 Good day, fellow investors. The best research is field research. So I'm here in Amsterdam to test the marijuana sector to find the best marijuana stocks. I'm going to test every product. I'm going to interview people to see what's the best. So let's get stoned. Sorry, let's find the best marijuana stocks. Okay, now that I have recovered from the field research, we can dig into the economics of the cannabis industry, the weed sector, weed stocks. And we're going to do that by analyzing the key factors when you look at the sector and also discussing it through analyzing canopy growth, which is I think the biggest company in the sector, the biggest stock. The key things to watch when you analyze such a sector are whether there is a moat, whether somebody has an advantage, what is the growth expectations and the actual real growth that comes after. The management is always promoting huge things. So we'll dig into the sector what can happen and see whether it is still a good investment or it will end up just like an investing Fed, which we have seen plenty of in the past starting from 3D printing or whatever. So let's go. So cannabis stocks have surged canopy growth, as I have said, is 10 times or a little bit more, even more in less than two years. So huge, huge growth. And now is it a trend that will continue to grow or is it a Fed and you see then that declines of 90% are not unusual, as it has been the case with 3D printing that I said. Let's dig deeper. Now this is what the companies expect. Based on some estimates, they see the cannabis market in Canada between 5 billion and 10 billion per year. So just the lower market value translates into yearly consumption of 770,000 kilograms, 770 million grams. If you can make free joints with per gram, that's about 2.2 billion joints smoked in Canada per year, with the price approximately 6.5 per gram. So to put this into perspective, they say that the beer market in Canada is 8.7 billion. So they expect, the companies expect, beer and weed to be at the same level in Canada. Well, those of you who are from North America can see whether that is the case now and whether there is real potential for that. So the management expects to hit market of 10 billion, so weed and beer would be equal. Now, going back to beer, as they say it's like beer, if the beer market is 8.7 billion, if I take Heineken's price to sales ratio of 2.3, it means that the complete market capitalization of all the weed stocks in Canada should be around 20 billion. So canopy growth is now already close to 5 billion, add all the other producers, add all the producers that will come in the next years and you are way beyond the 20 billion on a normal price to sales ratio for a commoditized product. Let's dig deeper. As I said, the price is the key, the expectations are 6.5 dollars per gram sold. However, the average sale price for canopy in the last quarter was 8.3 up from 7.36 and 7.99 in the quarter. And these are excellent business mechanics. So if you can sell something at 8 and the weighted average cost per gram before shipping and fulfillment was just 1, 1.03. So this is an amazing business. They are selling something at 8 and cost of production is 1. Wow, I want to be invested in that. The company must be extremely profitable, huge dividends, continuous growth, wonderful business. Let's check. So first let me start with the prices. These are the prices in the Netherlands. We have Dutch weed, which is around 10 euros per gram and foreign weed, which is around 5 euros per gram. These are retail prices, which means going back to the eight dollars, which means the canopy is selling retail, which is very, very hard to do because the markup is usually 150%. And on foreign weed, five euros, the normal selling price, if I put the markup of 150%, would be around 2 euros per gram, 2.5 dollars per gram wholesale. So this is 75% lower than what canopy is doing now. And this indicates that what's going on in Canada is not yet a healthy normal cannabis market. A healthy normal cannabis market is a commoditized industry. And even canopy is acknowledging that. Let's see. In the management discussion, they are saying how they created a new company, Vert Mirabel, together with Les Serres, Stefan Bertrand, which is a large-scale tomato greenhouse operator in Mirabel, Quebec. So they created a company with a greenhouse company. So there is no practical difference between growing weed or tomatoes or other vegetables. And that's something, when you look at the long-term trend, then you have to see, okay, is there a difference? What is the mode? What is the business advantage? Perhaps the management is so capable that the returns will be great. Let's see. Before that, just touch on the price in the mature US markets, where it's legalized, where it is allowed, mostly private producers there. So $1,600 per pound, which means 3.5 per gram wholesale prices, which is again more than 50% less than what canopy is getting now. This means that canopy's selling prices will go lower. But nevertheless, if you they sell at 6 and produce at 1, it's still great, right? Well, let's look at the revenue. Revenue, the first red row was 21.7 million in the three months ended December 2017. Inventory costs are 9 million, 9.1. This is a little bit different than what they told us before. The gross margin is not 80%, the gross margin is 60%. So that's already something different at what they have been announcing. Further, let's see what they are doing. Sales and marketing increased three times. If we go back to the revenue, revenue increased just north of two times. Further, general administration costs also mostly increased, also also most increased three times. And then there is something crazy. Share based compensation expense and share based compensation expense related to acquisitions, milestones are 8.9 million and 8.9 million, thus almost 18 million. 18 million on the revenue of 21.7 million is 82%. So the management has awarded itself shares in the amount of 82% of revenues over the quarter. If we take a look at the same numbers over the nine months ended, management has awarded itself rewards of 55% of revenue. So your row owning a company that has a management that rewards itself 55% of nine month revenue or 82% of three month revenue. Well, either investors are stoned or the management is stoned. Somebody has to be stoned here because these are crazy numbers. Further, if we look at the business, we have seen eight selling price, one cost price, which means that the business must be producing cash a lot. However, that's not the case case. Operating cash flows are negative 44 million. So that's what 80% of the 55 million in revenues. So negative. So if they sell one dollar of weed, they are burning 1.8 dollar in cash. And this is without the 130 million in investments they have done. However, they have the cash because they have issued a lot of shares, 270 million they have gained from issuance of common shares and also of shares of canopy rivers, the subsidiary. Investors over the last three months were diluted more than 50% from 123 million shares to 194 million diluted shares in this case. So when you invest in such small companies, the key, the key is the management. So if you look at other weed stocks, look at the integrity of the management. Is the management at your side or is the management piling up its own pockets? In this case, the management is piling up its own pockets. So if you are a shareholder, it's very, very unlikely that you will ever see business fundamental returns coming your way because the management will find a way to dilute you into oblivion or to smoke your profits away. Let's see. Further, there is this canopy rivers, a subsidiary that they again issued non-brokered private placements. So they decide to whom they issue those shares and they have diluted their ownership down to 31%. But they still control 90%. That doesn't matter whether you control it. If you control, you consolidate the accounting into your financial statement, but the actual returns are not yours. And let's see at Canopy's net profits. If we look at the total net income, 11 million, however, only 1.5 million is for Canopy Growth Corporation. The rest is non-controlling interest. So most of the profit goes somewhere else to someone else. Let's take a look at the CEO. So Bruce Linton, he is co-founder of Canopy Growth, but also chief executive officer and president of ClearFords, two divisions, the wastewater system division and the Brooklyn concrete divisions. He also serves as the chief executive officer and president of Martello Technologies. And he has been vice blah, blah, blah, blah. So the CEO of Canopy is CEO of other three companies. And every week, I get an email from a Canadian small cap saying, CEO, let me show, tell you my story. Let me see what's this, what's this. And in this case, Canopy is one of the many, many small caps that succeed and have seen their stock price surge on a trend. However, we have seen that the business fundamentals are extremely shaky and that the business sector is also shaky and that the strength there, it's not really a mode. It's not really a, it's not really a sector when you can have a mode and the management is really, really questionable. So to sum up, we have a commoditized market with much lower prices management that is trying to make money in any way from themselves. No mode because it's like growing tomatoes, broccolis or whatever. Huge dilution in all forms and perfect example of misaligned interest with shareholders, unreasonable growth projections that might or might not happen. So my conclusion, no mode, it looks like a tomato producer and weird tomato producers. You really have to love what you do. It's mostly family owned, one glass house, they keep track, they work long hours where needed to keep the profits possible and a family can live off that very well. Industrial, we have seen what the management is doing, diluting shareholders, destroying shareholder value through huge compensation packages and it's really, really funny. I don't know who is stoned here. So if you are an investor, reduce your position in canopy or in other stocks if the going on is similar here or find stocks with management with integrity. That's the key in such sectors. Also the economics of the sector are not that positive as it might have looked up till now. If you like how I analyze the sector, perhaps you didn't like my conclusion but if you like the step-by-step analysis, please subscribe as this is what we do on this channel. Thank you for watching. My greetings to Canada. I have had great students there so I hope they are not disappointed by my analysis. All my best to them. See you in the next video.