What is your opinion on the impact of a potential Canadian goverment change for Cronos?
I would argue that it might be short-term slightly negative, long-term beneficial.
My base case for a Conservative government would be to keep the excise tax as is. Given their problematic relationship with cannabis in the past, I don't expect any pro-cannabis changes to be made, but it would be fiscally irresponsible from the budget perspective to try to harm the industry.
This could prolong current market conditions, where:
1) Smaller, weaker producers could cease operations, limiting the amount of oversupply
2) Reducing cash burn is key, which Cronos has already done
3) Lead to market consolidation, where strong balance sheets are even more valuable
In the long term, a highly punitive excise tax might cleanse the cannabis market, reducing oversupply and competition. If after a prolonged period the excise tax is lowered, this could then act as a torque for Cronos. I am not a Canadian though, so curious to know what is your opinion.
I think I agree with all of that, except I am not sure Conservatives are a 'negative' in the short-term. But I am not counting on them to changing the status quo on the excise tax. What they might do is help crack down on the ellicit market is, which would be a big positive. In short, I am not sure they can be any worse than the Liberal, and maybe marginally better. But you're spot on with the impacts of continuing the tax as its concerns the broader industry -- it forces consolidation and will result in an oligopololy.
On Couchman, he used Mryexis to acquire ENZ shares too. So there's some real assets there in the company, just that its delisted, gone dark, and Couchman continues to squeeze bagholders. But they did pay a liquidating dividend first before he scooped up the remaining cash + NOLs (couple million?). Would love to be wrong.
Yeah i noticed that as well, it's interesting. His collective interest in ENZ is still sub 1% I believe though. So I am not really sure what the thinking is. He has the AFFY and ENZN stubs too just sitting there - the latter is the only one not dark I believe. There's obviously a lot of value here, but it seems part of the play book is too have everyone give up and start taking control on the cheap. Keen to hear if you have any more insights. But I think each case before has been preceded by a liquidation.
Well, NOL is more perhaps more torqued, special situation-y, and idiosyncratic. That is to say, if Mira secures a contract at a good rate, the stock should double (or more) or at the very least go up >50% regardless of what the macro does, because at that point the FCF yield to equity will be over 35% for several years out and they'll refi the expensive debt. It almost turns into a bond from there. Will look like ODL.OL, which as you can see from its chart has totally decoupled from the industry because its whole fleet is cash flowing. VAL/NE etc are much larger enterprises and their much more of a bet on the offshore industry at large (though your downside risk with those is lower). I like all of it.
What is your opinion on the impact of a potential Canadian goverment change for Cronos?
I would argue that it might be short-term slightly negative, long-term beneficial.
My base case for a Conservative government would be to keep the excise tax as is. Given their problematic relationship with cannabis in the past, I don't expect any pro-cannabis changes to be made, but it would be fiscally irresponsible from the budget perspective to try to harm the industry.
This could prolong current market conditions, where:
1) Smaller, weaker producers could cease operations, limiting the amount of oversupply
2) Reducing cash burn is key, which Cronos has already done
3) Lead to market consolidation, where strong balance sheets are even more valuable
In the long term, a highly punitive excise tax might cleanse the cannabis market, reducing oversupply and competition. If after a prolonged period the excise tax is lowered, this could then act as a torque for Cronos. I am not a Canadian though, so curious to know what is your opinion.
I think I agree with all of that, except I am not sure Conservatives are a 'negative' in the short-term. But I am not counting on them to changing the status quo on the excise tax. What they might do is help crack down on the ellicit market is, which would be a big positive. In short, I am not sure they can be any worse than the Liberal, and maybe marginally better. But you're spot on with the impacts of continuing the tax as its concerns the broader industry -- it forces consolidation and will result in an oligopololy.
Thank you - great post. Always enjoy your writing!
On Couchman, he used Mryexis to acquire ENZ shares too. So there's some real assets there in the company, just that its delisted, gone dark, and Couchman continues to squeeze bagholders. But they did pay a liquidating dividend first before he scooped up the remaining cash + NOLs (couple million?). Would love to be wrong.
Yeah i noticed that as well, it's interesting. His collective interest in ENZ is still sub 1% I believe though. So I am not really sure what the thinking is. He has the AFFY and ENZN stubs too just sitting there - the latter is the only one not dark I believe. There's obviously a lot of value here, but it seems part of the play book is too have everyone give up and start taking control on the cheap. Keen to hear if you have any more insights. But I think each case before has been preceded by a liquidation.
How is with Enzo's current/future dividends? IB shows 10 cents dividend in February (this month) and then every 3 months this year also the same.
Yeah that's incorrect. They paid a 10c special in December but there's no recurring dividend.
What's your overall view on NOL when compared to Valaris/Noble?
Well, NOL is more perhaps more torqued, special situation-y, and idiosyncratic. That is to say, if Mira secures a contract at a good rate, the stock should double (or more) or at the very least go up >50% regardless of what the macro does, because at that point the FCF yield to equity will be over 35% for several years out and they'll refi the expensive debt. It almost turns into a bond from there. Will look like ODL.OL, which as you can see from its chart has totally decoupled from the industry because its whole fleet is cash flowing. VAL/NE etc are much larger enterprises and their much more of a bet on the offshore industry at large (though your downside risk with those is lower). I like all of it.
Thanks for the response Jake! Curious how would you structure the overall play for this sector from your perspective.