll come out with a more fulsome response with regards to every single one of the items that were listed on this report, in the upcoming days.

Brandon Colwell:   Yeah, and I appreciate your time, because you always do have to look at two sides of the story, and as you said, there are elements of this report that you guys are taking the time to address individually, so we’ll stay in tune for that, and I’d like to talk to you about afterwards, recapping all those different elements. But one question I find investors are asking the most, especially live as we’re looking at some of our questions, is the private placement itself. And one of the questions was, did this private placement – so it was 242 million shares at $0.001, this is before it got amalgamated into what it is now, Liberty Health – were you a part of that private placement, or are you on board when that private placement happened?

George Scorsis:    So I wasn’t part of that, but it obviously is important for me to be aware of that, and I am. What is important there to note is, although I chose 240 million, that was prior to the consolidation, which in fact was really 80 million. So that’s one-third of the business.

What’s important with that is, although that it’s notable shareholders that participated in that, most of those shareholders, or many of those shareholders, also participated in subsequent raises, and they are also still shareholders in our business. So it’s easy to depict one single line item and suggest that individuals simply purchased at a very low rate and ran, but many of these individuals are still part of our business, have invested in our business, and are still shareholders.

What is also important to note with that is, when do these become free trading, and will it cause downward pressure on the stock? Well, these became free trading four months after list. There isn’t a future date that’s going to hit, and actually, as a result of that, you’re not going to see any future downward pressure on our stock, but more so, if they wanted to exit the business, they would have exited by this point; we’re seeing that they haven’t exited the business, in many cases.

So, it’s important to have the full picture and to understand how it’s going to affect shareholders, and that again is another great example of how we can really provide full picture and transparency to our shareholders.

Brandon Colwell:   Yeah, and that was actually another question that I was going to ask you, that you’ve already gone ahead and said was, what would be the escrow on that, or how long is that going to be vested for? Because a lot of people, they see really, really cheap paper; they want to know, you know, is this going to come out tomorrow? Is this going to come out six weeks from now? And that’s something you have to take into consideration.

I believe you just said they have been free-trading as of today, or as of in the past, and there’s a good chance that they’ve already been run through?

George Scorsis:    That’s right. It was four months after list was the hold period, so it’s been well over a year.

Brandon Colwell:   Okay, and that’s an important question that people wanted to know. There were other elements that we did – did you have a question?

Ed Milewski: Yeah, yeah. George, Ed Milewski here – you know, when markets go up and they really go up rapidly, the general mood, everybody’s slapping you on the back, and yet, you know, they usually push markets too high. And then the inevitable correction takes place, or corrections, as we’ve seen, and, you know, everybody’s all of a sudden, you know, they get the magnifying glass out. People want to see the I’s dotted, the t’s crossed. You know, it’s – look, there’s ups and there’s downs, and if anybody thinks they’re going to go one way, it never has happened and it never will happen. And so, I just wanted to say that as an observer, and I’ve observed at markets for, you know, four decades. Anyway.

Brandon Colwell:   No, it’s a good point. A lot of people just expect it just to –

George Scorsis:    That’s a good point. And that’s a good point – today, obviously, the DOW is showing a correction in the marketplace, and you know, I think for investors or shareholders it’s important in either way, shape or form, they really need to look at the fundamentals of the business. That’s so important. It’s so important to do your own due diligence, because there are going to be times of the marketplace either correcting or ups or downs.

But you know, really, it’s about the foundation. Does the group have the right foundation? Do they have the right management? Do they have the right strategy to be leaders in the space?

Brandon Colwell:   Absolutely. Well, if you don’t mind, we’re going to go to the news release that you had earlier today in just a moment, but we had some questions, both through when we went onto the Liberty Health Sciences Facebook group asked some questions, but also our audience as well. And Georges asked, can you give us an update on Massachusetts?

George Scorsis:    Yeah. In Massachusetts we continue to do our due diligence in the marketplace. It’s a really interesting market for us. I hope our shareholders can understand that we are extremely disciplined and don’t want to jump on a market prior to us doing our proper due diligence, and understanding whether this would be the right group to partner with, whether this would be the right time to enter, and this would be the best use of our capital expenditure. So we are still doing our due diligence in that space.

Brandon Colwell:   And thank you for asking as well, or for answering, I should say. Another question from our viewers is, looking forward guidance, a Kentucky hemp producer and how they’re looking to tackling the Farm Bill in general for you guys. Because that’s still, I believe it still has to go through the House and the Senate still, but that’s a big change if it goes through. How are you preparing yourself for that?

George Scorsis:    Yeah, so it still maintains a little bit of arm-wrestling, I would say, between the House and the Senate, and they’re still going through some of the finer points. Do we believe that it will pass? Absolutely. We think it’s going to happen very soon. We, as Liberty Health Sciences, believe extremely strongly against this aspect of the business. We believe that hemp and CBD-related hemp will actually change the entire business.

The reason for us being extremely diligent in moving into other states is, when this Bill passes, it is our opinion that this will be a major part of the entire segment, and potentially cannibalize certain states and their activities. We have a plan in place, we have products that are CBD-related, and we also have partnerships that are pending release, that we are going to divulge to the entire network. But we are extremely bullish in this.

Hemp CBD is an important aspect of the entire business that we really need to stay closely looking at, and that’s one of the pieces that we’re really excited about.

Brandon Colwell:   Thank you. And I’ve got one more question here that actually multiple people asked, and we’ll go into today’s news release, because you had some financial results in there. And it was, who currently owns Copper State Farm? I believe that was an Aphria asset at one point; do you guys fully own that?

George Scorsis:    No. So that was an Aphria asset, and Aphria decided to divest of it based on their TSX listing, and they no longer have ownership of it.

Brandon Colwell:   Okay. Is that fully ownership for yourselves?

George Scorsis:    That’s right. We have no ownership of Copper State.

Brandon Colwell:   Okay, gotcha. Well, jumping in, and I appreciate very much for answering those questions from our viewers and different investors of your company. You came out with news today. You had some pretty good earnings there; do you want to discuss what was in that press release today?

George Scorsis:    Yeah. This is really what we want our shareholders, our audience, all of our supporters to really see: 45 percent growth. It was another great quarter. We accelerated our stores, we’re up to 7; we’re going to have another 7 open by the end of February. I am currently in Miami right now; we are in the last stage of completing our Miami location, which will, in the upcoming days, so we’re really excited about that, and the subsequent stores. Our patient load also increased by 46 percent. We’re doing all the things that we suggested we would do. We want to be a leader in the space; Florida alone is one of the most captivating states that we want to be into. We believe it’s going to be one of the biggest states as well, and that’s why we’re doubling down on Florida and making sure that we don’t become extremely fragmented.

We are extremely focused on Florida as the place that we want to put the flag in the ground, rather than losing focus of it. And we have some more exciting news. But really, that patient uptick is demonstrating that a few of our strategies are working. One is, are we opening the right dispensaries in the right locations? And, is our customer service model working in terms of retention, and bringing people back and not seeing slippage of our patients. That’s one. We are seeing that.

The second that we made was that patients want national brands. So when you see products in our store such as Mary’s Medicinals, PAX being exclusive to us, we’re seeing patients come in and they’re saying, “We’re so happy that you have these products. We’ve used these products before, we recognize them.” It’s about building trust with the patients and about them coming back to our stores.

And so it really looks like our strategy is coming together exactly as we’ve outlined, and great results. And we expect the next quarter to be even stronger, because we anticipate more stores to be opening at a more accelerated rate.

Brandon Colwell:   Yeah, and Florida, actually, you know, for people who are still trying to catch up to the United States cannabis, first off, where have you been? We’ve been talking about this for quite a little while now as we’re starting to realize, wait a second, America is a pretty big economy.

But if you look at Florida specifically, it’s amazing how much revenue by some companies, and now you guys are really starting to see that as well, is coming from Florida. There’s a huge demand there, and I believe your news release, I’m reading it here, you’re going to have 14 dispensaries by February of next year. So in Q1. And that’s interesting, there, because that’s ever-growing, and I believe it’s just medical now, but I wouldn’t be surprised. Almost every state so far, they’ve had medical for a certain amount of time, rec has followed.

What are the political grounds right now for recreation in Florida? I actually haven’t looked into it, myself. Is that nearby, or are we still a little bit away for that?

George Scorsis:    Yeah, I think the sentiment by the average consumer or patient in Florida is that, you know, it should be an adult-use state. We believe strongly behind it, and I believe some of our competitors also do, that have most recently entered. But really what is it about? You know, I want to touch on, how do you win an adult-use state? It’s about having the right locations, it’s about having the right brands, but it’s also about having the right operation.

That’s why I want to really touch on our 225,000 square foot grow that we’re building for not today, but for tomorrow. We have 486 acres. We’re building a state-of-the-art facility. I welcome you and the team to come join and see, as many others have, and this is really going to be the supporting aspect of our business.

Operationally, adult use is not too dissimilar from medical. You need to be producing high-quality cannabis that is safe, effective and consistent, and that’s where we think we’re going to be leaders.

Brandon Colwell:   Yeah, no, absolutely. And we’ve got some people in our chat rooms here wanting to go more into this short report. What I say to those investors right now, as you said at the beginning, George, you guys are taking the time to go through this bit by bit and give a response, there. People that put out short reports like this, it usually takes them weeks to be able to go there, to film things, to do due diligence, and then you all of a sudden ask for a response in 24 hours, 48 hours. I mean personally, as an investor in different companies, I think that’s a little bit unrealistic.

So for those people asking, we’ve touched on that already. We will get back to that at a future time when you’ve been able to come out with your response, and we could always take it from there as well.

George Scorsis:    Thank you very much.

Brandon Colwell:   Well, George, I appreciate very much for coming on and giving some time for us. Always a pleasure. Like I said earlier, first off, what you said: I’d love to come out to Florida if we’re going out there.

Ed Milewski: Let’s go! We’ll jump on a plane!

Brandon Colwell:   We’ll jump on a plane and there’s snow everywhere. But I appreciate you coming on, taking some of the harder questions, taking some of the better questions, but just in general, being in here and giving us your time. We appreciate it. Looking forward to hearing responses on the short report that was released yesterday.

Ed Milewski: Thank you, George.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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