Sugarmade Inc (SGMD)

[x100xPercent]

Interesting article:

"Investment legend has it that the best money in the California gold rush was made selling picks and shovels. Fertilizer and real estate are equivalent bets on the volatile pot boom.

Shareholders in cannabis stocks have lost money lately. Companies that "touch the plant"--those that cultivate and sell pot, such as Cronos Group and Green Thumb Industries--have shed up to 50% of their market value over the past six months, as worries grow about profitability in the sector and the resilience of black-market sellers (https:// www.wsj.com/articles/pot-industry-underestimates-old-school-dealers-11566214441) in legalized states like California. Big corporate investors are among the casualties: Tobacco giant Altria(MO)'s 45% stake in Cronos is now worth 10% less than the $1.8 billion the Marlboro maker paid for it last December.

Even after the selloff, cannabis names are pricey. Shares in Canopy Growth(CGC), the loss-making pot company (https://www.wsj.com/articles/canopy-growth-co-ceo-bruce-linton-leaving-the-company-11562160655) in which Corona brewer Constellation Brands owns a 36% stake, fetches 13 times next year's projected revenue, according to FactSet data. Companies servicing the cannabis industry look cheap and less volatile by comparison.

Scotts Miracle-Gro(SMG) is a 150-year-old company that for most of its existence made money selling lawn fertilizer to domestic gardening enthusiasts. More recently, it has been supplying cannabis companies in legalized markets with the equipment they need for indoor growing--everything from horticultural lights, plant-growing trays and air-filtration systems. In the three months through June, the division that supplies its cannabis clients--which represents about a sixth of revenue--grew 138% compared with the same period of 2018, although some of this was due to acquisitions. Its stock is up over 70% so far this year.

Property is another way for more conservative investors to get exposure to the cannabis industry without directly shouldering the regulatory risk of buying stock in a grower. BlackRock Fund Advisors and Northern Trust Investments(NTRS) are among the top shareholders in Innovative Industrial Properties(IIPR), a real-estate investment trust that specializes in facilities for growing cannabis. Almost 60% of the company's shares are now owned by institutional investors--a rarity for pot names that rely heavily on retail shareholders.

Cannabis REITs are booming because pot companies can't get regular mortgages while the drug remains federally illegal. "The REITs are filling a current void in capital markets where banks would traditionally be," says Harrison Phillips, vice president of cannabis investment bank Viridian Capital Advisors. A sale and lease-back of the real estate on their balance sheets offers a way for cannabis companies to free up cash to fund their growth plans. IIP typically makes a rental yield of 15% on these deals--double the U.S. average for industrial property--and its NYSE-listed shares are up 96% so far this year.

Not all companies that service the pot industry have been good investments. Shares in packaging companies like KushCo Holdings, which are considered more directly exposed to the problems faced by growers, have been battered. And other industries face their own specific risks: If changes to federal laws make it easier for cannabis growers to get regular mortgages, for example, IIP's attractive yields would come down quickly.

Still, companies that sit on the sidelines of the industry may often be a safer bet than the plant itself. Even ignoring the thorny question of regulation, cannabis, like gold, is ultimately a commodity, and producers have limited scope to differentiate their output in a way that would generate long-term returns for shareholders. Investors who have been burned should take a broader view of the cannabis ecosystem."