Golden Leaf Holdings Stock Aims High
The marijuana market is full of companies trying to find the best way to exploit what is arguably the most exciting emerging industry at the moment. With so much potential money to be made and so many different companies vying for a piece of that all-too alluring pie, finding a unique play on cannabis could net investors a very healthy payday.
That brings us to Golden Leaf Holdings (OTCMKTS:GLDFF, CNSX:GLH). The company is hoping that its proposal to create a chain of marijuana franchises across the U.S., Canada, and potentially other countries will see huge gains for GLH stock.
The company’s plan, in a nutshell, is to create a trusted brand that will be franchised internationally, not unlike McDonald’s Corporation (NYSE:MCD) or Starbucks Corporation (NASDAQ:SBUX).
The idea is that people will come to trust the brand name and expect consistent quality in all of its storefronts, whether they be in Oregon or Alberta.
It’s a neat concept and one that, should it prove successful, could see Golden Leaf Holdings stock skyrocket.
Setting up franchises around the world would put Golden Leaf Holdings stock ahead of the pack because the company would be able to feast on the burgeoning international appeal of marijuana, versus fighting for scraps in smaller markets.
The franchise chain would be called Chalice Farms, and it is being backed by BlackShire Capital, which signed the letter of intent to franchise the model.
So that takes us to the all-important question: Is Golden Leafs Holding stock a good investment?
That all depends on how you see this latest play by the company panning out.
If BlackShire Capital and Golden Leaf Holdings are able to successfully establish a trusted marijuana brand, navigate a number of complicated cannabis laws, and fend off competitors, then GLH stock is in for big gains.
But that’s a lot of “ifs.”
The way I see it, what you have here is a marijuana penny stock that has already been a poor performer in 2018, down 31% over the past three months, trying to make waves with a moonshot idea.
That doesn’t mean it can’t work, and I’ve been wrong before, but I don’t believe that this is a strong long-term investment.
What I Think About GLH Stock
While the Chalice Farms franchising idea is a solid one in theory, in practice it will be far more difficult to implement.
Take, for instance, the company’s focus on the United States.
Current marijuana laws on the books prohibit the shipping of marijuana across state lines, even between states that have legalized marijuana. This is in part due to the fact that federal law still classifies cannabis as an illegal drug on par with heroin. (Source: “Canada’s Golden Leaf Wants to Carpet the U.S. With Pot Retail Stores,” Bloomberg, March 27, 2018.)
Chart courtesy of StockCharts.com
In fact, I find it possible that the company may very well run afoul of federal law should it see its franchising plan through. There’s simply too much that could go wrong and, while it may never actually violate any laws, I do believe there will be a great many challenges to overcome on the legal side of things.
Should Golden Leaf Holdings want to establish itself as a trustworthy brand for marijuana users, not only in the U.S., but internationally, it will have to create a consistent record of reliable quality at each location while growing marijuana at farms in each state.
That means marijuana grown in Oregon has to be nearly identical to that grown in Nevada, Washington D.C., and California. It’s a tough operation to maintain, and this is a smaller company with a $123.9-million market cap—not one of the juggernauts of the industry.
Just take a look at the particulars.
The current plan for the Golden Leaf Holdings subsidiaries is that entrepreneurs would pay a one-time fee of $50,000 and a five-percent royalty fee thereafter in order to open up a Chalice Farms storefront.
BlackShire Capital CEO Kevin Reed said he wants to launch 35 to 45 stores in the next two years. BlackShire and Golden Leaf are in talks to create a jointly-owned management company to organize the franchises.
“In Golden Leaf and Chalice Farms we have found a proven and progressive partner that believes in a premium customer experience,” said Reed. “We look forward to working with our partner on a definitive agreement that takes this exceptional brand to markets in Canada, the U.S. and the world.” (Source: “Golden Leaf Holdings Signs Letter of Intent with BlackShire Capital to Launch Chalice Farms Franchise Model,” GlobeNewswire, March 27, 2018.)
BlackShire is planning to invest $19.4 million into Canadian and U.S. operations.
“We believe that we’re going to build something that will be around forever,” said William Simpson, CEO of Golden Leaf Holdings. “It’ll be part of the household names when people think of cannabis in 20 years.” (Source: Bloomberg, op cit.)
“Franchising Chalice Farms represents an attractive vehicle to execute on our growth strategy of replicating the Chalice Farms operating model in new territories, which we plan to begin in Canada where and when permitted, and which we envision extending to additional permitted U.S. markets, beyond our current Portland, Oregon footprint,” Simpson added.
While I applaud their ambitions, I believe that both executives are aiming too high and too fast.
The industry is still in its infancy, and it’s far too early for the introduction of international brands to act as cannabis storefronts.
It’s one thing to be a producer and sell your product to different countries, but to be a distributor requires navigating a whole mess of shifting laws and differing demographics. Marketing marijuana in Canada, for instance, is likely to look a lot different than marketing the drug in Germany.
For me, this plan is too ambitious at the moment. which isn’t to say that it’s a guaranteed failure. I would, however, caution investors not to be taken in by the hype.
I almost always back companies with vision and ambition, but this is one of those times when I believe investors ought to remain cautious.
I think the companies that will be most successful in the marijuana market are those that are taking an international approach, but that has so far only applied to producers. Up until now, no company has attempted to create marijuana storefronts across the world (to my knowledge).
And whenever you try something for the first time, there are going to be doubters. Sometimes the skeptics are proven wrong and the moonshot idea actually does hit the moon, and that may very well happen here.
But I simply have too many problems with Golden Leaf’s proposition.
First, Golden Leaf Holdings stock is in a very weak position at the moment, and it needs a win. The price is down over 31% and it has been getting killed since the beginning of this year.
Taking into account the massive gains that took place across the marijuana industry at the end of 2017, the Golden Leaf share price has only jumped about 46% in the past six months. Extend that to a year outlook, and it’s actually down 14%.
That is to say, while other marijuana stocks have doubled or tripled in the past six months, GLH stock has shown only a modest gain. And whereas the past year has been a huge win for many marijuana stocks (pick any of the top players in the industry and you’ll see high gains), Golden Leafs Holdings stock has struggled.
My final verdict on Golden Leafs’ plans is that you have a smaller marijuana penny stock trying to make waves in order to rescue what has been flagging share value by aiming for the stars.
Lofty promises may be enough to draw in renewed investor interest and help turn around the company’s poor fortune. But if those promises ultimately go unfulfilled, the stock price will inevitably drop again.
If you’re searching for a long-odds high risk/reward play, this stock may be for you. Otherwise, I would wait for the company to prove itself.
The “Starbucks of marijuana” sounds nice, but, to me, it’s far more flash than substance.