http://www.forbes.com/sites/karstenstrauss/2013/12/30/big-marijuana-is-it-the-future/
The above link will direct you to the article written by Forbes journalist Karsten Strauss dated 12/30/2013. He writes about a small penny stock company with big dreams to be one of the key distributors of medicinal marijuana in Canada. I think we all know that he is writing about Creative Edge Nutrition (FITX).
I want to make it my own personal quest to analyze the PR statements and articles out there regarding FITX, as well as analyze their financial statements to try to make sense of it all. At every turn miss-information can be found and I want to try to find the truth as I see it. I also welcome any and every person who sees things differently to make a comment.
I bought FITX for 1/5 of a cent before this article came out because I felt that the world of supplements was just beginning and that Creative Edge Nutrition’s body building protein mixes and pre-workout mixes would end up being successful. Boy was I surprised when an article came out that described their plan of action for becoming a major supplier of medicinal marijuana to Canada (FORBES). This of course lead me to research more into what was happening with Marijuana and Hemp around the world and I was hugely surprised to find out that this industry was beginning to lay its foundation and that key players chosen now would end up being BIG players 10-20 years down the line. I had just turned 27 and had a little bit of extra money that I wanted to try to invest for the future. I ended up doing quite well on some (ERBB, LATF, MJNA, NVLX, FITX) before the initial hysteria subsided and poorly on others that were even more risky investments (BONU, HIMR, HPNN, NECA). Well enough about what got me into trading within the marijuana sector and down more to exactly WHAT has been stated within these PR’s and various articles.
What statements were made, word for word in regards to FITX’s plans for the future;
-“Creative Edge Nutrition, is on course to becoming the first U.S. company to be allowed to distribute medicinal marijuana in Canada, says CEO Bill Chaaban.”
-“Correction: The company has been issued permission to build its cannabis facility. Upon completion it will be inspected by Health Canada for a permit to begin operation. An earlier version of this post stated the company had already been approved to begin operation.”
-“‘By the end of year five we’ll be doing $100 million in sales, with a margin of 80 percent.'”
-“CEN Biotech’s cost to produce runs between 80 cents and 1$ CAD per gram. Chaaban predicts the operation will be up and running and ready to begin shipping within seven months.”
-“Not that Canada is CEN Biotech’s only market–the company’s 24 strains of plants could be exported to sources in Uruguay, Isreal, The Netherlands, Mexico, Colombia, Iran and North Korea, said Chaaban.”
Reading this now makes me wonder when claims started to change and become larger than life? To me these statements seem more along the lines of what they are truly going to be capable of in the short term. $100 million a year, obtain license only upon completion of facility and 80 percent margins. The only one out of those forward looking statements that seems like it may not be achievable is an 80 percent margin. So lets say in five years the amount of patients in Canada does indeed increase to 500,000 as claimed in this article and they can sell for $5.00 CAD a gram then lets crunch some easy numbers.
http://www.midasletter.com/2014/05/canadian-medical-marijuana-industry-risks-opportunities/
From above article I take that the average user in Canada will use between 1-5 grams a day so I will use their average of 2.5 grams a day. I have no idea if this information can be accurate but it doesn’t seem far off. I used the stuff in college for about 2 years and the average user would go through 1/8th (3.5 grams) every week if heavy user (3+ uses daily single use), every two weeks if moderate user (2 uses daily single use), a month light user (a hit a day or a larger amount sporadically when needed). So for the reality? 2.5 grams a day sounds like a lot to me per user but they could technically either be sharing or if they truly did need it in order to be able to eat or for pain then I could see them using a lot more to help abate those symptoms. So after that nonsensical tangent I have decided to remain at the figure of 2.5 grams a user per day.
Year 1 (Forecasted Potential Patients from Minimum to Maximum IMO 2015)
Worst Case Scenario: No License And/Or No Customers = No Profit
1,000 Patients: 2.5 grams/patient/day * 365 days/year *1000 patients/year = 912,500 grams * 5.00 CAD/gram = 4,562,500 CAD *.80 = 3,650,000 Net (estimated margin) * .75 = 2,737,500 CAD after 25% goes to investors
-Production: (What They Need To Produce To Meet Demand) 912,500 grams / 28 grams/oz / 16 oz/lbs / 10,000 plants/pod / 13.035 grows/year = .01562lbs per plant per pod to meet demand (Wow if their capacity and production is what they claim then…I wonder what the overhead is and if it is even possible to run just a single pod at that level)
5,000 Patients: 2.5 grams/patient/day * 365 days/year *5000 patients/year = 4,562,500 grams * 5.00 CAD/gram = 22,812,500 CAD *.80 = 18,250,000 Net (estimated margin 80%) *.75 = 13,687,500 CAD after 25% goes to investors
-Production: 4,562,500 grams / 28 grams/oz / 16oz/lbs / 10,000 plants/pod / 13.035 grows/year = .0781lbs per plant per one pod per grow
Year 5 (Forecasted Potential Patients Increases From 38,000 to 500,000)
10,000 Patients: (SKIPPING MATH MULTIPLYING OTHER OUTCOMES) – 45,625,000 CAD *.80 = 36,500,000 CAD *.75 = 27,375,000 CAD
-Production: .1562lbs per one plant per one pod per grow
50,000 Patients: End – 136,875,000 CAD
Production: .781lbs per one plant per one pod per grow
I could continue but you get the idea. This is all just speculative but you see the potential even if they remain a small growing operation without ever getting close to producing 1.3M lbs a year in the next 5 years. IF the margins truly are 80% and they do not spend all of their profits on future developments/advertising/salary expenses/etc then they should be able to turn a NET profit and continue to do so. So my final word on the matter. Even if they can only find 1,000 people to routinely purchase their product throughout the year they will still be able to pull in a theoretical 2,737,500 CAD a year after their claimed margins and their ‘debt payback’.
This is just my opinion so make your own educated decisions regarding trading in this stock.
TheStockAnalyzer 