Early this year, in February, we traveled to Denver, Colorado to learn about the blossoming cannabis industry. In addition to hearing from top industry experts, we also physically toured the facilities of several different cannabis companies.
We shook hands with the business owners, walked through manufacturing facilities, and learned about how the cannabis industry actually operates.
We ended up making investments in three separate companies (all of which are doing very well) after our two day trip. In addition to learning about these companies, everyone got to actually meet the company CEO’s face to face.
While it is very difficult to properly quantify how important it is to meet someone in person, we can all agree that a ‘gut feeling’ is formed immediately after being introduced to someone new.
It’s a combination of physical appearance, the strength of a handshake, the tone of one’s voice, the look in one’s eyes, and even someone’s smell. Then there are dozens of micro-observations that we all subconsciously make.
How does someone walk? Are they nervous when they talk? Can they focus on a conversation? What is their body language saying? Are they demonstrating honest feedback? The list could go on and on.
Call it a sixth sense, or just the combination of all of our senses translating thousands of observations into a feeling. This ‘feeling’ is how we, as humans (or investors), make intelligent decisions that determine our future success.
Having this skill of ‘reading people’ is something that is not simply learned overnight. It requires practice, failures, and successes. Subconscious mental notes are made about certain personalities based upon the results of a relationship with someone.
Have you ever been scammed by someone? Well, you probably remember some key qualities of that person that you will absolutely avoid in others in the future.
Ever had a successful transaction with someone? Then you probably remember several personality traits of that person that you will look for in others.
All of this is blatantly obvious in everyday life. Humans naturally trust others who have demonstrated qualities of a trustworthy person.
That’s why mothers won’t let a stranger take care of their baby. It’s why homeowners don’t just let anyone in their home. It’s why children are naturally frightened by those they don’t know.
The importance of building trust is literally written into our DNA.
So… ask yourself this question:
If trust is so vitally important to the future success of our lives, then why would we ever invest our wealth into a company who is led by people who we have not determined trustworthy?
The short answer to that question is that there is an assumption that any major company – especially those who are publicly traded on major stock exchanges – are lead by trustworthy people.
This is a fair assumption to make. Publicly traded companies are required to frequently report their business operations in a transparent way. Additionally, most stock exchanges only list companies who have demonstrated ethical and legal business practices.
That’s one of the reasons why the United States’ public markets are so highly respected. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) ensure that everyone is playing by the rules and issue enforcement measures to those who are not.
Additionally, ratings agencies like Moody’s, Standard and Poor’s, and Fitch Group provide feedback for investors as a neutral third party.
(Of course we all know that even these agencies are questionable, as the SEC often issues subjective penalties – hi, Elon Musk and Martha Stewart – and if you think the rating’s agencies are sparkling clean, I suggest you check out their involvement during the housing crisis, or just watch the movie The Big Short.)
The combination of all of these measures makes investors assume that public companies are trustworthy.
However, we all know what happens when we assume things…
Case in point: Aphria.
Aphria is a publicly traded cannabis company based out of Canada. Recently, it has had one of the highest valuations among the hundreds of publicly traded cannabis companies that have popped up over the past year.
However, a recent report by Quintessential Capital Management and Hindenburg Research shows that Aphria may be worth zero.
Gabriel Grego of QCM presents information about Aphria’s inside dealings that are shocking. In fact, if the findings that Gabriel presents are true, there will be several people going to jail.
The video, which is about 45 minutes long, is a must watch for anyone who invests in the public markets. It shows the importance of trusting management and the need to understand what a company is actually doing.
Aphria’s story is still unfolding, and to be fair, their CEO is supposed to provide a rebuttal very soon. However, for me, there is enough evidence provided that I wouldn’t want anything to do with that company – both as an investor or as a business associate.
While the details of Aphria may be unique, don’t think for a second that there aren’t other companies out there doing the same exact thing. This is especially true in industries that see rapid expansion.
We’ve seen it during the dot com bubble when hundreds of companies went public with little more than a registered domain name. We saw it again with fraudulent loans and bank shenanigans leading up to the housing crash.
And we’re probably seeing it once more in the cannabis industry as anyone who has an idea (or scam) is jumping into the game to cash in on the ‘green rush.’
To be clear, we are extremely bullish on the cannabis industry, having already invested millions into the industry. We also plan on investing millions more over the next several years. That said, we also believe there will be a significant shake out in the cannabis market, which will expose dozens of fraudsters and less than acceptable business practices.
This currently presents a minefield of danger, but also presents an enormous opportunity to invest over the next several years into distressed assets that will begin to show up as the garbage gets filtered out of the cannabis industry.