month in review & outlook - Bitly

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Oct 1, 2017 - Cannabis stocks rallied in September, with. Canadian LPs showing leadership, and gained 8% in Q3: The inde
October - 2017

MONTH IN REVIEW & OUTLOOK Cannabis stocks rallied in September, with Canadian LPs showing leadership, and gained 8% in Q3:

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Republican Senator Orrin Hatch introduced legislation for medical cannabis research, the Marijuana Effective Drug Study Act of 2017. Dr. Oz publicly endorsed medical cannabis as a substitute for opioids. California appears to remain on track for an early 2018 launch of its regulated medical cannabis program, which has been merged with the new adult use program.

The index, which was rebalanced as part of the regular quarterly process at the end of June and had 50 members, saw 18 double-digit gainers and 8 double-digit percentage decliners, including 2 that lost more than 20%, during the month. The index increased 4.8% to 61.74 during September and was up 8.0% in Q3 but is down 16.7% YTD. The 420 Opportunity model portfolio increased 0.3% in September and is down 11.6% YTD, outperforming the index by 5.1% after a very strong relative performance in 2016 (+293.4% vs. 88.8%). The new 420 Quality model portfolio, which is intended to have lower turnover in its holdings than 420 Opportunity, was launched on March 2nd and increased 4.7% in September. It is up 0.2% since its debut despite the 23.7% decline in the index since the then. The protections afforded to medical cannabis operators under Rohrabacher-Blumenauer were extended to December 8th as the federal government passed a spending bill. Utah

In Canada, where Health Canada added 6 licenses, which now total 62, Ontario introduced a plan to have LCBO-like government-run dispensaries, run by OPSEU members, will be separate from the 650+ alcohol stores. Ontario vowed to close the remaining illegal dispensaries as it opens 40 stores by July and 150 by 2020. New Brunswick announced supply agreements for a state-run program it will oversee, signing MOUs with Canopy Growth and Organigram. British Columbia will have an answer by July but is seeking input before deciding. The global theme to cannabis escalated, with Cronos Group announcing a big production facility in Israel and Tilray in Portugal. Data through June 30th showed strong but slowing growth in the number of registered patients in Canada. The big themes ahead are likely to be insight into the President's plans regarding the federal view on state-legal cannabis (especially in light of Jeff Sessions serving as Attorney General), hopeful extension of the Rohrabacher-Farr (now Rohrabacher-Blumenauer) Amendment (which is set to sunset on December 8th) to insulate statelegal medical cannabis businesses from DOJ intervention, better clarity from the federal government for banks and cannabis research (both part of the proposed CARERS Act and other proposed legislation), DEA pushback towards the CBD from industrial hemp industry, the inclusion of a broader range of extracts in Health Canada's ACMPR program and its continued growth in patient enrollment, likely legalization in Canada,

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the rollout of MMJ in Germany, Mexico and in Australia as well as continued advances in South America, progress with respect to the new legal cannabis implementations in CA, MA, ME, and NV and the new MMJ implementations in Arkansas, Florida, Hawaii, Illinois, Maryland, Minnesota, Montana, Nevada, North Dakota, Ohio, New York, Nevada, Massachusetts, Pennsylvania and Texas, the implementation of the new medical program in California and the possible legalizations via the legislatures in NM and RI. The slide, which began in March of 2014, reversed out the entire gains from early 2014, with the market currently near the summer 2013 lows after the rally since February 2016. Most valuations remain high. Positively, we are seeing some new entrants into the publicly-traded sector of higher quality, and hopefully we see more in 2017, especially with the number of legal states doubling. Please remember that it remains the case that most of the penny stocks will not succeed. I expect that there will be just a few winners among the 550+ companies that are currently on our Broad List.

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Extraction Action One of the big trends for the cannabis industry is extracted products, which are used to provide alternatives to smoking or vaping cannabis flower, including edibles and concentrates. In some markets, the share of flower has declined to 50% with these derivatives making up the balance. Even in Canada, despite substantial limitations on formats of concentrates and the exclusion of edibles, extracts are a major growth driver for the LPs. Extracting cannabinoids like THC and CBD as well as terpenes can be done in a variety of ways. Some of the more popular methods include hydrocarbons like butane, CO2, alcohol and even water. Rosin extraction is done without any solvents. Some considerations for which method to use include safety, taste, efficiency and cost. The machinery used to perform extraction is sold by many companies, including global public companies like Waters (NYSE: WAT). The industry has seen some early cannabis-focused equipment makers emerge too, though they are all private, including Canada-based Advanced Extraction Systems, Apeks Supercritical, Eden Labs and MRX. For public company investors looking to capitalize on this theme, there are just a few different ways to participate in the growth of the popularity of extracts (beyond investing in a brand). Most of the hardware companies from a few years ago are no longer investable, as MCIG has migrated its business model and VAPE and VPOR have gone by the wayside. In this review, I look at four companies that are leveraged to extraction, including CannaRoyalty, Kush Bottles, Quadron Cannatech and Radient Technologies.

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CannaRoyalty (CSE: CRZ) (OTC: CNNRF), which is on the Focus List, may be the best way to play extraction over time in my view. The company has extraction as one of its primary focus areas, which also include research, testing, branding and distribution. CannaRoyalty has assembled a portfolio of royalty agreements, equity interests and other investments and licensing agreements in the United States and Canada. Its CEO said in an interview: Where we’re really focused is the areas of research, brands and devices, which are all made possible in one way or another through extraction and licenses to be able to conduct extraction. With respect to extracts, the company earns royalties on products sold by MüV, which include a vape pen and cartridges. It also has a licensing agreement with AbsoluteXtracts of California to expand its brand to Washington and Canada. Wholly-owned DreamCatcher Labs produces cartridges. The company is also a joint venture partner with Rich Extracts in Oregon. Finally, it is developing The Terpistry, which will focus on creating a platform targeting extract-based products. Several of its other entities have exposure to extraction as well. In Q2 ending 6/30, the company reported sales of C$960K, up from just C$300K in Q1. While it's not a pure-play, I note that the word "extract" is mentioned 29 times in its MD&A filing from the quarter. As of late August, CannaRoyalty had 42mm shares outstanding and 52.3mm fullydiluted shares, though this is somewhat overstated as it includes 2.8mm warrants above C$3.00.

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Kush Bottles (OTC: KSHB) has developed a substantial packaging business but recently gained significant exposure to extracts through the purchase of CMP Wellness, a distributor of standard and custom vaporizer products, including pens, cartridges and accessories, including MediPen. The deal, which doubled its revenue, closed in Q3, so the fourth quarter, which ended 8/31, will be the first to include a full quarter of revenue from the acquired company. The company's SEC filing did provide a pro forma that suggested CMP Wellness revenue in the first half of the year accounted for just over 50% of the combined company's pro forma revenue. Kush Bottles has also developed a line of terpenes (Terps on Terps), further extending its exposure to the extracts trend. Wayne Green, the scientist behind this effort, stated in an article as he described where Kush is headed in terms of being a one-stop shop: If you want to build a brand, not only will we provide the cartridges, we can provide the terpene formulation, and we can provide the custom packaging and brand curation. Kush bottles reported in mid-July that it has 58.5mm shares. There are also 4.7mm options, 2.94mm of which are at $2.36 and the balance at an a weighted average exercise price of $0.49. Considering the large amount of revenue (I project $37mm in FY18 ending 8/31/18), about half of which is tied to extraction, there is considerable leverage to the theme. KSHB will report its Q4 in mid to late November.

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Quadron Cannatech (CSE: QCC) (OTC: QUDCF) is a Canadian company focused on automated extraction and processing solutions. It is creating a closed system, with proprietary cartridges (that don't interchange with other devices but require the purchase of a specific device instead). This strategy could limit the company's potential.

Radient Technologies (TSXV: RDI) (OTC: RDDTF) is applying its technology to the cannabis industry and has a strategic relationship with Aurora Cannabis, which is an investor and is hoping to use Radient's technology to extract CBD from industrial hemp, should that become legal in Canada.

Its Cybernetic unit provides the intellectual property for automation and process manufacturing and serves over 40 clients. Soma Labs Scientific creates CO2 supercritical extraction systems and generates revenue from a three-year research agreement with Odorchem (which sells odor neutralizer products). It hopes to have two mobile units in the field by the end of 2017. Greenmantle Products is going to be providing customized vaporization devices in Canada and the United States. It has forged a distribution relationship with Lucid Labs in Washington.

Here is how it describes itself:

I have met with the CEO, Rosy Mondin, in person and have followed up with a phone call. The management team has some depth as well. While I am hopeful this could develop into a potentially appealing investment, it's early in my view. In Q4, the company reported sales of only C$150K and C$516K in FY18-Q1. If the company is able to meet its expectations later this year of placing the mobile extraction systems, it could begin to attract more investor interest. As of late September, the company had 47.9mm shares outstanding 3.75mm options at a C$0.16 weighted average exercise price, 10mm warrants at C$0.20 and 6.15mm shares that could be converted from its B Preferred shares. The fully diluted share-count, then, is just 67.8mm shares, and there is significant insider ownership.

Radient extracts natural compounds from a range of biological materials using microwave assisted processing ("MAP™"), a patented technology platform which provides superior customer outcomes in terms of ingredient purity, yield, and cost. From its 20,000 square foot manufacturing plant in Edmonton, Canada, Radient serves market leaders in industries that include pharmaceutical, food, beverage, natural health, personal care and biofuel markets. This sounds great, but a look at the company's financials reveals a company that hasn't had a lot of success despite years of trying. The company was incorporated in 2001. Its Chief Technology Officer, Steven Splinter, and Vizon SciTec had acquired the MAP license from Environment Canada for the field of industrial-scale extraction of organic matter, and Radient acquired the rights in 2002. In the year ending 3/31/17, it generated only C$293K in sales, down over 50% from FY16. It just began focusing on cannabinoid extraction in late 2016. Initial research suggests to the company that MAP can reduce extraction times,

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improve efficency, attain throughput of up to 1500 kg/day and retain cannabinoid and terpene profiles. The company has filed a license to become an LP, with a goal of producing cannabis oils. It also has a pending application for a Dealers License. As of late August, the company had 179.5mm shares outstanding as well as 10.6mm options with a weighted average exercise price of $0.68, 1.1mm finders options at $0.45 and 55mm warrants at an average exercise price of $0.36. Additionally, there are 9.4mm shares pending issuance not yet included. Conclusion: Investors who want to leverage the theme of extraction are likely best served to further explore CannaRoyalty or Kush Bottles. Quadron Cannatech and Radient are more speculative at this time but are worth monitoring.

How Oils Are Driving LP Sales In September, Health Canada updated market information that showed how oils are growing rapidly. During the quarter ending 6/30, LPs shipped 5.896mm grams of dried flower, representing growth of just 1% from the prior quarter and 46% from a year ago. Oil sales, expressed in weight, were 6.194mm grams, up 9% from the prior quarter and 313% from a year ago. Not all LPs are positioned to capitalize on this trend, with many not yet permitted to sell oils. Among the bigger LPs, all are now selling, but the popularity of oils has benefitted some more than others. With that in mind, I wanted to compare each of the major LPs, including Aphria, Aurora Cannabis, CanniMed Therapeutics, CannTrust, Canopy Growth and MedReleaf.

Aphria reported its results for the fiscal year ending in May in July. For Q4, it reported that oils represented 31.7% of sales, or about C$1.81mm. In Q3, oils represented 25.6% of sales, or C$1.31mm, suggesting that the 38% sequential growth accounted for 83% of the increase in Aphria's Q4 sales compared to Q3. The company held inventory of 1091 liters of oil valued at C$682K on May 31. Aurora Cannabis, which launched its oils in April, reported its results for the fiscal year ending in June in September. Unfortunately, it didn't break out the sales. The company suggested at the end of August that sales for the month would exceed C$3mm, with oils representing approximately 26% of sales. CanniMed Therapeutics reported its FY17-Q3 ending in July in mid-September. Oils represented approximately 55% of sales, or C$2.63mm. In the prior quarter, sales of C$1.78mm represented 48% of sales. Oil sales accounted for 78.6% of the growth in Q3 sales over Q2's. The company sold 1114 liters during Q3, an increase of 208% from a year ago, while dried cannabis grams rose by 42%. CannTrust reported its Q2 ending in June at the end of August. Oil sales, at C$2.39mm, represented almost 53% of overall sales and increased from C$1.05mm in the prior quarter, driving 89% of the overall quarterly increase. CannTrust first sold oils in August 2016. Canopy Growth reported its FY18-Q1 ending in June in mid-August. The company's oil sales were 19% of revenue, or approximately C$3.02mm. The proportion of oil sales, which dropped about 7%,

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fell slightly from 22% in Q4 (C$3.23mm)but was up from 6% in FY17-Q1. The company has recently brought online a massive extractor made by Advanced Extraction Systems and reported 6.5mm grams of dried cannabis awaiting conversion and 2683 liters of oil in inventory. MedReleaf reported its FY18-Q1 ending in June in mid-August. It began selling oils in November 2016. Sales of C$1.50mm represented just 14.4% of sales, up from C$967K in the prior quarter, or 9.3%, helping to offset a decline in sales from dried cannabis. The company disclosed that oil represented 23% of overall June sales and that it expects to get to 50% of overall sales over the next several quarters. Oils are contributing to the growth of the leading LPs in Canada, and they are all well positioned to benefit over the next year and beyond as medical cannabis patients adopt these products over dried flower. How oils fit into legal cannabis sales is a topic for future discussion, as the types on nonflower products that are so popular in the black market and in the United States, including edibles and extracts with higher potency and different form factors (like shatters and waxes), are not yet permitted in Canada. Further, success in the current form of extracts doesn't suggest that the LP will be able to successfully create and market the products and brands that the consumer market will desire.

Rebalancing the 420 Investor Cannabis Stock Index Each quarter, I rebalance the 420 Investor Cannabis Stock Index, which is designed to reflect the universe of publicly-traded cannabis stocks. The index includes all cannabis stocks that have average daily trading value in excess of $100,000 and a price of at least $0.01, the same as lat quarter and compared to $150,000 minimum in

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Q1 and Q2. The bar remains much higher than in 2016. For Q4, the threshold for the minimum daily average trading value was $35K, $25K for Q2 and Q3 and just $15K for Q1 a year ago. To be included in the index, the company must have a real U.S. listing (not an unsponsored ADR), though volume requirements incorporate Australian or Canadian volume as well. This quarter, the index will include 53 names, up from 50 in Q3 and representing about 9% of the entire universe of companies. The 420 Investor Focus List, which currently has 25 members, includes 8 names outside of this index that don't meet the daily trading value requirement (CBICF, CVSI, DIGP, GBLX, GRWG, MDCL, SLTK and SRNA). All ten of the companies that were eliminated failed to meet the daily trading value minimum, including BLOZF, BUDZ, CNAB, CVSI, GBLX, MCOA, MQPXF, PMCB, VBIO and ZLDAF. Additions that were members of the index in the past include Americann (ACAN), American Cannabis Company (AMMJ), Future Farm Technologies (FFRMF), Namaste Technologies (NXTTF), THC Biomed (THCBF) and ViaDerma (VDRM). AMMJ and NXTTF are on the Focus List. The 7 additions that join the index for the first time include:

Glance Technologies (GLNNF), Leafbuyer Technologies (LBUY), Liberty Health Sciences (LHSIF), Maricann Group (MRRCF), Sunset Island Group (SIGO), True Leaf Medicine Intl (TRLFF) and Friday Night, Inc. (VPGDF). GLNNF is a Canadian mobile payment app company focused on many industries but talking a LOT about cannabis and its investment in CannaPay Financial (49% ownership and exclusive license). The stock has a primary listing on the CSE (GET). The company has been highly promotional, and this has helped the stock move

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to a 52-week high, more than tripling off of recent lows on very high volume. As of mid-July, there were 128mm fully-diluted shares. LBUY has an interesting business helping cannabis businesses with advertising solutions (coupons). The Colorado company is operating in several markets and generated sales of $715K in the first three quarters of the fiscal year ending in June, though Q3 was not impressive. The capital structure includes a nasty convertible preferred that gives management a constant 55% of common shares. Note that the company sold shares in late March at .12-.15 per share in a private placement. LHSIF holds one of a limited number of licenses in Florida and has applied for a cultivation license in Ohio. The company has a license agreement with Aphria, which is also a substantial owner. CEO George Scorsis was a senior executive at Mettrum. The stock, which has a primary listing on the CSE (LHS). While I think this is an excellent company, the valuation is hard to justify (287mm fully diluted shares). MRRCF is a revenue-generating LP in Canada with big plans in Germany. The company, which grows in a greenhouse and has had early success with oils, has stumbled of late with a disclosure issue and has struggled with a capital raise. The stock, which has a primary listing on the CSE (MARI). MARI's valuation seems reasonable, with about 90mm fully diluted shares. Note that both of these companies are clients of New Cannabis Ventures. SIGO is one of the worst stock scams I have seen in the past 4 1/2 years. I have written two pieces about the company on New Cannabis Ventures that go into many of the details. The company masked the involvement of a notorious penny stock operator, Joseph Wade (previously Joseph Wade Mezey), a disbarred lawyer who runs 1PM Industries (OPMZ). The company has only 4.67mm shares outstanding but has 46mm shares masked by a convertible preferred. The company cultivates cannabis but does so apparently as a service provider while pretending to be a license

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holder. SIGO has an open S-1 registration that permits it to sell over 19mm more shares at $0.10 per share. TRLFF is an ACMPR LP applicant with an animal health business focused on hemp-based products as well. The stock has a primary listing on the CSE (MMJ). I like the management team, though the pet business is not yet profitable and doesn't have material revenue ($1-1.5mm annual). The company is attempting to raise $10mm through a Reg A+ offering (registration not yet effective). There are about 85mm shares outstanding on a fully diluted basis. VPGDF is a relatively new reverse merger. The stock has a primary listing on the CSE (TGIF), and the company has interests in alcohol and cannabis, including 91% of Alternative Medicince Association in Nevada, a licensed cultivator and producer. It also has a hemp-based CBD business. There are 147mm fully diluted shares. The other 40 returning members of the index include the following tickers: ABCCF, ACBFF, ACNNF, AMFE, APHQF, AXIM, CANN, CBDS, CBIS, CNBX, CNNRF, EMHTF, EMMBF, GLDFF, GWPH, HEMP, IIPR, IMLFF, ISOLF, ITHUF, IVITF, KSHB, KWFLF, MCIG, MEDFF, MJNA, MRPHF, MSRT, MYMMF, OGRMF, OWCP, PNTV, POTN, RMHB, SING, SPRWF, TBPMF, TRTC, TWMJF and XXII. The current index includes twenty-eight companies (53%) based in or operating in Canada and one (2%) based in Australia. Reflecting slightly better liquidity than the prior quarter, in which there were 14 names that had daily average trading value in excess of $500K (including in Canada), this quarter there are 17, including ABCCF, ACBFF, APHQF, GLNNF, GWPH, IIPR, KWFLF, LBUY, MEDFF, MJNA, OGRMF, SING, SPRWF, THCBF, TRTC, TWMJF and XXII.

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Cannabis Industry Calendar      

10/04-06: Cannabis World Congress & Business Expo in Boston, MA 10/06-07: Grow Up Conference in Niagara Falls, ON 10/12-14: Southwest Cannabis Conference & Expo in Phoenix, AZ 10/13-15: New West Summit in Oakland, CA 10/25-26: CannaTech in London, UK 10/28-29: CannaGrow Expo in Denver, CO

SAVE 50% USING CODE "NEWCANNABISVENTURES" OTC Disclosure , SEC and Canadian Reporting Deadlines*    

Fiscal Year ending in July: Annual report due on or before 10/30 (10/30 TSX) Fiscal Year ending November, February or May: Quarterly due 10/17 (10/16 TSX) Canadian Venture Fiscal Year ending in June: Annual due 10/30 Canadian Venture Fiscal Year ending in November, February or May: Quarterly due 10/30

*Note that many U.S. companies take advantage of automatic extensions 8

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SPOTLIGHT ON THE FOCUS LIST 420 Investor maintains a "Broad List" that includes over 550 companies that purport to be in the cannabis sector. At the same time, it monitors a narrower group of 25 companies, the "Focus List", which consists of what we consider the most important companies among the publicly-traded stocks, including the most actively traded as well as several that are under-the-radar but that appear worthy of consideration. We provide numerical ratings to VIP subscribers on three different measures for each member of the Focus List, including relative valuation, technicals and relative quality. I made no changes in September. Our relative quality rankings, which range from 1 (best) to 5 (worst) are a subjective assessment of each company relative to the entire Focus List and are based on management capability, corporate governance and transparency, execution and capital structure. The companies that we currently rank below average (4 or 5) include alphabetically by ticker American Cannabis (AMMJ), Cannabis Sciences (CBIS), CV Sciences (CVSI), Digipath (DIGP), GB Sciences (GBLX) and Medical Marijuana, Inc. (MJNA). Here were some of the key news items for Focus List companies in September: 

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American Cannabis Company (AMMJ) former CEO Hollister continues to sell shares regularly and still has 12mm remaining. The company signed an exclusive distribution agreement with Earth Alive, a Canadian company that sells Dr. Marijane, a certified organic root probiotic. It also submitted an application for an LP applicant in New Brunswick Aphria (APHQF) insiders sold 1.2mm shares earlier this month for proceeds of C$7.145mm Aurora Cannabis (ACBFF) CEO Terry Booth joined the board of directors at Quinsam, a merchant bank that has been investing in the cannabis space. The company signed a definitive agreement to invest $C3.25mm into Hempco and loaned it an additional $1.5mm. It also shipped 50K grams of dried cannabis it produced in Canada to Germany. Mackie Research initiated coverage with a C$3.80 target. It announced FY17 results, with Q4 sales of $5.9mm falling a bit short of expectations Canadian Bioceutical Corp (CBICF) reported sales of C$4.4mm in the fiscal Q4 ending 3/31 and sales of C$5.1mm in Arizona and positive EBITDA for FY18-Q1 CannaRoyalty (CNNRF) investee AltMed opened its first Arizona dispensary. It reported no adverse impact on its operations in Florida and Puerto Rico from Hurricane Irma. It upped its investment in pre-roll equipment maker Wagner Dimas and reported damage at its investee in Puerto Rico from Hurricane Maria Canopy Growth (TWMJF) announced the purchase of land and buildings adjacent to Tweed Farms and will triple its greenhouse space in Niagara. It also revealed a partnership with a Spanish pharmaceutical company, Alcaliber, a supply contract with New Brunswick and a supply deal with AusCann in Australia. The company closed the sale of a Mettrum facility to Starseed Medicinal, which is backed by labor union LIUNA, and a supply agreement. It rebranded Mettrum as Spectrum Cannabis and announced Spectrum Denmark and its R&D unit Canopy Health Innovations filed 9 U.S. patents on cannabis/cannabinoids related to sleep and related nervous system disorders Digipath (DIGP) announced a JV to establish a cannabis testing lab in California GB Sciences (GBLX) finalized its agreement with LSU General Cannabis (CANN) hired a CFO GrowGeneration (GRWG) opened a second store in Las Vegas

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GW Pharmaceuticals (GWPH) was pressured due to positive Phase 3 clinical trial results from Zogenix, which is developing a drug for Dravet syndrome iAnthus Capital (ITHUF) will provide $2mm to Florida licensed cannabis provider HealtyGrow. It added a COO to its management team Innovative Industrial Properties (IIPR) filed a preliminary prospectus for a preferred stock issue Kush Bottles (KSHB) launched a new product, the Kush Canister that holds over an ounce of dried cannabis flower in child resistant packaging. It launched a custom packaging design and development service Medicine Man Technologies (MDCL) announced that its Chairman and its CEO bought shares on the same terms as its recent private placement. MedReleaf (MEDFF) announced an R&D collaboration and investment into an Israeli LED lighting company Namaste Technologies (NXTTF) provided an update on its CannMart LP application and reported strong revenue growth in August, the end of its fiscal year. It announced a supply agreement with an Israel-based cannabis producer to import into Canada. Finally, it signed a deal with Aphria to supply its CannMart subsidiary (pending HC approval of its application) and with Aurora Cannabis as well Organigram (OGRMF) is partnering with New Brunswick Innovation Research Chair in Medical Technologies to develop microwave extraction technologies. It inked a 5mm gram per year supply agreement with New Brunswick Solis Tek (SLTK) reported scoring well in tests performed against peers in research by an independent lab Supreme Pharma (SPRWF) announced Aurora Cannabis as its first wholesale customer and Emerald Health as its second. It promoted its CFO to President and added two senior execs Surna (SRNA) disclosed compensation for its new CEO, with stock awards tied to revenue Terra Tech (TRTC) announced a new patent-pending product, cannabis-infused rolling paper

and the pending $7mm acquisition of the operations of The Reserve in Orange County, CA. It saw reports of insider selling from the CEO, CFO, COO and two directors. The company signed Cultivar, a Salinas-based grower, as its second Craft Cultivator. Shareholders approved a resolution authorizing the Board of Directors to do a reverse-split within a year at its discretion

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FOCUS LIST - RETURNS FROM SEPTEMBER:

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420 Investor Canadian Cannabis Model Portfolio I introduced this model portfolio at the end of 2015 that includes the licensed producers in Canada. I select from names in the index and can include a weighting of 0-200% of the company's representation in the index. The index includes companies that operate or own facilities approved by Health Canada to produce medical cannabis, with weights based upon holding a license with additional credit (a double-weight) given for sales in the most recent quarter in excess of $2mm (originally $1mm, changed 4/1/17). The criteria are likely to change over time. The initial index included seven companies and gave extra credit to three (now 5). Companies added this year include THCX in April, HVST, IMH, MARI and WMD in May, ABCN and BE in June, HIP and LEAF in July, TER in August, DOJA and TRST in September and CHV in October. There are no cash positions allowed. Here is the index weighting and the model portfolio exposure from last month with the month's results:

The sector had an incredibly strong month, pushing returns positive year-to-date. The model outperformed the index, increasing 20.4% compared to the 19.5% increase in the index and maintains a 3.1% advantage YTD. From 12/31/15, the model has underperformed by 13.9%. Being underweight HIP and IMH and overweight TRST helped September returns, while being overweight CMED and EMC and underweight BE and THC hurt.

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September Returns - Big LPs

September Returns - All LPs

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This month, I made only one big change, increasing the exposure to CMED after having reduced it at the end of August (posted at 3PM ET 9/29):

My rationale for the relative exposures: Tier I (Selling at scale) 

Aurora Cannabis (ACB) has performed well on adding customers but has execution risk with its Aurora Sky and also has considerable convertible debt (fixed). Note that ACB is an advertising client of New Cannabis Ventures.



Aphria (APH) has strong management and has raised capital the best of all the LPs, but its focus on greenhouses and at only one location is a risk, and it has some exposure to the Veterans reimbursement issue that could hurt growth in the near-term. It is the one LP that has U.S. operations, which is a concern of mine that they are being too aggressive, though the large Liberty stake adds value to the company as well.



CanniMed (CMED) priced its IPO at a terrible time, and it flopped, and has performed poorly since then. The valuation relative to other LPs seems low, but this is due to the lack of non-medical strategy. The stock has the least exposure to potential delays in recreational and is well positioned for oils and looks relatively inexpensive



MedReleaf (LEAF) is a premium company (with low cost of production) at a premium price, but one that is justified in my view. It is cheap to ACB and APH, with less execution risk. Very simple story.



CannTrust (TRST), which just began trading publicly, has very strong growth as oils are coming on. Great management, simple story, small premium valuation and justified



Canopy Growth (WEED) is the clear leader (platforms, geographies, global, oils, brands, size) that doesn't trade at a premium to most peers. Strong (built out) assets and brands will continue to attract investors. Note that WEED is an advertising client of New Cannabis Ventures.

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Tier II (Selling but not at scale) 

ABcann (ABCN) began trading publicly after several others, which has weighed on the stock, and seems somewhat differentiated in its growing methods. It looks more attractive than WeedMD from a valuation perspective and is leveraged to Germany. Note that ABCN is an advertising client of New Cannabis Ventures.



Emblem (EMC), after the recent decline, is less overvalued relative to its capacity and assets and s getting closer to being able to sell oils. The early overvaluation, due to technical issues, is behind now. Note that Emblem is an advertising client of New Cannabis Ventures.



Emerald Health (EMH) did a good job of raising capital during the most recent rally and has seen an uptick in sales finally. Village Farms deal favors Village Farms over EMH.



Supreme Pharma (FIRE) is significantly leveraged to legalization and could emerge as one of the lowest-cost producers. In the near-term, the company seems a bit cheap compared to the nearest peer APH (large greenhouse, some wholesale). I am concerned the convertible notes as a technical overhang.



Maricann (MARI) has an aggressive German expansion plan that keeps me interested despite some recent stumbles. Note that MARI is an advertising client of New Cannabis Ventures.



Cronos Group (MJN) is improving but remains expensive in terms of valuation. It's not yet clear what the potential of the company is with its two LPs and stakes in several others, but its sales aren't yet significant at Peace Naturals. The stock is quite expensive on my metrics.



OrganiGram (OGI) has a near-term capacity issue it is addressing but is well positioned for legalization. It has some exposure to the Veterans reimbursement issue. Most concerning is the reputational hit it has taken from the recalls.



THC Biomed (THC) has weak financials and minimal assets. It needs to raise capital.



Hydropothecary (THCX) has used convertible debt , and I have concerns about management. The company finally has seen sales kick in, but a limited recall may impact it in the near-term.



WeedMD (WMD) has a low market cap, but the company is behind peers, with ABCN and EMC looking superior. The company is just now registering medical patients.

Tier III (Not selling) 

Beleave (BE) has been trading as a pre-ACMPR for a while and received its license in May. The market cap is among the lowest in the sector, but the company needs to raise capital still (or through Cannabis Wheaton).



Canada House Wellness (CHV) is quite delinquent in its filings and needs to raise capital



DOJA (DOJA) is differentiated and designed for the adult-use market. The stock trades slightly expensive to peers when measured against book value. Note that DOJA is an advertising client of New Cannabis Ventures.



HPI Holdings (HIP) is newly licensed and in need of capital. The stock is quite expensive in my view.



Harvest One (HVST) is the cheapest LP relative to its tangible book value. I like the B2B medical strategy ahead of legalization and the Europe CBD play. Note that HVST is an advertising client of New Cannabis Ventures.



Invictus MD Strategies (IMH) became an LP effectively following its closing of the Acreage Pharms acquisition and also owns 33% of AB Labs. I find management to be extremely promotional. Perhaps over time it proves out, but I find the story premature and difficult to justify the valuaton, with lots of overhead warrants.



TerrAscend (TER) has a differentiated business model and trades below recently completed financing. Management here is quite strong. Note that TER is an advertising client of New Cannabis Ventures

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September - 2017

VOLUME 4, EDITION 9

ABOUT THE 420 INVESTOR – ALAN BROCHSTEIN, CFA:

I have spent decades inside the investment industry. Prior to earning my CFA charter in 1997, I worked in NYC for Kidder, Peabody, & Co. in bonds from 1986 to 1992. In 1992, I joined First Boston’s investment management subsidiary before becoming a portfolio manager with Criterion Investment Management in 1994 —co-managing $10 billion in fixed-income investments. In 2000, I made the move to stocks, joining a small firm in Houston as an analyst and portfolio manager. I remained at the firm, which grew to $550mm in assets under management, until 2006, when I left to form my own business, AB Analytical Services—working as a research consultant for several investment advisors. In 2008, I began offering Invest By Model, a model portfolio service, to individual investors. I met Marketfy in 2013 and created The Analytical Trader, a service focused on providing swing-trading ideas. Both of these services delivered strong performance. I also became a leading contributor to Seeking Alpha. After seeing a strong need for more investor transparency among cannabis companies in early 2013, I launched 420 Investor— a service committed to providing real-time, objective information about the top cannabis companies in the market. 420 Investor has evolved into a collaborative due diligence platform, and I am proud to lead our efforts. I am also co-founder of New Cannabis Ventures, which provides curated content and other resources to help inform cannabis investors and entrepreneurs about the most exciting companies and the most influential investors in the rapidly changing cannabis industry. In the process of launching the 420 Investor, I became a much-needed ally to cannabis investors, being hailed as a leading authority in the industry as I developed a network of investors and industry professionals. In early 2014, I exited all of my other business in order to focus exclusively on the cannabis sector. I have supported marijuana legalization since 1980, when I became active in the Libertarian Party. I have recently sponsored Americans for Safe Access, the Drug Policy Alliance, the Marijuana Policy Project , the National Cannabis Industry Association, NORML, Students for Sensible Drug Policy, and Women Grow. Follow Alan on Twitter: Follow Alan on Facebook: Join Alan's LinkedIn Group:

http://www.twitter.com/Invest420 http://www.facebook.com/420investor Cannabis Investors & Entrepreneurs

The 420 Investor Newsletter is available via annual subscription ($149/yr) and is included as part of the monthly ($42/mo) or the annual ($420/yr) 420 Investor VIP subscription. Please see Alan's disclosure statement for a discussion of any potential conflicts of interest.

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