GAGE CANNABIS (CSE-GAGE) IS THE HOTTEST IPO IN US CANNABIS IN 2021

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He took Canopy Growth from 30 cents to $66—and created a $20 billion publicly traded cannabis blue chip. 
 
Now as Chairman of Gage Growth Corp. (CSE-GAGE)—Bruce Linton is once again ready to build major wealth for his shareholders. But this time he’s joined by Jason Wild as a major shareholder and insider. As Chairman of TerrAscend, Jason Wild took that stock from $2 – $20 in just three years.  
 
They are the BEST 1-2 punch for shareholders in the cannabis sector.
 
You would expect this team to enter the public markets with a huge premium. But just the way things worked out, they raised all their money at a very attractive valuation—before the cannabis market really took off.
 
So now shareholders get a dominant team and market position—for much less than if the company was raising that money now. The whole sector has soared over 300% in the last six months!
 
Gage and Linton have a very focused business plan– DOMINATE the Michigan cannabis market; just like Trulieve (TRUL-CSE; $59) dominates Florida and gets a stock market valuation of 10x sales. Linton, Wild and CEO Fabian Monaco will be working hard to get their currency up to that valuation.
 
They may not have to work too hard, as their business is already doing incredibly well, and growing incredibly quickly. They have 7 dispensaries already open, and plan to have 20 by year end. Gage and its contract “grow” partners is producing about 1,500 pounds of cannabis flower a month now–but their public domain powerpoint says they aim to be at 7,000 pounds by year end:
 

Flower in Michigan sells for roughly $5,000 per pound at retail. If they meet this goal, simple math suggests revenue potential of US$35 million a month by year end.  Multiply that by 12 for annualized revenue.

As context, Gage went public with an Enterprise Value of US$352 million.  If Linton, Wild and Monaco–whom I think are the best team in US cannabis–can achieve the 10x revenue valuation that Trulieve has, early investors will be very happy.

MICHIGAN IS BIG AND GROWING FAST


Why Michigan?  Easy—it’s big and everybody wants to be there.  The best way to be there is through GAGE.

First, the Michigan market is big.  It was #2 behind California in terms of medical card holders before approving recreational sales in December 2019. Michigan State University pegs the cannabis market in the state at $3 billion.  

I think Michigan will be the top five largest cannabis consuming state in the country in 2021. 

Second, cannabis sales are growing super fast in Michigan.  From 2019 to 2020, total cannabis sales are up 250% year-over-year and adult-use sales are increasing every month(1).  

That means the entire market has increased three and a half-fold. It’s pretty easy to drive revenue and EBITDA growth at a company when your entire industry is growing at that kind of speed.

This isn’t a tailwind for growth——this is more like a hurricane…

 
Third, there are no MSOs (multi-state operators) with robust operations in Michigan–so that state is completely up for grabs by The Big Boys. Now why is that? 

That’s because the Michigan market is very competitive. MSOs are still going where market entry is easy and cheap. That’s also why you don’t see big MSO operations in California—it’s too competitive.

Gage’s rapid growth and success has created its own moat.   The company’s first operational asset came online in the summer of 2019 and Gage is now already up to three cultivation facilities and seven dispensaries.  

Michigan may allow for unlimited licenses, but cities must also approve stores.  Gage did all of the right things EARLY, going to the municipalities and showing them that GAGE was run by the kind of reputable, proven businessmen that you would want operating a cannabis dispensary in your neighbourhood.

GAGE locked down prime retail real estate in the most densely populated parts of Michigan—where cannabis consumption is highest. Gage has built a powerful competitive moat for their business.

Get this–90% of Michigan’s population is already within a one-hour drive of Gage’s 12 dispensaries in their portfolio.  And by year end, Gage plans to have more than 20 dispensaries in operation.

I haven’t even told you the best part yet.  Customers LOVE their products—they are out-selling everybody!   The state of Michigan average basket size (dollars spent per customer per transaction) is $85.  For Gage—it was $164 in 2020.  That is more than 90% higher than competitors!!

Add the best real estate + strong products  = almost double your competition’s basket size.

With the dispensaries that are opening over the rest of the year, 2021 will be THE year for Gage where investors should see some significant growth.

A Very Simple Business Model – Focus On One State And Dominate


Trulieve (TRUL-CSE) showed the market the cannabis business model that works.

1. Be in the USA.

2. Focus on one state that is big and growing, and OWN that state (for Trulieve it was Florida).  Have critical mass.

3. Vertically integrate—control your product quality and your retail brand.

Trulieve delivered numbers like flawlessly opening 58 retail dispensaries, almost tripling cash flow YoY, and increasing revenue guidance on top of that by 20%, and EBITDA guidance by 40%.  CHA CHA CHA!!

I saw early that Gage Cannabis was doing exactly the same thing——the only difference being that Gage was doing it in Michigan.  

Bruce Linton, Jason Wild and CEO Fabian Monaco also know how the stock market works.  They know the kind of stock that gets rewarded.  Yes, growing sales is impressive, but over time the stock market is going to demand cash flow.  That is why Gage was built with a vertically integrated model——they grow and sell their own products.

Vertical integration is how you build wide profit margins.  You HAVE to cut out the middle man, control your own quality and supply your own volume.  Michigan is such a good market; supply is always tight (that’s hard for Canadians to think about—we are overflowing with the stuff!).  In Michigan, retail-only operators often have trouble obtaining supply and regularly get squeezed on prices.

Gage now sells A LOT of different products–flower, edibles, hardware, concentrates and vape pens/disposables.  Gage is creating strong relationships with premium brands like Cookies, one of the most well-respected cannabis lifestyle names in the United States. In fact, they are the EXCLUSIVE PARTNER for Cookies in the state of Michigan.

(Cookies is such a well respected brand, growers actually came to GAGE asking to grow for their Cookies products!  That’s BRAND!)

Cash-Rich And Steady Catalysts In 2021


I can hardly believe this set up.  To me, US cannabis growth under the current President is one of the easiest growth stories of 2021.  I have the best management team with a clear plan, already executing and loaded with roughly $45 million cash.  They were funded BEFORE all the cannabis stocks took off lately.

Their powerpoint lays it all out–the path to 7,000 pounds of flower a month by year end. 

With product selling for about US$5,000+ a pound that is US$35 million a month revenue in JUST dried flower.  That doesn’t include vapes, concentrates or edibles etc.

For the point of reference Trulieve trades regularly at over 10x annual sales, and sometimes 12x.

Based on the last financing price of US$1.75, the company’s FULLY DILUTED market cap is US$407 million and the Enterprise Value is US$352 million.

Gage has set the table to have a big, big year in 2021. Management has the catalysts coming to keep the market’s attention throughout the year.  Every dispensary that opens provides a revenue catalyst.  Every new cultivation facility (did you see that list above!) is a catalyst.

Gage is growing quickly.  The Michigan cannabis market is growing quickly.

Loaded with cash—there is nothing standing between Gage and smoothly rolling out its plan.  WITHOUT DILUTION!! 

Trulieve has set the mark for business  model valuation. Gage is already following the business model, and hopes the valuation will follow.


GAGE has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

 

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.