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Palm Beach Venture

We’ve Found the Only Backdoor Into Mexico’s Legal

Cannabis Market

Teeka Tiwari

December 02, 2019Print

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Teeka’s Note

In this month’s issue, William travels to one of the most dangerous places on

earth.

This type of research is expensive. This year, across all my newsletters, we’ll have spent well over $1 million on research-related costs. But it’s worth it when you can uncover a tiny investment and multiply it into life-changing wealth.

That’s exactly what we aim to do here at Palm Beach Venture. That’s why I’m so excited to share with you the only cannabis company we’ve found with a near total monopoly on cannabis production in the 10th most populous country in the world.

Read on to discover how this tiny gem of a company is poised to make a fortune for its shareholders.

Let the Game Come to You! Big T

As soon as the plane’s wheels hit the tarmac in Mexico, my (William’s) phone lit up with a message from Jesus: “Hola amigo. Quickly come here. We move need rápido.”

The last thing on my mind was Jesus’ broken English. After all, he’d never been to the U.S. But for the purposes of my trip, perfect English wasn’t needed. Speed

was.

As soon as I stepped off the plane, Jesus rushed me into a gun-metal grey SUV. He had left the vehicle running, and I could feel his sense of urgency.

The good news: I wasn’t the victim of some crazy kidnapping scheme. The better news: I was beginning a journey culminating in what could be our biggest opportunity yet at Palm Beach Venture.

You see, Mexico is on the verge of a massive shift away from its brutal drug wars. After decades of systemic violence, hundreds of thousands of deaths, and untold billions in damages… it’s finally preparing to legalize cannabis.

And the Mexican market promises to be massive. As the 10th largest country by population (130 million), Mexico is three times the size of Canada – one of only

two countries to legalize recreational cannabis (the other is Uruguay).

According to one report, Mexico’s legal cannabis market could easily grow from zero to $5 billion in three years or less. (One ruling party senator estimates the industry will generate $945 million in tax revenue in 2020 alone.)

But there’s a massive problem standing in the way of profits: bureaucracy. The main sticking point is who’ll get coveted cannabis production licenses.

Some Mexican lawmakers want to give preferences for growing licenses to rural farmers and indigenous peoples. They also want to limit outside ownership of cannabis companies and resale of licenses to foreign firms.

Look, we expect this type of red tape when a brand-new market sprouts up. We’re seeing similar regulatory uncertainty in the crypto space as lawmakers across the world hammer out new rules for this emerging – and profitable – new space.

But here’s the thing…

It doesn’t matter if Mexican lawmakers come to an agreement. The country’s Supreme Court has already ruled laws prohibiting cannabis use are unconstitutional. So the genie is already out of the bottle.

The court extended its deadline for lawmakers to come up with a regulatory framework to April 30, 2020. But even if lawmakers don’t finalize a plan by then, the high court can implement the ruling with a stroke of a pen.

Yet, these current bureaucratic hurdles represent an opportunity for investors… Through one of our contacts in Canada, we learned a tiny Canadian company

has found a way to turn Mexico’s bureaucratic nightmare into a competitive advantage.

While everyone else is waiting on lawmakers to act, it’s already taken action. So the bureaucracy hindering other projects is now serving as a moat for this company – in effect, protecting its position.

That’s why I found myself bouncing along a dirt road in the steep hills of Guadalajara, Mexico.

Jesus was taking me to a whirlwind series of meetings to fact check the story Big T and I uncovered in Vancouver, Canada. Our first appointment was only 30 minutes out, and thanks to some mechanical issues at the airport, I was running

behind.

William’s driver, Jesus

And you don’t want to arrive late to a meeting with these types of people. The cast of characters involved is a who’s who of Mexican business and government leaders.

You see, you can only find ideas like these by meeting insiders and putting your boots on the ground.

That’s why Teeka and I travel hundreds of thousands of miles each year. We’ve climbed the highlands of Colombia… walked the plains of Canada… and

navigated the concrete jungles of New York and L.A. in the past six months alone.

And this intense approach allows us to build the best Rolodex in the business. That’s how we’re able to find companies like Juva Life (a growing cannabis conglomerate), Elegance Brands (the “next Monster Energy”), and last month’s

recommendation, Helix TCS (applying the “Amazon effect” to cannabis).
All these companies have 10x-plus upside… and are flying under Wall Street’s

radar.

And on my trip to Mexico, I uncovered another Palm Beach Venture asymmetric bet.

The company is trading for as little as 20 cents per share. We see at least 10x gains on organic growth or a potential buyout.

But under certain scenarios (that I’ll outline in a moment), this micro-cap could rise to $5.05 per share in the next 24 months or so – a 2,425% gain from today’s

prices. That would turn a $250 grubstake into $6,060 or more.

Now, anyone can pick a 20-cent pot stock… but not everyone can develop the relationships we have at Palm Beach Venture. And building these relationships is what gets you into the best companies.

Before we get to this under-the-radar company, let’s take a step back. A major part of our story involves Mexico… a country torn apart by vicious drug wars and corruption.

But as I learned on my recent whirlwind trip across Mexico, times are finally changing… and therein lies our opportunity…

Mexico’s Tragic Drug Wars

Over the last 13 years, drug violence has claimed more than 100,000 lives in

Mexico.

For perspective, Mexico’s homicide rate is nearly five times greater than the U.S. And homicides hit an all-time high of 29,111 deaths in 2018 alone. And it’s expected to surpass that record this year. The government blames drug cartels for most of it.

The black market for drugs – and Mexico’s proximity to the U.S. – created a perfect storm of pricing power and opportunity for cartels to grow in power.

Each year, cartels generate over $25 billion in illicit drug sales.

For perspective, that’s more than four times the market cap of the largest Cannabis company in the world, Canopy Growth. And with these billions in illicit

profits, cartels can arm themselves like small armies. Consider one recent example…

On October 18, the Sinaloa drug cartel laid siege to the town of Culiacán in Sinaloa in an effort to “rescue” Ovidio Guzmán López from the police. He’s the son of infamous cartel leader Joaquín “El Chapo” Guzmán.

Cartel members launched a series of deadly attacks against police to free Ovidio. After a pitched battle through city streets, authorities released Ovidio. It was a humiliating defeat for the Mexican government.

The case illustrates just how powerful the cartels have become.
But the best way to weaken them isn’t with bullets; it’s by taking away their

revenue sources. And that’s where we find ourselves today…

With drug violence at an all-time high, Mexico’s Supreme Court finally decided to chart a different path…

On October 31, 2018, it voted to remove cannabis from the list of illegal substances in Mexico. In effect, the landmark ruling legalized cannabis.

It sent instructions and a timeline for the Mexican legislature to enact rules and regulations for this brand-new market. After repeated delays, the court extended the deadline to April 30, 2020. So it’s not a matter of if… but when Mexico fully legalizes cannabis.

And the Mexican market promises to be massive.

Mexico is the 15th largest economy in the world. And with a population of 130 million (10th largest in the world), it’s three times the size of Canada.

It also has the largest legalized adult cannabis usage population in the world. According to a 2016 survey on drug use, more than 7 million Mexicans (8% of the population) reported smoking cannabis at least once in their lifetime.

William discussing the coming cannabis legalization with local business leaders in Guadalajara, Mexico

There’s only one problem: So far, lawmakers haven’t agreed on rules to regulate the cannabis industry. So no one can sell legal cannabis in Mexico yet – except the tiny company we’ve uncovered for you today.

And as we mentioned, thanks to some strong connections and savvy deal making, this company has a 12- to 18-month lead on its competitors. And it’s perfectly positioned to cash in on the soon-to-explode Mexican market.

Here’s how it pulled this off…

Captiva Outfoxes Its Competitors
Over two years ago, a tiny company called Captiva Verde Land (OTC:

CPIVF) put the wheels in motion that ultimately led to this month’s opportunity.

The company’s founder and CEO, Jeff Ciachurski, had just come off a successful exit from his last business – a $420 million payday for him and his shareholders when he sold Western Wind Energy to a division of Brookfield Asset

Management, an alternative asset manager with over $500 billion in assets under management.

As he surveyed the landscape for his next venture, he homed in on legal cannabis. It’s similar to the clean energy market: a huge addressable market but with regulatory uncertainty.

But Jeff knew a lot of businesses and capital were already chasing opportunities in Canada and the U.S… So he looked south to Mexico. With a close personal

friend and business partner on the ground, he learned that the winds were slowly changing for cannabis regulation.

At the time, Mexico had yet to create licenses to sell legal cannabis. But Jeff’s contact gave him a backdoor entry. He knew of a valid, full-grade pharmaceutical license that had become available.

This gave Jeff an idea: He could set up a Mexican entity to acquire the license and then have his company, Captiva, absorb the Mexican entity.

This would create a massive opportunity. Pharmaceutical licenses allow producers to make a full range of products, including cannabis, cannabidiol (CBD), and even psychedelics like Psilocybin (mushrooms).

It took years of work and untold amounts of legal fees and flights to and from Mexico… but on October 2, Captiva pulled it off. It absorbed a Mexican entity called Salud Esmeralda de Mexico that controlled the license.

This means Captiva now has the legal rights to manufacture, sell, and distribute over 300 narcotics and psychoactives in Mexico, including cannabis and

mushrooms. And Captiva also has an agreement to distribute through the 380,000-member Health Care Workers Union in Mexico (more on this in a moment).

Other holders of this type of license don’t pursue cannabis because they’re large multinationals. And manufacturing, distributing, or selling cannabis in Mexico could run them afoul of laws in their home countries.

But cannabis is legal in Canada. So Captiva doesn’t have that problem.

While everyone else was waiting for Mexico’s Congress to work out new laws, Captiva back-doored them all.

And here’s the thing: Even if another Canadian company tried to replicate what Captiva pulled off, it would take years to receive a license. And by then, Mexico’s new cannabis laws will be finalized. So Captiva’s competitors are stuck in a

holding pattern.

That’s why we estimate Captiva has a 12- to 18-month lead ahead of the competitors.

And these competitors have already come calling.

We can’t disclose its identity, but a top Canadian producer called Jeff and his team after reading the October 2 press release announcing Captiva’s Mexican pharmaceutical license. The rep on the other line was equal parts confused, impressed, and jealous.

It didn’t take him long to understand that Captiva is in a prime position. But as

you know, great positioning isn’t the only thing we look for.

We run each of our stock picks through our strict POTS system to make sure a company has what it takes to make it into our elite portfolio.

So with that in mind, let’s drill deeper into Captiva and what it plans to do with its toll road position…

Our Proprietary POTS System

industry.

• Outside Sales: A good idea or good product isn’t enough. Without sales, a company won’t survive. So we look for sales growing quarter after quarter.
• Technicals: In volatile industries, it’s important to time your entry properly. Otherwise, you’ll overpay. By looking at a company’s technicals, we avoid buying at short-term tops.
• Strategy: We look for companies with unique strategies. This gives them a “moat” over rivals. We don’t want to invest in companies doing the same thing as their well-established competitors.

especially involved with the Solargram organic grow operation in New Brunswick (more on this below).

• Santiago Garin (president, Esmeralda): A retired general officer in the Mexican military, Santiago heads the Mexican branch of Captiva. Prior to joining Captiva, Santiago ran Mexican divisions of GE and Chevron. He also

negotiated the agreement to bring Captiva products to the Health Care Workers Union in Mexico.

• Stuart Nacht (president, Sage Ranch): With over 40 years of construction and development experience, Stuart has built and sold over 4,000 real estate units across the Western U.S. and Canada. He’s leading the effort to develop and lease the 1,000 residential units at Sage Ranch in California (more on this below).

OUTSIDE SALES

Captiva only recently pulled off its coup to become the only licensed cannabis company in Mexico. This means it doesn’t have any meaningful outside sales yet. We’re truly getting in on the ground floor – after all the hard maneuvering is

done. We’ll cover how sales are set to come online – and explode – in the “strategy” section below.

TECHNICALS

We use the relative strength index (RSI) to help us avoid short-term highs. It measures how overbought or oversold a stock is. A reading near 80 means the stock is overbought and might be near a short-term top. A reading below 20 means the stock is oversold and might be near a short-term bottom.

Captiva started trading in the U.S. this past February. And as you can see in the chart below, its RSI hit a low in August. Since then, the RSI has been inching higher, gaining momentum. We liken it to a snake coiling itself up to launch higher. This makes now a great time to enter this 10x-plus opportunity.

STRATEGY

The great thing about Captiva is the multiple ways for us to win. We’ve spent most of our time discussing the Mexico cannabis angle. And in our view, that’s the segment with the most explosive upside potential.

But the company is structured through four divisions:

could generate nearly $275 million in revenue from this farm alone.
And importantly, Captiva isn’t solely focused on revenue. It’s established its

grow operation to produce cannabis for only 24 cents per gram. When you deduct this cost from gross revenue, Captiva could generate a gross profit of around $255 million.

products.

We like that Captiva is focusing on developing and selling branded products. A low-cost grow operation is great. But if that’s all you have, you become a

slave to the market price of raw material.

But with branded products, you can set your price. Think about it: A can of Coca-Cola is mainly carbonated sugar water with flavoring mixed in. But the reason why people happily spend $1.50 or more for a 20-ounce bottle is because of the power behind the brand.

Smart cannabis companies realize this, and as Cronos’ $300 million buyout of CBD product makers Lord Jones demonstrates, buyers are willing to pay a premium for cannabis companies with branding power.

opportunities to develop and market its own products.

Plus, it’s taking applications from other producers that want to leverage Captiva’s position. With this model, Captiva receives a fee anytime a licensed product from another producer sells through its network.

What’s It Worth?

Based on Captiva’s corporate structure – and how early we’re getting in – we can value the company based on expected sales. This approach assigns expected revenue to each segment of the overall business, then combines them.

To stay conservative, we’ll leave out all hard assets like land, buildings, brands, intellectual property, and plant and equipment values. We’ll use a conservative price-to-sales (P/S) ratio to estimate expected share price.

[P/S ratio compares a company’s stock price to its revenues. It’s calculated by dividing a company’s stock price by its sales per share. It shows how much investors are willing to pay for every dollar of sales. Generally, a comparatively

low ratio means the stock is undervalued.]
Now that we’ve gone through the metrics, let’s run the math on Captiva:

• Mexico cannabis division: Total value for this division is harder to pin down, but based on initial surveys from its first deal (selling directly to the Health Workers Union), the average spent per worker should be $8 per month. When we multiply that by 380,000 members, that’s $3 million per month – or about $36 million in annual revenue.
• Captiva Consumer Products: As Captiva is just beginning to ramp up this

division, and sales are minimal, we’ll assign a $0 price tag for this segment at the moment.

Adding up the four segments gives us $328 million in projected annual revenue.

Now, to gauge Captiva’s future share price, we’ll use the P/S ratio. It’s the most common metric to value the fast-growing cannabis space.

To value Captiva, let’s look at the P/S ratio of its leading competitors: Aurora (12.1), Canopy Growth (23.9), Tilray (14.1), Cronos (69.4), and the real estate investment trust Innovative Industrial Properties (24.4).

The average multiple of these five companies is 28.8.

Now, Captiva isn’t a big-name player yet. So to be conservative, we’ll slash the average ratio by 90% and apply it to Captiva. That gives a multiple of 2.88.

If we multiply projected revenue of $328 million by 2.88, that gives us a market cap of $944 million.

In 12 months, Captiva expects to have 187 million shares outstanding. If you divide those shares by its market cap, it gives us a per-share price of $5.05.

Today, shares trade at 20 cents. So this represents a 2,425% return.

That’s the 10x-plus-type returns we look for at Palm Beach Venture. Captiva is another ideal asymmetric bet to position ourselves for windfall gains as the legal cannabis wave spreads across the globe.

Bottom line: For only 20 cents per share, we have the opportunity to position ourselves at the ground floor of the only company able to sell legal cannabis in

the Mexican market right now.

As always, don’t be reckless. Use intelligent, rational position sizing to take a stake in this first-mover. In the coming months and years, you’ll be glad you did.

Action to Take: Buy Captiva Verde Land Corp (OTC: CPIVF)
Buy-up-to Price: $1.75 per share
Stop Loss: None
Position Size: No more than $400 for smaller accounts or $500–1,000 for larger accounts.

Broker information: Although CPIVF trades on the OTC market, it’s still as simple to buy as any listing on a major stock exchange. Just enter the ticker symbol into your broker’s search bar. If it doesn’t appear, contact your broker for

assistance on buying it, and make sure you specify you want to “buy shares in Captiva Verde Land Corp.”

IMPORTANT NOTE: Some small-cap stocks trade at low volumes. So immediately after our buy recommendations, we often see an initial price spike. We understand this can be frustrating. But don’t worry. This is par for the course with small-cap stocks. Most of the time, the recommendation falls back below our buy-up-to price. Use a limit order… Be patient and let the price come to you.