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Cannabis Growth Opportunity Corp (CNSX:CGOC) Managed Portfolio Includes C21 Investments (CNSX:CXXI)

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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.

Cannabis Growth Opportunity Corp (CNSX:CGOC) (OTCMKTS:CWWBF) offers investors an actively managed, diversified portfolio of companies operating in the cannabis space. COO Jamie Blundell explains that the company takes a long-term approach and provides retail investors with the opportunity to invest in private companies in addition to publicly-traded entities. CGOC also invest internationally, including in the US cannabis space. He reveals that when investing in private companies, CGOC looks for mid-to-late stage pre-IPO companies poised to break onto the scene. CGOC typically holds between 18 to 20 public and 10 to 15 private cannabis companies in its portfolio. CGOC’s holdings include US consolidator C21 Investments Inc (CNSX:CXXI), whose recent run has grabbed the attention of many investors.

Transcript:

Narrator: Cannabis Growth Opportunity Corporation is a cannabis-focused investment corporation with both public and private cannabis holdings. The company’s main objective is to provide shareholders long-term total return through its management portfolio of securities related to products or services in the cannabis industry.

Cannabis Growth Opportunity Corporation is listed on the CSE and trades under the ticker symbol CGOC.

Howard Glassman:   All right. As we’ve been sort of leading to, our guest today: Jamie Blundell is the COO of Cannabis Growth Opportunity Corporation. Jamie, welcome to the show.

Jamie Blundell:    Great, thank you very much. Happy to be here.

Howard Glassman:   So you’ve got an expert here with Ed, and you’ve got an interested potential investor. But first, as we were sort of having this discussion, you and I, just before the show, and I was trying to get a sense of what do you guys are actually at Canopy Growth Opportunity Corporation [sic]. Who are you guys, how did you get involved, and how are you another opportunity for people to invest in this space?

Jamie Blundell:    Yeah, that’s a great question. I think we’re a great opportunity to invest in the space because what we represent is an actively managed, diversified portfolio of both public and private investments. And so you have to think of us as a fund; we aren’t, we are in investment corporation, which gives us a little more flexibility in how we operate. But essentially, we’re a basket of both public and private companies, and what’s unique to us is that we’ve got the ability to invest in private companies, which typically retail shareholders don’t get access to.

And we can make investments anywhere in the world, including the US.

Howard Glassman:   One of the things, Ed, that I found fascinating talking to Jamie before the show, is the idea that obviously publicly traded companies, their value fluctuates as the market does. Privately traded companies, as you say, are valued, or the valuation, is on the day you buy them, and yet as their value increases, their costs on your books stay the same. Explain that to me, because I found that interesting.

Jamie Blundell:    Yeah, no, it’s a good question; it’s probably one of the reasons why we’re trading at a discount right now, is because the retail shareholders are having a tough time putting a value on our private companies.

Howard Glassman:   You’re trading at a value less than you say that obviously the fund is worth?

Jamie Blundell:    Yeah, so our net asset value is north of $45 million, and we’re trading at a market cap of $34 million.

Howard Glassman:   So around 30 percent, 35 percent undervalued?

Jamie Blundell:    Last time we publicly announced this, it was 38 percent, so we’re working, obviously, on closing that gap. But I think, you know, to address your question, the challenge is, we make these private investments; we leave them on our books at cost, and unless they’ve had a subsequent financing, we will keep those investments at cost. And so, over time, if they haven’t done anything other than just grow their business and hit the milestones that they say they’re going to hit, then we know the value of that investment is growing, but we don’t mark it; we leave it on the books at cost.

Ed Milewski:  Now, if they do have another financing – if one of your private companies does another financing at a higher price – do you change the price?

Jamie Blundell:    Well, what we do is, we take that as an opportunity to do a review. I’m very close with our private investee companies, and so I call them up, I walk through the new valuation model, and we’ve got examples in our portfolio of both. So we’re being very conservative at how we mark the private portfolio.

Howard Glassman:   This could be a stupid question – I know you said there was no stupid question.

Ed Milewski:  There’s no stupid questions, Howard.

Howard Glassman:   But this could border on the stupid, at least certainly uninformed and ignorant, I apologize in advance. In fact, I was thinking of getting a T-shirt says, “I apologize in advance for some of the things I might ask”. When you have these private companies within your fund, are they waiting to go public? And if they are, when they go public, does that affect the value of your fund?

Jamie Blundell:    Oh, absolutely.

Ed Milewski:  That’s exactly.

Jamie Blundell:    That’s where we’re going to see –

Ed Milewski:  That’s where you’re going to see, in my estimation, a real appreciation in the value of the fund, because private companies are always valued a lot lower.

Howard Glassman:   Well, that’s what you were saying, because they don’t have to disclose their financials. So really, for people that are interested in the Cannabis Growth Opportunity Corporation, should they look at some of those private companies and see which ones are about to bubble under and go public, or possibly go public?

Jamie Blundell:    Absolutely. So we’ve got now, like the premise is, when we were investing in the privates is, we want to invest in companies that are mid-to-late-stage, pre-IPO. So we want them to be, we want to have a liquidity event within 12 to 24 months. If you look at the 15 investments we’ve made so far, one of them had a liquidity event in three months, so that was a nice thing.

Howard Glassman:   I’m only smiling because it’s so great when you get to know the lexicon of another industry. When you call it a – what did you call it? A liquidity event?

Jamie Blundell:    A liquidity event.

Howard Glassman:   A liquidity event.

Jamie Blundell:    We’re not drinking anything.

Howard Glassman:   That is, honestly, I’m going to take some buzzwords away from this week, and I’m starting with liquidity event! So when you guys think about a company going public, back to what you taught me in the first segment, Ed, Ed’s talking about get there close to zero. So when you have a company that’s about to go public, or liquidity event, within 15 or 20 months or so, you’re getting closer to zero.

Ed Milewski:  Well, you’re already getting close to zero because you went in privately. The private rounds, then the public rounds are usually higher.

Howard Glassman:   Well that’s what I’m saying. But if you were an investor in Canopy Growth Opportunity [sic], you want to get, that’s a chance for you to get close to zero.

Jamie Blundell:    Can I give you a great example?

Howard Glassman:   Yeah, please do.

Jamie Blundell:    So in the portfolio, we invested, last summer, in a company called Vireo Health – a great company, this was started by an emergency room doctor who, six years ago, in Minnesota, saw the opioid crisis firsthand, and did the research, and realized that cannabis was an alternative to opioids. Started a cannabis company, grew it to operating in four states; by the time we invested in last year, they did 18 million in revenue.

So we invested in that company, $1.5 million USD at $100 million valuation US of that company.

Howard Glassman:   Wow.

Jamie Blundell:    So, over the course of the year, they hit every single milestone, so they’ve now grown to, they’re operating in six states with definitive agreements to eventually operate in 11 states. So definitive agreement means they’re going to buy a company, and it’s already a done deal, it just hasn’t closed.

And then they’ve got an LOI for California. So they’re going to be in 12 states very soon. So they’ll be a very large, multi-state operator, so there’s another buzzword for you: MSO.

Howard Glassman:   And when is their liquidity event, their festival of liquidity?

Jamie Blundell:    They’re doing a 50 million raise right now; the books are just closing, so if you’re interested, you know, it’s a great opportunity.

Howard Glassman:   What’s the name of the company?

Ed Milewski:  What percentage of the company are they giving up for 50 million?

Jamie Blundell:    So they are doing this raise at a 400 million to 500 million valuation.

Ed Milewski:  Wow.

Jamie Blundell:    So there’s an example –

Ed Milewski:  They went in at 100 million, right? And now it’s valued at 400 million to 500 million?

Howard Glassman:   Are we talking about a five-bagger? Four to five. I’m just trying to throw in stuff I’ve heard.

Ed Milewski:  Certainly a home run. Certainly a home run. Maybe not a grand slam, but a home run.

Jamie Blundell:    Yeah, exactly.

Howard Glassman:   What’s the name of this company?

Jamie Blundell:    Vireo Health.

Ed Milewski:  And is Vireo on this list?

Jamie Blundell:    Yeah, it’s right, it’s the –

Ed Milewski:  Oh, here it is: Vireo. Okay. VIR, okay.

Jamie Blundell:    So you know, to give you an idea, we made that investment last summer, so it’s less than 12 months.

Ed Milewski:  Right. For four times your money.

Jamie Blundell:    You know, one that’s going public tomorrow is CB2 Insights, formerly MVC Technologies and Sale; they’re right down there.

Ed Milewski:  CB2? Where are they?

Jamie Blundell:    I see it there, this one right here.

Ed Milewski:  Sale?

Jamie Blundell:    They used to be called Sale Cannabis.

Ed Milewski:  Okay, okay, okay. Sure, sure.

Jamie Blundell:    You know, very interesting company. They’re really looking more on the data side of things, and decision, clinical support tool for doctors. And they have clinics in 12 states right now, 28 clinics in 12 states, I believe. They’re doing 10 million in revenue; they’ll do much more next year. They were an investment we made last year; they’re going public tomorrow.

Howard Glassman:   That’s what you were saying, Ed, you know, the nice thing about your company, Jamie, is that if I don’t know the minutiae or the fine print of Vireo or this other company, what I get to do with Canopy Growth Opportunity [sic] is feel like I’m part of it without having to, you know, get into when something’s going to go public or it’s not, because your company, I may just say – you must…

Ed Milewski:  I’ve got the chart up here, so we could put the chart up on the screen right now, actually. I want to make a couple of comments.

Howard Glassman:   Well, it says here your company’s updated net asset value per common share as of a couple of weeks ago, represents a growth of 29 percent since your IPO?

Jamie Blundell:    Since our IPO, yeah.

Howard Glassman:   So even if I’m just – not just, rather than Vireo specifically, I can invest in your company and ride the growth as the companies that you hold grow.

Jamie Blundell:    Yeah. Now the challenge is, our share price is not 2.99; our share price is, you know, 2.20. Exactly.

Ed Milewski:  But I mean – could we get the chart up here, control tower?

Howard Glassman:   We need the chart.

Ed Milewski:  Anybody in the control tower?

Howard Glassman:   Someone get Ed a chart, because I feel like the chart is like Ed’s blanket, it’s like a security blanket.

Ed Milewski:  I need that chart. I need it now.

Howard Glassman:   We need a chart, people. There we go, very exciting.

Ed Milewski:  So look: they went public here, it looks like, beginning of 2018.

Jamie Blundell:    Yeah.

Ed Milewski:  And quite often with these things, they sell off, for whatever – okay, I made a mistake here, I’ll get that back. So sold off, and then we had a period of consolidation, and again, this really has nothing to do with the value that’s inside the company. I mean, it should correlate, but sometimes it doesn’t. so look, we had this period here of consolidation, where it’s up and down, up and down, and we went into the end of last year, which was horrendous for tax loss selling, and we had this just precipitous drop, followed by a very similar rise.

Look at this: almost a perfect V, okay? And now, you know, if you can get through here, you’re off to the races.

Howard Glassman:   Can I just see that for a second? This is just so cool that Ed can just do this stuff. Like, that’s pretty cool shit.

Anyway –

Ed Milewski:  It looks good, it looks good, and it’s a way of getting into the marijuana space.

Jamie Blundell:    Well yeah, because you’re getting access to a diversified portfolio.

Ed Milewski:  And Jim said you were a good stock-picker.

Jamie Blundell:    Well, we’re getting there. We’ve got a great portfolio manager, and at any given time, we’ve got 18 to 22 public holdings, and between 10 and 15 private holdings.

Ed Milewski:  And will you keep it around that ratio? Like –

Jamie Blundell:    We will, absolutely.

Ed Milewski:  Ten to 15, and if you get, if some of them go public, will you add? And are you looking – so wait a minute, let me ask you this: are you raising money on a regular basis to –

Jamie Blundell:    No, we aren’t raising money at all.

Ed Milewski:  So you want to grow your value.

Jamie Blundell:    Absolutely. So we’re going to do that two ways: one is through the appreciation of our investments, and then we do have a full warrant at $2.50 with an accelerator at $3.50, and so instead of us going to raise money, what we’d love to do is access that warrant and then use that capital to then reinvest and grow the business.

Howard Glassman:   I understand you made an investment in C21?

Jamie Blundell:    Yeah, C21.

Howard Glassman:   C21. What was the reason behind the investment, C21’s investment into CXXI? I wrote that down, but it was a couple of hours ago, and now I can’t remember what that was about.

Jamie Blundell:    Yeah. So CXXI is C21.

Howard Glassman:   C21, thank you.

Ed Milewski:  So that’s XX1 –

Howard Glassman:   Yes, I get that now, Ed. [laughter] I told you, I looked at it –

Ed Milewski:  I figured it out yesterday, okay? It only took –

Howard Glassman:   I’m laughing because I do the same thing when the iPhone’s ringers.

Ed Milewski:  Something came out, I called it XI.

Howard Glassman:   Anyway, so what was the reason behind that investment?

Jamie Blundell:    Well, we like what they’re doing. They’re looking to consolidate a number of operators in the US.

Howard Glassman:   Are they private or public?

Jamie Blundell:    They’re public.

Howard Glassman:   They’re public.

Jamie Blundell:    They’re public, and they’ve just recently acquired a Nevada operation which will allow a tremendous amount of revenue, and eventually EBITDA, to that business. And so we like their trajectory, we like the business model. We like investments in the US. There’s still a big valuation gap between US companies and their Canadian counterparts, and so as you look at our portfolio, both public and private is close to 50 percent US-based.

Howard Glassman:   Jamie, before we let you go, someone has a question here. It says the CGOG is still an absolute steal here; 6 percent of the private book in Jushi? I don’t think – that’s going to double or triple –

Jamie Blundell:    Jushi.

Howard Glassman:   Jushi?

Jamie Blundell:    Yes, Jushi.

Howard Glassman:   That’s going to double or triple by the next markup, IPO, I think, says Dielawn.

Jamie Blundell:    Yeah, you know, Jushi is another great example of a US private company. We were in at the early round; we invested at $1.00, and they’re just currently raising money now at a $2.00 valuation, and so we’re quite excited about that. They’ve got quite a bit of work to do on getting a number of their businesses from LOI stage to definitive agreement, and then after that, we’re quite excited about where they are going.

Howard Glassman:   Okay. All right, listen, I really enjoyed this. I learned a lot. Thank you very much.

Ed Milewski:  We’re learning!

Howard Glassman:   We’re learning and growing.

Jamie Blundell:    I’m happy to come back any time. Thank you very much.

Ed Milewski:  And I think, just one other thing I wanted to point out: When we were re-interviewing the gentleman from CXXI, one of your holdings, it was $1.05, and a month later, it’s $2.00. like, and because we’re drawing attention to the fact, because this guy is a very judicious stock-picker trying to find value -if you find value in this space early enough, it can double very quickly.

Howard Glassman:   You should have seen how excited Ed got in the pre-show meeting. All of a sudden he got a message, Jim wants to talk about Jamie! And then he had to leave the meeting and got some dark intel on you.

Ed Milewski:  Yeah, I had to have a shot of booze.

Howard Glassman:   The bottom line was, you’re blue chip. Great meeting you, Jamie Blundell, Cannabis Growth Opportunity Corporation, which is what it says – it’s an opportunity to grow within the cannabis, you know, space, without having to worry about individual companies. Ed gives it a big thumbs up. I don’t even know where to go with it, but I’m going to throw some money at it. I don’t even know, you know? Are people constantly hitting you up for, like, Hey, Jamie, what’s going on with –

Jamie Blundell:    Absolutely, all the time, and that’s the best part of the job, is meeting with the companies on a regular basis and listening to their stories.

Howard Glassman:   Is it? Could you just put your number in this for me? Thank you.

Jamie Blundell:    [laughter]

Howard Glassman:   Don’t worry about it, Ed. I’m working my own side hustle. Well, thank you very much.

Ed Milewski:  Thanks.

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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