I turn away a lot of weed deals these days, mostly because they’re doing my head in.

To put it simply, I don’t want to be all in on one farming deal. I don’t want to be putting money into a high market cap agricultural play. I don’t want to be in an industry that has a geographically limited audience, can’t be actively marketed, and requires massive capital spending to keep expanding beyond customer demand, to satisfy dumb investors focused on square footage above all else.

(If you’re one of those investors, sorry, but you’re not thinking this through properly.)

In late 2014 I stood up in front of the first GreenRush weed conference (turns out, the only Greenrush weed conference), and told a packed house they were nuts if they thought growing cannabis in big warehouses was going to be a long term business model of profitability.

Of course, a lot of them went on to get licenses and have made their money selling stock, rather than weed. That’s fine, but it’s not a long term model of thriving success. At some point, you’ve got to make actual revenue. At some point, margin matters more than square footage. At some point, you need to be able to sell to the world, not a small segment of a small population. At some point, it doesn’t matter how much you can grow if the market gets sucked up by a sweet ass brand from a smaller player who can sell at high prices because everyone wants his version of ‘Heisenberg Blue’ over Canopy’s Lemon Skunk.

Check it.

Downward price pressure was already a thing before the Canadian provincial governments decided, almost entirely, to set up monopolies on selling weed. Growers, to do business, are either going to keep selling online to medical patients, or sell to the government, at whatever price the government is willing to pay. Top tip: the government is a cheap bastard. Eventually – maybe not for a year or two – imports will be a thing, and that expensive Canadian pharma weed, as good as it is, will face competition from places where it grows in fields. People who want to smoke weed… they already smoke weed. The customer base for that end of the market is saturated already. You can’t advertise to make more, and a lot of those smokers are already looking to oils and edibles and capsules as a preference.

Market caps are already ridiculous on the LP side and there’s going to be increasing pressure on revenues as large borrowings and financings weigh down share prices. So, clearly, dried weed is not going to be where the next generation of billionaire Scarfaces will emerge.

So where do you go if you want to make money investing in the weed business?

Foreign expansion is interesting. Abcann (ABCN.V) is making its mark on that front, among others. Business to business (B2B) trade will be interesting, where you buy (or grow) cheap weed and turn it into something good that costs a lot more. TGOD is camping out there, when it goes public soon. Branding will be fun. Hiku (HIKU.V – formerly DOJA) is doing grand business on that side with its acquisition of Tokyo Smoke.

But the keyword on all of the existing weed plays you’ll find, and there’s more and more each week, is ‘huge’. Everyone wants to be a giant. “We’re gonna build ten million square feet of grow space!” “We’ll have so much weed we won’t know what to do with it all!”

What if that’s the wrong play? What if there’s value to be had at the other end of town? What if being an artisan, keeping things exclusive and low cost and high quality, and thus building a respected brand or two, actually makes more money than the typical race to the bottom?

What if, when it comes down to it, for all their patients and grow space and market cap, the big LPs have done barely anything to build brands that people will gravitate to when they’re all on the same shelf?

And what if, in the short term, as a purely market play, there were big upticks to be had based on late stage applicants getting their license to grow, more than big LPs raising another $50m to build grow space their customers don’t need.

“If you can grow good weed in a 5,000 square foot facility, and think you’re going to be able to grow the same standard of weed in a million square feet, all I can say is have fun trying,” says Greentec Holdings (GTEC) CEO, Chairman and founder, Norton Singhavon.

Singhavon was part of the crew that took Invictus MD Strategies (IMH.V) from a single office, under financed, $1m market cap vertical integration play into a $162m market cap, multi-licensed beast.

Along the way, he’s run his fingers over just about every weed play in Canada, and a few beyond. Late stage applicant? Check. Fully licensed producer? Check.

Late stage applicants likely to become fully licensed producer?

BIG check.

A lot of companies have invested in late stage applicants, mostly because it’s a good news release and you can get away with not spending a lot of money on them until they actually show a license. It’s a workaround. It’s a market play. If they never progress, who cares, you’ve spent half a million bucks, promised ten million more that you’ll never actually have to raise, and your market cap is up 40%. And because Health Canada almost never says ‘you will never have a license’, you’re never called to account for your bad investment. They just stay in the queue forever.

And chances are, your application will never progress. There’s still a thousand applicants out there and no firm indication who Health Canada will take seriously next. You and I, dear reader, could go out tomorrow to Maple Ridge and knock on a few doors and find a greenhouse that’s got an application in, slip them some doughbucks, and we’re a ‘cannabis holdings company’ that’d be worth $25-$80m on the exchange.

That’s not this.

Here’s what GTEC owns.

They have their 100% owned, Edmonton-based, fully built out 14,000 square foot Alberta Craft Cannabis (formerly GrenEx) subsidiary.

Why is Alberta Craft interesting?

It has a cultivation license and will be cultivating this month.

There is no 2.

That license changes everything for Greentec. When it landed, in September of last year, if the company had been public it’s value would have skyrocketed. But that wasn’t the plan. What they want with that license is a nice, fully operational grower – and a way in for other facilities to be added to that license, rather than get them all licensed from scratch.

There’s no denying, it’s easier for Canopy Growth Corporation to license a new facility than it is for Happy High Times Inc to get an application through the entire Health Canada process. That extends to other producers as well, so GTEC has collected a healthy batch of late stage applicants.

And by ‘a healthy batch’, I mean exactly that.

GreenTec Bio-Pharmaceuticals is their 100% owned home applicant in Kelowna, BC, just down the road from DOJA/Hiku (HIKU.C). They’re building out 80k sq ft there, with two other sites at the ready when needed.

They also have 100% ownership of Falcon Ridge Farms, a certified organic farm, also in Kelowna. Currently that facility grows echinacea for natural health and pharma products. They’re planning a 10k sq ft cannabis expansion and have existing Health Canada licensing for natural health products (NHP) – three licenses in fact – so there’s familiarity there and an existing relationship.

Moving along to Ontario, they own 100% (there’s that three-digit number again) of Grey Bruce Farms in Kincardine, Ontario, home of Supreme Cannabis (FIRE.V). Grey Bruce is a 30k sq ft facility that aims to be a boutique grower and brand.

Bloody hell, there’s more.

Tumbleweed Farms is another 100% owned facility, this one out of Chase BC, a short hop from the TransCanada Highway that feeds right through the west coast. Tumbleweed is building out 10k sq ft currently and waiting for its license application to move forward. The hook on this one is it has access to clean water on property, and will use local mediums and fertilizers.

Tumbleweed has the potential to expand to 8 million sq ft down the road, but I’m not factoring that into my valuation of the company at all, because future growth is forward looking pie in the sky stuff. What’s there now is more than enough reason to be happy.

THAT ENOUGH PROJECTS FOR YOU?

Even a cynic would say this is a healthy selection of possibilities.

Now, you’ll notice that every one of these properties is 100% owned by GreenTec. A lot of other companies in this space will make a 20% investment, maybe a 5% investment – just enough to get a company listed as an asset on their website and keep the money spent to a minimum.

GTEC don’t play that way.

“If I can’t have the whole thing,” says Singhavon, “I can’t be sure it’s going to be run with best practices. If I have it all, I can have one team of people rolling out where needed, as needed, ensuring nothing is missed in the application, the construction, and ultimately in production.”

He says he’s passed over a lot of potential acquisitions because the people behind them can’t bear to part with the play and become employees going forward.

“It’s a passion project for a lot of people,” he says. “They’ve always wanted to do this and they want to be the boss, even though they want your money. We see some great people but I don’t want to be getting into that discussion over who makes the rules and how high the standards should be. It’s like, ‘Thanks for building the brand, here’s some money, here’s some stock, now you’re part of our family and we’ll keep putting out a great product.’ That’s the only way to go.”

Certainly that makes things cleaner. Also, it’s unique. Other companies such as Cronos (MJN.V) and Invictus have taken smaller pieces of deals, and sometimes that brings issues. Cronos’ earlier incarnation, Pharmacan, was rife with lawsuits and public spats between financier and operator, with complaints that the umbrella company was sometimes getting in the way of needed financing deals, demanding a bigger piece of the pie in return for deal approval. when I talked to one Pharmacan subsidiary operator a few years back, he told me, “All I wanted was for them to stay out of my way and let me do my thing… But also their money.”

Having a 100% stake is important. It’s not the Invictus way, which has been more to take a small piece early, with larger chunks available at the reaching of certain milestones – usually for a price set at ‘early stage’ levels.

“That works nicely for them, and it’s helped them get where they are. But if we see an opportunity we really like, we want it all,” says Singhavon. “We want their team, we want their knowledge, and we want to add to our collective so that the next project that comes along sees us as a valuable addition to their deal, not the other way around.”

Adding to those teams, GTEC has built it’s own formidable force, including Snr VP of Marketing, David Lynn, former CEO of SunRype, a company that sits in every kid’s lunchbox.

BUT THAT’S ALL FARMING, AND YOU HATE FARMING!

Aye, it is. But hate is a strong word. I don’t hate farming, I just see it as a small piece of a larger puzzle.

If you’re growing because you have a product you want to secure ingredients for, such as Golden Leaf (GLH.C) does with its extract lines, and Lifestyle Delivery Systems (LDS.C) does with its CannaStrips line, have at it. That makes sense.

Similarly, if you’re growing because you are focused on building actual brands that people will hunt down and pay a premium for, rather than flooding the market with cut-priced weed, that’s something I can get behind.

Hiku’s move to acquire Tokyo Smoke trips my trigger in this respect because, though Tokyo Smoke has lost more money than it’s made since its inception, people know that brand.

If you have a Tokyo Smoke product next to an Island Garden product or a Delta 9 product (or Organigram’s Pesticide Special #5), your target market of people who pursue weed as a lifestyle and give a crap about the branding on the box sitting on their coffee table, and will pay $15 a gram for organic high quality bud instead of $7 for Walmartweed, they’re going to jump on the Tokyo Smoke every time.

Every weed grower says their stuff is better than everyone else’s, and it’s been that way since 2014 when I’d have guys at conferences say to me, “Oh, Tweed paid us to come sort out their operation, but there’s nothing you can do..”

But while GTEC’s growers are genuinely small batch, artisan guys. They have enough size to fulfill a strong demand, and grow as needed, but they haven’t come to market with a “We’re going to have the biggest greenhouse in the world” play.

They’re coming to market with this play:

We already have a grow license. We have four other late stage applicants we expect to secure grow licenses. If any don’t, we’ll roll them into one that does and apply for an expansion rather than a fresh license. We’re running this like a winery. Quality is everything. We don’t need to be a Budweiser and sell to every man and his dog, we just need to be something a person with discriminating taste and disposable income will pay more for, so we’ve bought into plays where that quality exists.

That means keeping costs low, margins high, and not fighting with every other LP for that sweet sweet Ontario Liquor Board deal that wants a lot of weed cheap and quick. Rather, they’re offering something people will look for.

It’s the Jerry Maguire way of doing things: Less clients, more attention, more money.

And hey, that whole ‘running the farms like wineries’ deal, that’s clear when you look at their branding. I mean, this is some seriously on point, ‘grandma will pick up a couple’, prominent shelf space at Whole Foods kind of stuff.

I mean, that Grey Bruce Farms logo? It looks like an artisan bread company.

The Falcon Ridge logo? If you didn’t know better, you’d swear they make a sassy Beaujolais and a Pinot Grigio to die for.

ALSO, THEY’RE NOT JUST FARMERS:

One pi ece yet to be discussed that adds another vertical to the GreenTec story is Zen Labs, an analytical laboratory in Kelowna, which is awaiting the completion of renovations and equipment delivery before it announces its readiness for Section 56 permits from the Office of Controlled Substances, to store and test cannabis.

“Currently Zen Labs is a fully operating environmental and microbial analytical testing lab,” says the company. Further down the road, it expects Zen to apply for an extraction license, which it will use to supply all GTEC companies.

If you’re looking for diversity, this deal has six brands across three provinces – so far.

WHERE’S THE MONEY FROM?

Glad you asked. Of the $16 million raised in seed financing, execs, staff, directors and advisors have contributed over $8 million themselves. Over $6 million of that came from management.

WHAT’S THE VALUATION?

In mid-February, the company was valuing itself at $116m.

Matica Enterprises (MMJ.C), which has one late stage applicant and one LOI (and one court case), comes in at $84 million today. Invictus, with its two licenses and various other pieces, rolls at $153 million. Hiku, with one small grow and a license to cultivate, plus their Tokyo smoke acquisition, is $380 million.

Clearly GTEC is giving investors some room to move. Fully diluted, you’re looking at a bit over 100 million shares outstanding, so pre-listing you’re looking at about $1 per share in self-assumed value. With some $30m of warrants and options out there, on a fully diluted basis you’re looking at an enterprise value of about $130m.

FAIR.

Greentec will be going public as soon as the exchange approves, and you should take a good look before that happens.

— Chris Parry

FULL DISCLOSURE: Greentec Holdings is an Equity.Guru marketing client, and we have bought into an early round of financing.