Ted Ohashi's due diligence process
QUESTION: “Why don’t you mention some other stocks? The Flowr Corporation (TSXV: FLWR) for example. They are located in Kelowna, B. C. What does your research tell you about it? From my analysis, Trulieve Cannabis Corp. (CSE: TRUL) is the only POT stock that is actually making money.
I have to question why you keep publishing the same information week after week on Khiron. Canada is famous for mining and mineral scandals. Anyone can open an office and do placements to create the impression ‘things are rockin and rolling' only to close up and run off with investor money. I follow you and appreciate reading your posts but I wonder why there have been no up-dated pictures. I smell scam here but I am not the sharpest tack in the box. There must be others questioning whether this as a possible 'pump & dump' as it is called.
Please don't be offended. I think these are legitimate questions for someone who is recognized as the 'pot blog guy.’”
L.L. from Vancouver, B.C., Canada
ANSWER: I am sure FLWR and TRUL are fine companies and there are many others. Earlier this year, Real Money said there were almost 400 publicly traded cannabis companies in Canada and the U.S. and the Canadian Stock Exchange published recently there are 165 listed on their exchange. I don’t know the real number but I suspect there are a few hundred. So I’m afraid I can’t follow them all. Not even close.
Also as I have mentioned in the past, I don’t want to “…mention some other stocks….” unless I have had the opportunity to look into them in some detail and at least have spoken to management. If I “mention” a company, someone might do some reading, call their broker and make a change to their portfolio. I take that role and the responsibility that goes with it very seriously.
Here is how I go about finding new companies to look at. I have a relatively small group of people whose investment and cannabis market opinions I value: a couple of brokers and investment advisors, a few people working in the cannabis industry and a couple of other people who do what I do and do it well. The process often starts with an idea. For example, almost a year ago I concluded that the investment prospects for cannabis investors was more likely to come from the U.S. or international markets.
Let me give you an actual example. Last year, a broker friend of mine talked to me a couple of times about a company he was following. If it had been a Canadian licensed producer, I would have politely tuned out. But it was a small company, I’ll call it ABC, operating in Nevada where it had an indoor grow operation and a line of cannabis infused products it was selling to dispensaries in Nevada and other legalized states. The broker later called me and said ABC was holding a reception to celebrate October 17, 2018 “legalization day” and if I wanted to go, he would introduce me to the President who was experienced in the cannabis industry and was one of the founders of an important licensed producer. I was leaving for Europe in two days but I thought I would attend. When I was introduced to the President of ABC, he was talking to a person I had worked with and for in the past – a person I very much like and admire. It turned out they were well acquainted. A week or so after returning from overseas, I called the President of ABC and we met for coffee. I was very impressed with him and his plans but, you may recall, I didn’t much like the cannabis stock market at that time but I expected a rebound after Christmas. So I delayed writing about the company until early January 2019.
That company was 1933 Industries (CSE: TGIF) and the Chair and President is Brayden Sutton.
The point of the story is I don’t just speak off the cuff about cannabis companies. I am currently involved in due diligence on three companies and each of them has come to my attention in a similar manner.
I am completely baffled by your reaction to Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF). In Let’s Toke Business May 3, 2019, I suggested readers review the material sent out by KHRN in advance of their Annual Meeting especially their accomplishments last year. (see: 2018 Highlights) The main reason I commented on them frequently is they produced so many results worth reporting. In the past fifteen months, I have travelled to Colombia three times on my own nickel to monitor their progress for readers. On my last trip, I arrived at my hotel at 2:00 a.m. to discover that we were assembling in the foyer at 5:30 a.m. to start our field trip. At 4:00 p.m. later that day we were gathered in a boardroom as management described their plans for the future. On these trips, visitors work hard completing their due diligence.
Khiron is a growing, thriving business. Senior management and employees I have met are talented, hard-working and enthusiastic. Something that is important to me is that many of them are Colombians engaged in building a business that will make an important contribution to their domestic economy. I won’t list them all but Alvaro Torres, Chief Executive Officer with Juan Diego Alvarez Vice President Regulatory, Andres Galofre, Vice President of Business Development and Maria-Fernanda Arboleda, MD Medical Director are representative of the Colombians in senior management positions. There is a strong connection to Canada, the U.S. and Mexico. I have met Canadians Chris Naprawa, President, Darren Collins, Chief Financial Officer and Mark Monaghan, Director; Matt Murphy is an American and Vice President of Compliance and Vicente Fox, former President of Mexico and former CEO of Coca Cola Latin America is a Director and strategic advisor and brand ambassador.
I am puzzled by your derogatory statements about Khiron (TSXV: KHRN) (OTCQB: KHRNF) and me. I try very hard not to report the same news over and over. As I suggested, if you had read the information distributed in advance of the Annual Meeting as I suggested, you would see how much KHRN accomplished last year. In my experience, it was amazing. So I reported on KHRN regularly because there were many events and announcements to report on. I try to add value to each report by giving readers some perspective on the news: is it good or bad and why. Second, I also report on Khiron a lot because it is one of my favourites. I think readers know that and expect me to give it above average coverage.
You ask about up-to-date pictures. KHRN has one of the better photo galleries on their website that is updated from time to time. If you look at the pictures as I do regularly, I can attest that the buildings and facilities are real. I have seen them. In a few cases, such as the laboratory, I have not seen because it was not completed the last time I was there. But the building was under construction. I have also met many of the people but mostly the ones who have been there for a while. When I first visited Khiron just over a year ago the total number of employees was probably in the range of a few dozen. Now it is in the range of a few hundred. So remain baffled by your comments. As I titled a report on Seeking Alpha in December 2018, “Khiron Life Sciences is the Real Deal.” That post was written in response to concerns when the reports and comments by Quintessential Capital Management and Hindenburg Research cast doubt on the validity and, in some cases, the existence of the assets companies such as Aphria claimed to own in Colombia and Latin America. As I said before and will repeat again, “Khiron Life Sciences is the Real Deal.” (seen Khiron Gallery here)
You ask me not to be offended and I’m not. You can’t survive close to half a century in the investment advisory business without growing a thick skin. But I am surprised to think that there are investors out there thinking this way. If it is correct to conclude that KHRN’s stock price is being depressed by thoughts like this, then I am even more optimistic about the potential investment return for shareholders. To me it is a reason to buy and own Khiron for superior investment returns.
I’m not sure how you make the leap to KHRN being a pump and dump but I have been there and I can attest to the fact that it is not. You ask about up-to-date pictures, if you go to the “Gallery” on KHRN’s website you will find many. If a picture is worth a thousand words, this (link to Khiron Gallery) will take you to a million words worth of pictures. Khiron is not a Howe Street “boiler room” operation.
I can say to readers if any part of the correction in Khiron’s stock price in the past few weeks is the result of these types of concerns, we are looking at a glorious buying opportunity.