MMPR Grow op: Small Scale

B

BiznassMan

New Member
In my estimates I didnt include the BM (that adds even more supply), but one of the things that should scare the $hit out of LP's (non-commercial ones) is this http://www.cbc.ca/news/business/medical-marijuana-company-tweed-inc-to-seek-tsx-listing-1.2514674 . When you become a publicly traded company and operate at the gross margin's that this business operates at (30-80% depending on who you believe), the objective is to make as much $ as possible for shareholders...Period .. trust me.. i know this first hand. now say your on the board of directors @ Tweed and are given the following two options based on $1.50/g production costs (they might actually be lower than that for them).

1. Grow 2k KG and sell @ $8/gram = $16mm in Sales - Cost of goods sold ($2mm) = Net Profit $14mm
2. Grow 15k KG and sell @ $3/gram = $45mm in Sales - Cost of goods sold ($15mm) = Net Profit $ 30mm

But here is the real juice.. Enterprise Value @ a 3x multiple (basically a rough guess of what the company is worth based, very basic I know, but dont want to geek out too much in financial jargon) of the company in scenario 1 is worth $42mm, scenario 2 it jumps to $90mm, and increase of $48mm. Trust me, these larger shops need to maximize sales, not revenue if they really want to hit it big (aka, selling to pig pharma or big beer). What I am trying to demonstrate is that once this is a publicly traded company, maximizing longterm shareholder value is their legal obligation. Thats why it makes production costs per/g so important. But hey, I might be wrong. This market needs ALOT more buyers to justify some of the profit numbers people throw around in this forum. The one caveat may be the export license, that may be a saving grace to the big LP's. Does anyone know any countries currently allowing MJ imports, and if so at what price?
 
B

BiznassMan

New Member
In my estimates I didnt include the BM (that adds even more supply), but one of the things that should scare the $hit out of LP's (non-commercial ones) is this http://www.cbc.ca/news/business/medical-marijuana-company-tweed-inc-to-seek-tsx-listing-1.2514674 . When you become a publicly traded company and operate at the gross margin's that this business operates at (30-80% depending on who you believe), the objective is to make as much $ as possible for shareholders...Period .. trust me.. i know this first hand. now say your on the board of directors @ Tweed and are given the following two options based on $1.50/g production costs (they might actually be lower than that for them).

1. Grow 2k KG and sell @ $8/gram = $16mm in Sales - Cost of goods sold ($2mm) = Net Profit $14mm
2. Grow 15k KG and sell @ $3/gram = $45mm in Sales - Cost of goods sold ($15mm) = Net Profit $ 30mm

But here is the real juice.. Enterprise Value @ a 3x multiple (basically a rough guess of what the company is worth based, very basic I know, but dont want to geek out too much in financial jargon) of the company in scenario 1 is worth $42mm, scenario 2 it jumps to $90mm, and increase of $48mm.

Trust me, these larger shops need to maximize sales, not revenue if they really want to hit it big (aka, selling to pig pharma or big beer). What I am trying to demonstrate is that once this is a publicly traded company, maximizing longterm shareholder value is their legal obligation. Thats why it makes production costs per/g so important. But hey, I might be wrong. This market needs ALOT more buyers to justify some of the profit numbers people throw around in this forum. The one caveat may be the export license, that may be a saving grace to the big LP's. Does anyone know any countries currently allowing MJ imports, and if so at what price?
 
B

BiznassMan

New Member
I think the colorado comparison can get tricky. they have 3x the amount of medical users as all of canada (roughly) and now all adults over 21 have entered the marketplace. cost associated with production are higher due to regulatory fees and lack of access to the capital markets and banking sector. God, I hope we can get anywhere NEAR the price that they get down there.
 
B

BiznassMan

New Member
Im not so much pessimistic as much as I am trying to be realistic. Trust me, the pump and dump is a tried and true method on WallStreet, but one thing I did learn is there is no such thing as a free lunch. And on paper the business seems like a layup.. and that is the one thing that scares me the most. There are alot of people who ran the same initial numbers I did and went all in, sometimes w/their life savings. What im trying to say is to be careful about the forces that drive prices going forward. The is an old saying on WallStreet that applies here " The market can stay irrational longer than you can stay liquid" and what that simply means is that the cost of carry and operations can bankrupt you while you "wait" for a rebound in prices. Im almost inclined to see how prices play out in April/May to see how things shake out. Seems prudent from a risk prospective, but then your behind the 8 ball in regards to timelines.
 
B

BiznassMan

New Member
woodsmaneh! said:
Some interesting points and that is what keeps lots of people up at night. With your background on wall street I'm kind of puzzled by your pessimistic view of a new market place. I mean coming from a world of pump and run experts you got to see more that the collapse of the market before it gets going. Where is your sense of adventure after all, your a high risk taker, Wall street and all.

So lets look at a few things

15K a year? Is it or is it for 3 years? I have a large capacity on my licence, will I ever get there, I hope so. It's smarter to grow into your licence than grow out of it, don't you think?

Warring if are a small LP and your market plan is to get some of those 40,000, stop and turn around and get back on the porch right now!
Any LP's who have a go to market plan and have done your SWOP, Strengths, Weakness, Opportunities and Threat analysis, carry on. We got that sorted out.

Cost models are interesting and there are lots of variables that effect them. Your experienced grower should be able to give you real solid numbers on cost to grow, which I'm sure they did. Like you said $300.00 an hr consultants told you very little of value, I charge $50 an hour but if you got $300 for crappy advice I want $150 and will show you how to drop your cost model so low you will pay me $300 an hour. If you think it's coming down to last man standing, I know I will be that guy. I don't want to scare people with my cost of production numbers but after growing legal for a long time I can survive <$1 a gram, so bring it on. Sorry forgot I'm not playing in that market segment, so I'll set my own prices and will cover from $3 a gram to $12 a gram with a free grinder too.

Any how that's just my view of the world.

Best of luck
Click to expand...
for the record, the consultant was biochemist who was working on a dna sequencing project he has developed. Still he was overpriced, ill give you that. But I want to get as much info as possible, the more info I can gather, the more intelligent business decisions we can make. if you can produce @ $1/g kudo's to you my friend. You will be fine regardless.
 
leaffan

leaffan

Well-Known Member
BiznassMan said:
I think the colorado comparison can get tricky. they have 3x the amount of medical users as all of canada (roughly) and now all adults over 21 have entered the marketplace. cost associated with production are higher due to regulatory fees and lack of access to the capital markets and banking sector. God, I hope we can get anywhere NEAR the price that they get down there.
Click to expand...
3x the medical users as all of Canada....and that is with what population?....This should indicate how many new Canadian patients will emerge in the near future.

You make a very valid point with publicly traded companies comments.
 
B

BiznassMan

New Member
leaffan said:
3x the medical users as all of Canada....and that is with what population?....This should indicate how many new Canadian patients will emerge in the near future.

You make a very valid point with publicly traded companies comments.
Click to expand...
Yeah, but as an American its just different. In America everything comes @ a price, go see some sketchy doctor in the stip mall, pay him $150 and you get your prescription in an hour, they are like factories (and much better returns than even the grow-ops). In Canada the system is different, I dont see alot of "regular" doctors jumping aboard this thing in droves, nor would most canadians pay ~$100 to see a "friendly" physician . And why would they? They have ZERO financial incentive along with the fact that the Canadian Medical Association doesnt really support it. If your a doctor would you take the risk's associated with the whole process? Here is from the CMA's poll http://www.cma.ca/advocacy/epanel-medicinal-marijuana most dont support it. And on top of that , there is the whole liability issue that comes up for doctors, HC will not offer them liability from MMJ prescriptions should anything go wrong. Any doctors on here who care to comment?
 
I

ispice

Well-Known Member
woodsmaneh! said:
I don't want to scare people with my cost of production numbers but after growing legal for a long time I can survive <$1 a gram, so bring it on. Sorry forgot I'm not playing in that market segment, so I'll set my own prices and will cover from $3 a gram to $12 a gram with a free grinder too.

Any how that's just my view of the world.

Best of luck
Click to expand...
Word to the bird woodsmaneh!

I plan on a start price of $2-$4 shipped and taxed incl. I can keep it at that price or go lower, and can expand continuously.

Bizman, it will be legal worldwide in 5 years, in 10 it will be as common/popular or more so than tea, coffee, cigarettes, aspirin, alcohol and sugar. Humans will integrate it into society, its the healing of the nation as well as the mind and body. The price will start at what ever it does and will go down, probably peter out at around $1 -$2 for top quality domestic.
 
B

BiznassMan

New Member
leaffan said:
15k kg @ $8/g is the best scenario
Click to expand...
absolutely, but the guy down the street is trying to sell his 10k kg @ $8/g also, and due to the fact that its a perishable commodity, he gets nervous every day he is not selling at least his daily quota, then he drops his price to $7.5/g.. then $7/g .. you see where this is going. In a competitive market where supply/demand determine price, it could be a race to the bottom. Lets say that all the 5 producers right now could handle the demand for the entire country for the next say 2yrs, who is going to buy from the 100 or so producers that are in the pipeline and yet to get a license?
 
B

BiznassMan

New Member
ispice said:
Word to the bird woodsmaneh!

I plan on a start price of $2-$4 shipped and taxed incl. I can keep it at that price or go lower, and can expand continuously.

Bizman, it will be legal worldwide in 5 years, in 10 it will be as common/popular or more so than tea, coffee, cigarettes, aspirin, alcohol and sugar. Humans will integrate it into society, its the healing of the nation as well as the mind and body. The price will start at what ever it does and will go down, probably peter out at around $1 -$2 for top quality domestic.
Click to expand...
Well put ispice.. Now that is the one of the first time's I have heard someone say that out loud on this forum. $2-$4/g shipped. I think everyone who thought they were going to be selling @ $7-9/g just threw up in their mouths. My whole point is that without the assumption of legalization in the next few years, the risk/reward is almost a push.
 
B

BiznassMan

New Member
ispice said:
The ones that want a better product at a lower price than what the big faceless, society destroying corporations are spewing up :)
Click to expand...
I hear you, but to assume that just because they are "large corporation" doesnt mean their products wont be of high quality. When you have an unlimited budget for R&D, you can be damn sure that the product they are going to turn out will not be ditch weed. 30 variety's offered by Tweed, it can be dangerous to assume small batch production will ensure premium results.
 
I

ispice

Well-Known Member
Oh they better be producing top quality, quality is assumed if your an LP in my mind, though the look of Peace Naturals leaves me questioning that assumption. Competition will be tight on all fronts, for all players.

I just wish that HC was not lambasting the small applicants so far.
 
woodsmaneh!

woodsmaneh!

Well-Known Member
Guys and gals go get a marketing book or two and read it well. The conversations on numbers leads me to believe that some of you don't have any marketing background. Sorry if you do but for those that don't here are a few pointers
perceived value is linked to price, so a watch that cost 500 is better than one that cost 250, and the one that is 100 must be cheap. You walk into a store and say I want to buy a watch, the sales person listens than shows you the 500 watch but says nothing about the price. You admire the watch it's the one, has every thing you want in bling, how much is it you ask, 500 WTF I can't ford that. That my friends is called setting the anchor. So he goes to the 100 watch which is a peace of crap and you say, got something in-between, yup you just got suckered into buying the $250.00 watch that they make the most money on. This business is run no different. That will be $50.00 for the lesson.

Peace
 
K

Kron3007

Well-Known Member
BiznassMan said:
absolutely, but the guy down the street is trying to sell his 10k kg @ $8/g also, and due to the fact that its a perishable commodity, he gets nervous every day he is not selling at least his daily quota, then he drops his price to $7.5/g.. then $7/g .. you see where this is going. In a competitive market where supply/demand determine price, it could be a race to the bottom. Lets say that all the 5 producers right now could handle the demand for the entire country for the next say 2yrs, who is going to buy from the 100 or so producers that are in the pipeline and yet to get a license?
Click to expand...
Perishable? I guess it is somewhat, but it's not lettuce. That being said, I hear what you are saying but anyone developing their plan at $8/g is delusional. We have set our target price much lower, and we dont need a huge number of registered patients to support our plan.

You made a comparison to the beer industry which is dominated by large corporations. However, there are a lot of microbrews that manage to compete. They may never develop into huge international corporations, but that is not really the point. I can't speak for everyone, but it isn't my goal to become the Molson of medical marihuana, just to make a living selling high quality medicine at a reasonable price.

It may be obvious by now that I am not the business person in my group and dont have any marketing experience, so perhaps we are doomed to fail and I dont even know it. However, I believe that this is an industry where their is huge demand for small batch products. One of the biggest concerns I hear from patients is that it will be overrun with large corporations. Hopefully enough people will put their money where their mouth is and support the little guys.

Given all of your fear and apparent attempts to discourage others, one might wonder why you are proceeding?
 
leaffan

leaffan

Well-Known Member
A question for those people who have a better grasp on marketing than myself....
Why wouldn't Tweed come out and offer their product for $2-4/g instead of $7-12/g?
Some of you think that's what the price will be, so why not start at that price?
Starting at $2/g would surely discourage others from entering the game wouldn't it?
 
You must log in or register to reply here.
Top