I've begun looking seriously into investing in marijuana. Not just because it seems on trend and more comprehensible than cryptocurrency, but because it seems like a literally down-to-earth arena with ground-floor opportunities everywhere we look, and therefore something to know more about. 

There are big companies whose rise and fall and rise and etc. are legitimately described as 'parabolic' - 'hot' stocks like Tilray (TLRY), Cronos Group (CRON), Canopy Growth (CGC). That kind of high-risk investing is out of my league. I also don't know enough about the national recreational market in Canada to invest in companies who are focused there, but there's been a lot of coverage of the 'flower glut' as it seems everyone and his brother tried their hand at growing weed for would-be Canadian stoners. The other major group of established companies are pharma-related, in medical marijuana, and range from Big Pharma buying in, to novel drug development still contingent on approvals that may or may not ever come.

What's more advantageous about the Canadian marijuana boom is a more welcoming environment for companies looking for financing, with many young American companies preferring the clearer regulatory environment north of the border to begin their listings. In the US, relatively few companies in this relatively new industry are listed on the major exchanges. Listing on the OTC Markets can be the only path open for newer companies with lower volume, but it can make it harder for investors to get information, as requirements aren't as stringent. 

"Just because a cannabis company is trading on the OTC Markets Group, that doesn’t mean that they’re a sketchy stock, it just only means that it’s the only place that they could go. So there are some good names in the OTC Markets group, so don’t let that scare you away. And having said that, there are some less than stellar names in the New York Stock Exchange trading there." - Debra Borchardt, Founder and Editor-in-chief of Greenmarketsreport.  

Mrinalini Krishna writing for Investopedia as recently as last week had this succinct summary: 

While our northern neighbors may have decided to legalize marijuana with sales starting October 17, 2018, it remains illegal and classified as a Schedule I drug under Controlled Substances Act at the federal level in the United States. However, with more and more states voting to make cannabis usage lawful in some form, marijuana regulation essentially is a hot mess. 

What caught my attention in Motley Fool's recent analysis of the things that "really matter" when looking to invest in marijuana stocks is the desirability of a company having product diversity - i.e., not relying only on crops, or breakthrough drugs, or recreational drug approvals. Much of the advice is what should matter in any investment: the potential for profit margin, established financing, a reasonable balance sheet, real assets. 

Last week I found myself with the chance to meet the CEO of a company that sounded like it could meet those criteria: Stem Holdings, Inc. (OTCQB:STMH; CSE:STEM). Stem Holdings was incorporated in mid-2016 and as its basic description "purchases, improves, and leases properties for use in the cannabis production, distribution and sales industry beginning in the state of Oregon." It began trading on the US OTC markets on June 5 of this year, and on the Canadian Securities Exchange on July 16. You can read all the basics in its latest (August) quarterly report and on its very thorough website. In brief, here's how the company describes itself:

Stem has positioned itself as a leader in the U.S. cannabis industry by building state-of-the-art licensed solutions that include: cultivation, processing and retail properties across multiple U.S. markets. As an innovative company, Stem acquires and improves properties for cannabis industry operators and provides turn-key solutions for vetted, marijuana-based businesses including but not limited to edibles, marijuana and hemp cultivation, extraction, and processing. These cannabis companies have developed an extensive portfolio of award-winning consumer-facing brands, partnering with well known, branded cannabis operators with a proven track record of success, such as TJ’s Gardens, Cannavore, Incredibles, Dose-ology and Green T-Farms. 

This being a new and fast-moving industry, Stem Holdings has been busy since the first half ended. In September, with its partners in Oklahoma it acquired multiple medical marijuana licenses; in October, it acquired Yerba Oregon (dba Yerba Buena), an additional Oregon-based craft cannabis brand with a state of the art cultivation facility and advanced genetic strain development. Last month it announced an offering of Special Warrants, the first tranche of which was due to close after Christmas.

Feeling like I had gotten up to speed as much as I could on my own, I sat down with CEO Adam Berk. From their most recent annual meeting filing, this is what I knew about him: "Mr. Berk has been a director, President and Chief Executive Officer of the Company since its inception in June 2016. Mr. Berk’s experience as a founder and principal executive of several start-up companies and skills associated therewith led to the conclusion that he should serve as an executive and director of the Company. From January 2013 until January 2015 Adam was the CEO of HYD For Men, an artisanal men’s grooming company that patented the first solution to extend the life of a razor blade by 400%. HYD For Men is currently sold at HSN, Walgreens, BedBathBeyond, Drugstore. com, Birchbox, GiantEagle, Meijers, and Kinney Drugs. Recently, HYD For Men was acquired by Lucas Investment Group. From January 2015 until January 2017 Adam was the Co-President of Consolidated Ventures of Oregon, a Cannabis holding company. From 2002 through 2013, Mr. Berk was employed with Osmio, Inc. (currently GrubHub, an Aramark subsidiary), the first patented web-based corporate expense management system that concentrated on food ordering for law firms, investment banks and consulting firms. He served as chief executive of Osmio from 2002-2007."

Berk put together a group to explore investment, initially with the backing of now-board member Garrett Bender, and identified Oregon as its best initial market. A major factor in that decision was identifying the potential in TJ's Gardens, founded by two men who were established in the cultivation of marijuana for medical uses. The co-presidents of TJ's, Travis MacKenzie and James Orpeza, are among the most decorated cannabis growers in the country, and continue to research and develop strains that have a wide range of applications. Their nonprofit Forrest Initiative's mission is to help families source CBD oil at no cost for their children in dire need of this life changing, non-psychoactive oil, as well as for needy adults in Oregon with diseases such as epilepsy that can be alleviated by cannabidiol.

"Oregon has some of the most sophisticated operators in the company, also a consumer who is a real connoisseur, we wanted to start with the best product. We invested in TJs, we are in the process or rolling the rest of the company into Stem Holdings, that transaction should be completed hopefully by end of first quarter," Berk told me.

In addition to cultivation acreage and greenhouses, TJ's also operates retail shops in the state and sells its branded merchandise, including edibles and topicals. 

Their penetration of the local market and the quality of their medical applications, says Berk, is what motivated the initial investment in Oregon and the establishment of Stem Holdings. Today, Berk says, under the TJ's umbrella there is a 40 acre farm in southern for industrial growing; a farm and greenhouse for plants in northern Oregon; in Eugene, an indoor grow facility and across the street on the same campus Division 1 extraction labs. There are also two dispensaries in Eugene: TJ's Provisions and TJ's on Willamette, with TJ's on Powell due to open in Portland the third week in February. 

There are three edible brands - Incredibles, Cannavore, and Supernatural Honey. Another of Stem's brands is Reefer Distribution, which has temperature-controlled vehicles for delivering product. "In Springfield, Oregon we have 30,000 square-foot indoor grow facillities, just licensed, with clean room, coming on line the third week of January," Berk told me. Among the other aspects of the "land and brand" business include genetics and breeding labs and a tissue culture facility.

Most recently, Stem Holdings also acquired what had been a major competitor for TJ's, Yerba Buena. As the announcement explains, "the acquisition of Yerba Buena directly supports Stem’s plans for nationwide expansion. While Stem’s operational affiliates have developed partnerships with a number of widely recognized cannabis brands and licensees across the country, the acquisition of Yerba Buena solidifies Stem’s commitment to providing shareholder value through strategic mergers and acquisitions within the cannabis space."

Among Stem's other expansions in progress, Berk told me, are two cultivation sites in Nevada, with an extraction lab and commercial kitchen there coming in the first quarter of 2019. In Oklahoma, the company was awarded 17 licenses recently, "7 retail, 5 processing, 5 cultivation," according to Berk. "We begin construction there in about early January." 

I was wondering if the company's expansion was dependent upon recreational-marijuana legislation, and Berk explained that Oklahoma is an example of a state where they are content to work within the medical-marijuana focus. "Most patients are there to purchase medically: sleep disorders, anxiety, pain relief. We're okay with it being 'only' medical."

What's next, what's the growth plan? I couldn't help asking. Berk obliged: "We're looking at opportunities and we will see how market wants to proceed. Every state is different. In some states we might just process, in some cultivate. We like the vertical model [that we have in Oregon] because we like controlling the supply chain. One of the issues [the medical community has with marijuana] is lack of consistency, and when you're treating people, sometimes very sick people, we like starting really from seed, up through and including great finish packaging. We're building a scalable business with real infrastructure."

"What's our expansion strategy? That's twofold: apply for licenses in new states, and make acquisitions of really good local operators."

With Stem's Canadian listing, and recent issuing of Canadian-dollar warrants, as well as of course the national "open season on weed" that went into effect this year, I had to ask if Stem was looking at all longingly at the Canadian market; at least in the foreseeable future, Berk says no. "We are traded up there because for liquidity purposes investors are very interested, and Canaccord is our investment bank. We were traded first OTC here, then dual listed. They have sophisticated operators up there, but that product will never come down." 

We talked longer, but to sum up, I suggest that if this sounds interesting to you, everything you would ever want to know is available via Stem's website - all its filings, plans, listings, etc. I'm not a world champion number-cruncher, but I like that it's not a penny stock, and that I can understand the charts (eg, the price dropped when the number of available shares was tripled, for no other nefarious reason), and that there are debts but also considerable real assets.