Aggressive Stock Promotion Picks Up In Cannabis Sector
The cannabis space has come a long way in the 5 1/2 years that I have been following it, having evolved from a small number of firms that lacked substance to one today that has almost two dozen companies that generate in excess of $10 million of revenue per year. Make no mistake, there are plenty of public companies now that represent the industry and have the potential to create substantial shareholder value over time.
While I note dramatic improvement in the sector’s quality, one issue that continues to plague publicly-traded cannabis stocks is aggressive stock promotion. For readers who may not be familiar with what this entails, some companies spend hundreds of thousands of dollars for programs to raise investor awareness. These forms of advertising are published to the internet or sent out in blast emails. By law, compensation for stock promotion must be disclosed, though I have observed many examples of companies that appear to be covertly buying favorable opinion pieces.
Companies engaging in stock promotion are often just trying to placate shareholders or their financiers, with a goal of boosting trading volumes and the price so that holders can sell stock. I have seen some situations where insiders sell following stock promotion, which is a really disgusting practice.
In Canada, where there are now 41 publicly-traded companies holding licenses with Health Canada, it is getting increasingly difficult to stand out from the crowd. Consequently, three licensed producers have engaged in what I would characterize as extremely aggressive stock promotion recently, including Beleave, GTEC Holdings and Pure Global Cannabis.
Beleave, which has no sales currently and has been raising capital, engaged a stock promoter to create content like this. The disclosure indicates that the company paid $200,000 for services over a period of 2 1/2 months.
The same stock promoter discloses that it is receiving $759,996 from GTEC Holdings, which just began trading publicly in late June:
Perhaps the most aggressive example of stock promotion is from another newly listed company, Pure Global Cannabis, which issued a press release late in the evening on Friday, August 3rd, detailing a campaign:
The company had already invested $300K in additional stock promotion, as I detailed.
Of course, this aggressive stock promotion isn’t limited to Canada. The OTC market in the U.S. continues to be filled with paid stock promotion of companies that typically lack substance, though sometimes companies that appear to be legitimate engage in this type of activity as well. A recent example is Leafbuyer, a company that helps dispensaries to market themselves to potential customers and that engaged MAPH Enterprises from 2/2/2018 until 10/2/2018 for $100K and 77K shares of stock, which became free-trading in early August. Despite aggressive stock promotion, the shares of Leafbuyer have declined 49% since the campaign began.
Investors need to be aware when companies are engaged in aggressive promotion, especially in a relatively hot sector like cannabis. At a bare minimum, it may suggest that management lacks good judgment, but it may also be a harbinger of heavy selling ahead by early investors in the company. There are some free resources to monitor stock promotion, but they aren’t complete and can also characterize some public awareness activities too negatively. One that I recommend is StockPromoters.com, which is free with registration. They did a great job of calling out Leafbuyer, but they missed the three Canadian examples I shared. Another idea is to sign up for emails from shady stock promoters. This way, one can use the alerts to inform oneself about one’s investments should the company engage in aggressive stock promotion. There are no shortcuts to success, and, while stock promotion can sometimes help in the very short-term, I haven’t seen too many examples of it helping in the long-haul.