FITX Potential and Risks – My Take (Speculation)
To get this out of the way I am long FITX-
Initial Hurdles:
-Grow License
-Outfitting Facility To Become Operational
-Sales
-Working Capital
Grow License:
There may be a lot of difficulties in getting this license if rumors are true about some individuals in the town of lakeshore sending a letter to HC to hold issuing the license. I don’t believe any hard evidence has been provided as to whether or not this has actually taken place outside of many speculative articles and inconclusive PR statements that were ‘letters to the shareholders’. It is also difficult to find conclusive evidence suggesting that they would be next in line outside of many people speculating that this is the case. There are also some statements being made that conclude Cen Biotech already has its license to grow and is waiting for the first crop before releasing the information. No information out there as of right now is irrefutable evidence that Cen Biotech has obtained the license to grow or is next in line. It could potentially be very difficult for them to obtain a license soon, especially if they have to have an inspection once full installation of the grow pods has been completed. For most government entities, a short time line to make a decision and issue a license for anything is in months, not weeks, so we may have a good while to wait for any update on this.
Outfitting Facility To Become Operational:
Outfitting
There is a lot that goes into this and it will be very time consuming. Preparing one pod for presentation in a short period of time (1-2 months) does not mean that they will be able to get the entire operation up and running in the same amount of time (this is assuming that information out there about only one pod being completed for pre-inspection is true). Getting the pods in place and if I have read everything correctly, setting up multiple pods on top of each other is going to take a good while. There is going to be a lot of electrical work needed, lighting, tubing, monitoring equipment and then testing all of this equipment before it is going to be fully operational. They will also need to find suppliers for their raw materials and consumables. Raw materials being seeds, nutrients, etc. Consumables being everything from protective gear to safety gear (ie gloves, safety glasses, uniforms, hand trimmers, wash clothes, cleaning agents, safety vests for shipping). They are also going to require a lot of equipment necessary for shipping from forklifts, pallets, boxes, box cutters, shrink wrap, steel banding, shipping labels, safety vests, you get the idea.
Staff
They will require a variety of different personnel to staff the facility. They will need a plant manager to manage all grow operations, they will also need a shipping manager or logistics manager to handle all shipping and receiving. They will also need lab technicians and someone to manage those operations. This doesn’t mention the individuals they are going to need underneath the managers to make it happen. I don’t know what kind of labor pool Lakeshore and the surrounding neighborhoods have but if they can’t find local they will have to pay a high price to bring someone in that is fully qualified. There will also most likely need to be straight up office personnel and an admin to take company calls. This is speculation of course as no one knows what their company structure will look like as of yet but these are definite possibilities.
SOP (Standard Operating Procedures)
This is going to be a fairly difficult one to outline. The individual that needs to create this will have to have an understanding of what the grow operation entails, shipping operation entails and lab operation entails. This is unless they do get managers in charge of these different departments, at which point then the managers can analyze the tasks required and discuss how inter-company communication needs to take place. An example of what I mean could be as follows
-Task
The lab needs to test X amount of samples of the product to test for THC levels and quality.
-Solution Needed
At what stage of the grow cycles are samples going to be taken or is it going to be at various stages, who is going to take these samples from the pods and how (avoid contamination) or drying racks, who is going to package these samples, how are they going to be packaged, how are they going to be labeled and where is this person going to deliver them and when.
Now in order for the company to run smoothly all of these small but important questions need to be answered at every step of the way. OR they can rely upon the managers/experts they hire to create and fine tune these processes over time but the main rule is that if these things aren’t hashed out well and if inter-department communication isn’t spot on, it will result in time lost and or costly errors. This is why a lot of companies that start small and grow quickly without proper planning end up having to call in consulting companies to try to help them with their operating procedures. The main reason is because individuals slapped on their own answers along the way to keep up production and sales without trying to tie everything together neatly. The issue is harder to resolve for a company that has already let itself get to the point of being disorganized because you have to un-train people from using methods that they are familiar and comfortable with and try to train them to do something different when they have used the old methods for years. “But we have done it this way for years, why do we have to change now?”
In the end standard operating procedures take a while to hash out because challenges first have to present themselves in order for them to be overcome. It will take a while to work out the kinks in procedures and getting things to run smoothly.
Sales
They have to sell their product and if the market in Canada really is that limited they are going to have to find someone else to buy their product. I am not versed in any trade treaties or agreements between Canada and other nations but they will have to make sure they can open themselves up to the global market in order to sell 1.3M lbs or utilize it in some other beneficial way. If they can’t generate any beneficial sales agreements than the money they have already invested will be for naught.
Working Capital
They do have $20M in start up capital to work with plus any additional funds they may be willing to invest into the company if need be. These types of companies most likely will be “hungry” as they say. There will be a lot of routine costs to keep production going. This is from funding qualified staff to buying raw materials and consumables. There will also be shipping costs, consulting costs and service costs. If a mechanism is broken and no one on site can fix it then they will have to call in emergency technicians to get everything back up and running. My main thinking is there are going to be issues with the pods, sensors, plumbing, electricity, etc. There could be manufacturing defects in the pods themselves that cause an issue from wear and tear that is not yet realized by the manufacturers. If the initial 20 million is used up then the company will have to find other ways to acquire funds and the terms may not be as favorable. They may have to sacrifice shareholder value in order to pay for services down the road by buying them with stock or sell ownership of the company. Both of those options are usually bad signs for any company.
Well I went through what I see as the major hurdles to getting FITX really off the ground and turned into a fully functional business. There are many other hurdles not listed here but these are the main ones in my opinion.
Now to discuss the solutions to these hurdles and the PRO side of things.
Pros
-They Have Already Gotten This Far
-They Will Have Greater Capacity Than Competition
-They Have More Company Awareness Than Competition
-Many Uses For Marijuana/Hemp
They Have Already Gotten This Far
There is definitely something to be said about how far they have actually gotten in roughly a year’s time. They have built a multi-million dollar facility. All of the hype about it being state of the art can’t be fully verified until we can see it in action with full disclosure and have a similar sized company to compare it to. It has to be better than this company both in facilities, operations and product. It has to grow better, cheaper and faster than the competition. This to me means state of the art not just brand new technology in an industry that is still growing. However, even if state of the art facilities have similar results to other growers then they will still be able to produce more and that is huge. They have also been able to fund the building of these facilities without using stock shares as a payment method and this is amazingly good for the shareholders and the company as a whole. The loan is also not interest baring but is based on future profits. What this means is that they won’t have to pretty much hose the share price in order to get working capital for the time being and they won’t have loan interest or long term debt to worry about. If you research other startup companies that are publicly traded this is pretty much the bread and butter game. They exchange millions of shares of stock to a private investor or a financing group to obtain say $150,000 in working capital. Once that is gone they do it again and again and again and most startups aren’t making a profit right off of the bat. Then even worse could be paying consultants and contractors in shares. This almost always results in them shedding the shares ASAP, especially if they don’t believe in the company or don’t really care. Then the company ends up trading to .0001 and then reverse splitting to get the price attractive for investors again. I digress, what I am trying to say is that FITX did not choose to go this route to start with. Instead they have working capital that will fund operations and not directly affect share prices. This is an amazing thing that you don’t see too often. It will eat into potential profits in the future and narrow margins but this is essentially a boon to all shareholders and the right thing to do from the investor’s perspective.
They have also been able to attract and bring on well-established board members that can utilize their expertise and contacts to further the business.
So the fact that they built a facility, hired on quality BOD members, applied for a license and received 20M in funding that isn’t tied to any shares is pretty big. This isn’t to mention that there is a large amount of concrete evidence available to verify these findings. You have pictures of the builds, pictures of the board members with verifiable members of various companies and political groups and a financial report verifying the receipt of 20M dollars’ worth of funding. Although many could choose to believe that all of this is fabricated, I believe that to be a bit of a stretch and if that ends up turning out to be the case then the SEC needs to be bolstered and re-organized because they would be doing a pretty poor job of things. Also if all of these claims, PR’s, Photo’s and their Facebook profile turn out to be fabrications then I believe it would definitely incriminate the entire BOD for misleading the public and falsifying documents, etc. They would end up being held accountable in one way or another. But, I am not a lawyer so I don’t know if they would really be in that much trouble or it would end up just being a slap on the wrist and a couple of charges that don’t even cover what they ended up reaping from insider sales.
They Will Have Greater Capacity Than Competition
This is also a big one and may be the main reason why speculations on FITX’s future look so positive. Usually the person that can create more (in a cheaper/faster/better way – aka state of the art facilities if it can be believed) can sell their product for much cheaper than the competition and also be a contender for selling to bulk buyers.
A larger corporation that has a need for Marijuana whether for research or processing isn’t going to want to buy Marijuana by the oz and pay per gram prices. Smaller growers most likely will not want to sell say all 10,000 lbs they can grow for a per gram price of $2.00 because they know if they hold out they can sell for $7.5 a gram to most consumers throughout the year. They also know they can’t grow any more any faster without capital expenditures. This is where FITX could potentially sell in bulk quantities, as well as to the individual consumer. If their grow operation can also produce the crops quicker and cheaper, then they could undercut the competitions prices and instead of selling $7.5 a gram they could sell for $7.00 or less per gram.
FITX wants to grow MORE than what the individual patients in Canada need because they know that refined products from this plant are also in demand or will be in demand in the future. Just to throw a couple things out there would be the refinement of THC down into either a liquid or a powder that can be used in processed foods as an additive. This would allow other companies to purchase this refined product in bulk from FITX, and make Marijuana products that have a long shelf life without having to grow and process the marijuana themselves or buy many smaller non-bulk purchases of Marijuana at a higher price. This itself will be huge. Almost any company that wants to start to produce their own edible medicinal or recreational product will go to them because the costs of growing their own would be too high.
If they can find a way to remove the THC without destroying the plants themselves or remove it enough to get the THC that remains down to hemps percentage level then they would produce hemp as a byproduct. I am not going to claim that I know much of anything about the research out there available for high THC Cannabis extraction methods but I would like to say that there is a possibility to develop a process to remove the THC from the plant without destroying it. *If pure THC liquid or powder becomes a possibility then we may soon find out that there is a toxic level of THC as a side note.*
Cannabidiol (CBD) is something else they will be able to extract and sell using their Cenergy brand. They will also be able to incorporate any other byproducts found from processing the Marijuana into their other pre-existing products.
Hemp is a possible waste product from the high THC Cannabis plants. Say, the stalks are at hemps level of THC content, then all of the stalks could be harvested and sold to Hemp or if they are really going to become conjoined entities then FITX will control that product line as well and reap the rewards. They will be able to sell their product wholesale to other companies, sell for face value to consumers, sell to their own subsidiary HEMP at whole sale or less and then reap the rewards of the products that HEMP can sell to the consumer, as well as do the same thing for Creative Edge Nutrition’s brand nutriceuticals.
So there are a lot of ‘if’s here and I know that. All of this is pure speculation on the possibilities out there if they can get to a point where they grow more, faster and cheaper than the competition. There are a lot of things in the way of making this happen and this isn’t going to happen overnight or even in a year from now. It will take years to get to this level and that is if there are no setbacks and they can even become profitable. They will need to find these large corporations, reach an agreement and even be able to sell to them (trade treaties).
More Company Awareness
I for one have not heard of any other companies trying to do quite what they are doing.
They are publicly traded so in the very least brand awareness is spreading via word of mouth throughout the stock trading and investment communities, which eventually leaches and finds its way to the average citizen not trading stocks, not in great numbers initially but still more than many.
They were also mentioned in an article by Forbes, which is no small thing. How many of the other Marijuana stock companies have been mentioned in a prestigious magazine like Forbes? I don’t know if anyone can answer this but how often are the writers in Forbes wrong about the individuals they choose to interview for such things? They are simply stating what possibilities are out there with their interview of Bill but the fact that a Forbes journalist/author’s interest was piqued for a magazine that consistently publishes blurbs about the richest people is pretty substantial. If they successfully produce Marijuana they would possibly be able to advertise the fact that they were mentioned in Forbes on the product packaging. Forbes most likely wouldn’t allow this but they published the article already and if someone wants to do background research on a product first, they would undoubtedly reach this article in some fashion. To someone looking at a variety of choices to purchase marijuana or marijuana based products, they may be swayed by the one that is attached to “Forbes” vs the other guys that do not have much information on their product out there readily available.
The amount of PR Bill is currently doing at the moment, even if it is never fruitful as far as actual sales contracts goes, is still a great amount of exposure that not many other companies have. He is meeting with government officials from foreign countries, Canada and the US. This will increase FITX’s perceived credibility. Let us say someone that has never done any kind of recreational drug before comes down with an illness that puts them between a rock and a hard place. They have been subscribed various forms of medical marijuana to help ease pain and increase their appetite. They are concerned about where these drugs are coming from, who is making them and if there are any real quality control measures in place or if they have to worry about pesticides or refined additives, etc. The fact that they will be able to find so much information out there about FITX is no small thing. Do you think they would buy from a company they can’t find any information on at all or buy from a company where they see the CEO shaking hands with government health officials from all over the world, see pictures of the facility and guidelines in place for quality assurance, etc? They will most likely choose the company that has the greater presence.
Many individuals follow the group. How many of us have wanted to buy something like say a TV but we were hesitant to buy the TV we first researched because it doesn’t have any reviews or is missing specification information that we would like to know. Most of us would change course and try to find a similar TV that has some good positive reviews and all of the specifications we want to see on the product page. Granted, most TV’s are manufactured by major names like Sony, Panasonic, LG, etc., or at least branded as such even if they are made in China or elsewhere. How about an example a bit more along the lines of what most might see at the local medicinal marijuana distributor. You have a bunch of similar products but you can’t find any information on where the marijuana came from, how it was made and when you look up the brand names you either can’t find any information on them or what you find isn’t satisfactory. I tried to buy a key chain pill container on Amazon recently and was amazed at the amount of similar products that were out there. Where do you begin to choose? http://www.amazon.com/s/ref=nb_sb_noss_1?url=search-alias%3Daps&field-keywords=pillbox+keychain
What I did was see which of them had the best reviews but were also a reasonable price. I also searched the store/company/manufacturer’s names to see if they have their own website or if they have been mentioned anywhere else to kind of give them a bit more credibility. Long story short, you type in Cen Biotech in google search bar and the first three hits you get are exactly what all companies should want them to be. Their website is number one, despite similarly named companies. Fitx Long, which is a great accompanying site with a host of information and pictures that would most likely get people reading. The third is their facebook page. All three are sources of good information about the company and the way it operates. I would bet that a good amount of people would get to FITX Long and then just go purchase their product. How many other companies have easily accessible information like this where you can kind of see the process unfold? I imagine that as time goes on and holding back PR news is less of an issue that we will see a bunch more pictures of the operations from the pods to drying operations, packaging, etc. This will help sway the consumer because they can imagine the process unfolding instead of wondering how the product found its way to the shelves. This is the same for straight up selling dried marijuana to selling CBC supplements and other health supplements. This level of transparency is needed in the modern day world because people are becoming more and more concerned with what they ingest. They want to know where it came from, if it contains any allergens, if it is considered organic or healthy, etc.
Many Uses For Marijuana and Hemp
I brushed upon this a bit earlier but I will go a bit more in depth here. If Cen Biotech can really produce that much Marijuana then they will definitely be able to spare some for research and development, as well as additional processing/refining.
A definite possibility is creating a ‘pure’ THC extract that can be used during food processing. This would open the door for fast, cheaply made processed foods that contain THC. I know a little about what is out there already such as brownies, chocolates, candies, cakes, etc. I believe them more to be baked fresh using fat to extract the THC. This is relatively unhealthy for those who have to do it often due to illness and could be potentially expensive because they are baked fresh. They are not meant to have a long shelf life and I also believe they are produced by smaller startup businesses rather than any major corporations. What I envision is the development of every day foods that simply have THC as an additive and a whole AISLE dedicated to medicinal marijuana foods that are packaged and have long shelf lives. Say just for speculation that you could get the same kit-kat bar but this time it is infused with a small amount of THC. Or to get even crazier, imagine Tylenol with a small amount of THC in the future. If the proposed health benefits are true AND legalization becomes rampant for Marijuana then you are bound to eventually see a host of products come out that contain THC/CBD and other cannabinoids. Another spitball idea would be including a small amount of THC with normal pain killers or better yet, reducing the amount of a painkiller needed by utilizing cannabinoids. So now a prescribed medication could claim pain relieving aspects that does not totally kill appetite but instead slightly increases it. If you readers don’t know already, strong pain killers tend to upset the stomach and the degree varies from person to person. So there is usually a fine line some people with an illness or injury have to walk. Do they live with the pain so that they can eat without throwing up or do they take the painkillers? Or what if they didn’t have to make that choice and could reduce their pain without reducing their ability or willingness to eat? That is kind of what I envision long term is that we have a reduction in pain medication but an inclusion of medicinal marijuana
I am not a chemist or a biologist but with my rough knowledge I believe it could be possible to alter the molecular structure of THC to make it less psychedelic but include its other properties for increasing appetite and/or decreasing pain. I don’t believe that the scientific community has had enough time researching Marijuana to truly see what can be utilized from it. I could be wrong on this and please comment to add your opinions or any scholastic articles you have found based on research that has been done.
There are also a lot of cannabinoids out there that have a wide array of health benefits but they are yet to be fully tested individually and proven affective for medical or over the counter use. If we look to the future in a positive light concerning the legalization of Marijuana then we could also assume that a wide array of vitamins/supplements containing various cannabinoids are going to become available and it is going to take a LOT of production to fill not only prescribed patient demand but demand for these supplements. Since they would not be illegal, the global market would become available.
Marijuana E-Cig’s are going to become a huge part of the future as well. People are going to want to try to avoid inhaling anything like ash/resin/tar/etc. People are also very into becoming fit and reducing their caloric intake. So they don’t want to ingest anything and would ultimately smoke Marijuana but don’t want the possible negative health benefits. This is where extracting pure THC plays its part again. This could be further processed and combined with a glycerine solution for vaporizers.
So this was the vitamin, THC, CBC, medicinal side of the story. There is a whole other side to this story and it is called hemp.
Now this is a huge IF. IF Cen Biotech can process the Marijuana plants and extract just certain cannabinoids including 99.7% of THC then their waste product (technically Cannabis with THC at or below .3%) would be considered Hemp and would not need to simply be destroyed or gotten rid of. It could become the base for hemp-crete or a large variety of other materials and products that utilize the actual plant vs the cannabinoids/THC. One of these products being bio-fuel. There are many more uses for hemp that I don’t have time to list here but if you do your research you will see a lot of need out there.
So to recap this section. They can sell high THC Cannabis, they can sell hemp products, if they can process the plants further then they can sell individual cannabinoids as vitamin supplements or food additives with minimal waste material. Granted they would still have to find customers but there is a vast array of things they can sell that do not technically have to be high THC related. Since the array of products they can sell is varies, they shouldn’t have a problem getting some inventory turnover right away.
In conclusion, there are many hurdles in the way to making Cen Biotech one of the leading contenders in the race to claim the budding Marijuana industry. Many of them are fundamental and have to do with their basic ability to get licensed, outfit their facility and hire staff. Even if the facility becomes operational they still have to market their various products and find customers. This is very costly and time consuming and if done without raising enough awareness could become a huge cash sinkhole. There will be many issues along the way that could stall their progress or even put them out of business such as potential lawsuits or internal power struggles within the BOD. The day to day trading of the stock could result in a landslide loss of faith, all money lost, and the company could lose credibility and momentum at any moment. The other side to these negatives are the positives.
They have already gotten this far with what many would have believed to be a lack of knowledge and a lack of experience. They have obtained working capital upwards of 20 million dollars that is not related to shares or ownership of the company. This means that they will not have to give shares away in exchange for services or capital at this phase nor will they have to give away ownership of the company. They have built a facility whose existence can be verified with hard evidence. This is a big deal considering how many other companies are run out of a PO Box without ever having any solid on the books physical facilities. Let us assume they eventually obtain the license and become operational. They have an abundance of product that has many uses from a medical standpoint, over the counter supplement standpoint and a hemp standpoint. They already have a relationship with Hemp, Inc. and Creative Edge Nutrition, which already have a customer base and some form of company structure and facilities. They could potentially sell to foreign nations both hemp and Marijuana.
So my realistic take on what is going to go down (all speculation, take with a grain of salt). They are going to fully outfit their facility with the grow pods and this could take 1-2 months or more to get fully functional. If they have a storied grid-like structure of pods then water, electricity, surveillance, heating, lighting, etc will have to be set up in a very organized way so that if a problem comes about they can easily isolate it. If I were them I would start with a portion of the pods, get them functional as a test to the system and then start expanding in chunks. This will slowly but surely get them the full quantity but it will ensure that they don’t put in ALL of the pods, think they have all of the wiring right and then try to switch on the transformer like Clark Griswald in Christmas Vacation and suddenly realize there is a short somewhere and they have to go dig through thousands of feet of wiring, dismantling pods, reassembling, damage to existing equipment, etc. However, I think they will be able to get to this point because there are experts they can pay to do this kind of thinking for them. When an electric company gets a call from a company willing to give them a 200,000 dollar contract they will be listening and most likely the president or head will discuss all concerns and think of a way of executing properly. The same goes for the installation of the pods, the installation of tubing/watering system, security cameras, shelving, etc. There are experts out there doing this work for them that are getting paid handsomely. If the startup capital were all gone then I would be a bit hesitant. I think they are going to get operational and start growing hemp if the license doesn’t come through so that they can have something to sell, show inventory of something on the books and be able to make this statement, ‘so, yeah. We produced 1.3M lbs of hemp so all we need is that dang license.’ Or something of that nature and of course it isn’t going to be 1.3M lbs right off the bat. My guess would be somewhere in the 100,000’s with a caveat of ‘only 1/10th of the pods were used’. That would be the way to go to save face considering earlier promises of an entire grow by the end of the year. Testing the pods with hemp could also be a way to hammer out any fundamental issues with the facilities without using costly seeds or having to worry about when the license arrives. So I think they could accomplish this by the end of the year. Get the place up and running and produce at least 100,000 lbs of Hemp. Now I know that there are whispers out there on garbage sites like Ihub or yahoo finance message boards about the fact that they already have their license and are secretly growing a batch so that their next PR could be, “whoops, BANG – here you go shareholders we are ready to rock.” I believe this to be wishful thinking because these processes take months not weeks. I believe they are going to have to get re-inspected after all of the pods are in place and then they are going to have to schedule another pre-license inspection. (this is taking information from a leaked pre-license inspection report that may or may not be authentic – this stated that there were some deficiencies and that they would have to be re-inspected once all of the pods were in place and operational). So I believe that they are going to get some things to fix after this second inspection as well. This is standard operating procedure (SOP) though so it doesn’t worry me and isn’t a huge deal nor would it be the death blow to the company. Maybe the stock price but the company will still keep chugging along smoothly.
I would say maybe first quarter of next year Cen Biotech gets the license to grow and starts to hammer out their procedures. I think once they get their license, everyone is going to expect 1.3M lbs of Marijuana just 28 measly days later but they are going to be disappointed and you are going to see a drop. I would warrant it will take either longer or the initial batch grown doesn’t stack up weight-wise to what we expect. If I were them I would omit commentary about any weights in general and instead divert attention and focus to what efforts are being made to sell the product or what products are being developed. I think it would help to involve the shareholders in a way so that they could keep and build on the cult-like following that they have already. Say a choice on what to call X strain when they sell the product and do a facebook poll. Then after the first quarter is over and they continue to produce you are going to see a plateau and silence. They are going to have to work on finding people to buy those products, decide what they want to try to research and what products they are going to want to develop and then try to sell them. This will take years and unless they are incredibly lucky and/or all of the positives I listed before come together smoothly and fast, they are not going to become profitable right away and THEN we will start to really understand how much 20% of all profits (I hope they stated NET instead of GROSS in the contract details…) really eats into margins.
So again, to give my ending blurb, I am long FITX and nothing here was based on any research. My commentary is merely speculation into the difficulties Cen Biotech faces before they can become a fully operational and successful business. I also discussed what I believe to be the possibilities out there for the future success of Cen Biotech and why they could potentially be poised to become a major supplier of Marijuana and Marijuana/Hemp based products in the future. If you are going to trade FITX then use your judgment to find out if it is or isn’t the right investment for you. Nothing I have written here was meant to sway any individual to buy, sell, hold or not buy this stock in any way.
TheStockAnalyzer 