CGOC reported NAV up 34% since IPO and 12% YTD
Cannabis Growth Opportunity Corporation (CSE: CGOC) reported Net Asset Value (NAV) as of July 15, 2019 was of $3.11 per share. This was a decline of 4.9% for the month of July 2019 and a gain of 27.5% over July 2018. The NAV is up 34% since the Initial Public Offering in January 2018, and 12% year to date. Last month, the portfolio of public companies declined in line with general market conditions while Bhang Inc. in the portfolio of private companies went public making a positive contribution to the performance. This example demonstrates the value of diversification between public companies currently two-thirds of the portfolio and private companies representing one-third of the portfolio. These results are summarized in the chart above left and compare favourably with benchmarks such as the North American Marijuana Index.
For investors, a comparison of the NAV to the stock market price as shown in the chart to the right tells the story. It shows that investors are heavily discounting the value of CGOC from what amounts to its breakup value. Put another way, for every $1.00 put into CGOC shares, the investor receives $2.00 worth of cannabis investment assets of which 67% are public company shares at present. The current discount of around -50.2% is the second deepest discount shown, exceeded only by the experience in December 2018. On Christmas eve 2018, CGOC’s stock price dipped below $1.00 and was an outstanding value purchase. I suspect, looking out six months from now we will say the same thing about July 2019.
Investors appear to be undervaluing the short term potential of the private portfolio. Curaleaf Holdings (CSE: CURA) is offering to acquire Grassroots Cannabis held in CGOC’s private company portfolio for $875 million, representing about a 60% premium over CGOC’s cost. The combination will be the largest cannabis company in the world based on revenue. Although not a large holding, Avicanna Inc. (TSXV: AVCN) started trading on July 18th or three days after the latest NAV calculation and is expected to make a positive contribution to the August 15, 2019 NAV calculation. There are at least two other private company holdings that could have a liquidity event over the summer.
In the past couple of months, the success of the private company portfolio run by Jamie Blundell means the public company holdings are perhaps over-weighted by new issues. It will likely take Bruce Campbell of StoneCastle Investment Management several weeks to sort out the appropriate weightings for these new positions he has inherited. But the public cannabis stock market has been showing some signs of life since peaking shortly into the new year. If that happens as I expect, Cannabis Growth is positioned to do extremely well as returns from a public company rally are enhanced by additional contributions from the private company holdings and a reduction in the discount to NAV. CGOC offers a unique investment in the ultra-high growth potential of the cannabis industry with a deeply discounted value investment opportunity.