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Subject:  Re: Aphria (APHA) - A cannabis company Date:  1/5/2019  11:03 AM
Author:  BenGrahamMan Number:  3457 of 3782

I will wait for the reports to make judgements on the Aphria outcome.

One thing that has occurred since the Hindenburg report is the hiring of a new CEO, Irwin Simon CEO + Founder of Hain Celestial . This is a CNBC interview of Simon from last week. https://www.cnbc.com/video/2019/01/02/green-growth-could-bec...

I concur that margins will contract, yet so tough to judge with IFRS and Biological assets. Which for those who are not familiar with the industry, as is DTBoojum ( I am impressed with your level of knowledge in the cannabis industry), Biological assets are a form of inventory, and reported at fair value. I am not familiar with any company that has truly had any material operating profit, when adjusted to US GAAP.

I do think that the industry and world will go international, in the same fashion as the alcohol and tobacco industry. I think USA will remove Schedule 1 status within the next few months, to a few years. That will be a huge boom for the industry, as 280E tax law would disappear (280e is the non-allowability of G&A expenses in the cannabis industry), as well as banking will become much easier and cheaper. Of course this is not necessarily relevant to Canadian operators, but quite a few Canadian companies have U.S. operations, such as (MPXEF, GLDFF,ITHUF). Canopy is ready to operate in USA when the law changes. Of course you probably think the international operations of Aphria are primarily fraudulent. I do not. Yet, again, if my conviction was that of clean operations and future profitability, I would own up to 5% of a portfolio position.

My largest cannabis related investment is Scott's (SMG), which is a 3.5% position. Our entire cannabis position is currently about an ~8% allocation

I am investing in Aphria and more so, selected companies in the industry, for what I expect to be an industry that will be huge and legal worldwide.


I discussed cannabis quite a bit in my November 2018 presentation handout https://rbcpa.com/wp-content/uploads/2018/11/20181115-Presen...

I too think the industry is terribly over-valued. Yet, there could be pockets of opportunity such as Aphria, maybe a few others. I would buy Canopy again at much lower prices, same with Aurora, and any of the large companies. I might very well never get that opportunity.

I am a patient investor in this industry, and am willing to wait for many years.

Lastly, Value Line initiated coverage of 2 cannabis companies this week. Aurora and Canopy Growth. Interesting they label them the "Drug Industry."
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