First pot-stock billionaire says shares are a tad high

Bart Mackay's holdings in CannaVest, a hemp-based investment firm, have skyrocketed in the past year. But he admits 'there is probably a bubble' in the industry.

By Forbes Digital Mar 10, 2014 1:13PM
Forbes on MSN MoneyHemp plant in France (c) PATRICE MAGNIEN/20 MINUTES/SIPA/By Nathan Vardi, Forbes Staff

You have probably never heard of Bart Mackay, a 57-year-old Las Vegas lawyer who works on various ventures like Dot Vegas, which operates the .Vegas top-level domain. But on paper, Mackay is the first pot-stock billionaire.

Mackay's holdings in CannaVest (CANV), which bills itself as the world's leading hemp-based investment company, are valued at $1.8 billion. That figure might seem like a drug-induced hallucination, but it's technically true. CannaVest is the top-performing stock in America in 2014 with a market capitalization greater than $1 billion.

Its thinly-traded shares, which change hands on the Over-The-Counter Bulletin Board, or "pink sheets," have soared by 680 percent in the last year. They are already up more than 300 percent in 2014. The average daily volume of about 10,900 shares has been light this year, but someone is buying the stock and the $117 it closed at on Friday makes Mackay the world's first pot stock billionaire thanks to his 15.7 million shares in CannaVest.

Mackay, however, doesn't think he is actually a billionaire. He says he has never sold a share of CannaVest and even if he wanted to sell some stock he couldn't unload much before crashing the stock. "In my view, it's a paper valuation and certainly not something I can take to the bank," Mackay said in an interview. "I went through the dot.com period and there was a bubble that existed there, there is probably a bubble in this stock somewhere, or in this industry."

Mackay believes that CannaVest's stock rise is partially a result of the company being categorized by speculators as a marijuana stock, an idea he says that is not even true because CannaVest is focused only on hemp-based products. With Colorado and Washington implementing laws that allow the sale and use of marijuana for recreational purposes, some stock promoters have been pushing marijuana and hemp stocks big time in recent months. "The company doesn’t have anything to do with pot," says Mackay. "The public views it as a pot stock, but for me it's a completely different play."

The Financial Industry Regulatory Authority warned investors back in August about marijuana stock scams, saying "the con artists behind marijuana stock scams may try to entice investors with optimistic and potentially false and misleading information that in turn creates unwarranted demand for shares of small, thinly traded companies that often have little or no history of financial success." It's not hard to figure out that some of the people behind the penny pot stock boom have questionable backgrounds.

Take Raymond Dabney. In 2005, the British Columbia Securities Commission up in Canada slapped a five-year trading ban on Dabney and barred him from being an officer or director of a publicly-traded company for five years after Dabney admitted to issuing 22 bogus news releases that contained misrepresentations about the revenue of Xraymedia, a Minnesota company in which Dabney was a controlling shareholder. The Securities & Exchange Commission also sued Dabney and in 2010 obtained a final judgment against him that included a disgorgement and penalty of about $190,000. The SEC launched the enforcement action against Dabney and three others in connection with a scheme to manipulate the price and trading volume of Alliance Transcription Services.

Today, Dabney works as a management consultant for Cannabis Science (CBIS), a cannabis formulation-based drug development company that trades on the OTCBB. Dabney is described in SEC filings as the trustee of the Bogat Family Trust, which owned 6.5 percent of Cannabis Science last year.

Bruce Perlowin, CEO of another Las Vegas-based OTCBB stock called Hemp Inc. (HEMP), is completely open about the nine years he spent in prison for drug smuggling, which he describes on his own web site. "This is a dot-com explosion except there is a real product behind us, not air," Perlowin recently said in an interview he scored on Bloomberg Television. The Southern Investigative Reporting Foundation last fall exposed the background of Vincent Mehdizadeh, the founder of a marijuana stock called Medbox, which included arrests or no contest pleas for things like trespassing and credit card fraud.

A year ago, an anonymous poster on Seeking Alpha exposed that Michael Llamas, the former president of publicly-traded Medical Marijuana (MJNA), had been indicted by federal prosecutors in California for his alleged involvement in a mortgage fraud that caused $10 million in losses. Llamas has pleaded not guilty to the federal charges and Medical Marijuana separately disclosed last year that it was being investigated by the SEC.

So there are some shady characters behind the penny pot stock boom. Mackay, who says he has in the past represented other companies with OTCBB stock listings, says CannaVest CEO Michael Mona, Jr., partially brought him aboard to help navigate the OTCBB underbelly. "I am familiar with a lot of the garbage that goes on with over the counter stocks, the pitfalls, and I guess that is one of the reasons why I decided to help Mike and help this process to avoid some of the pitfalls," Mackay said.

Nevertheless, the indicted Llamas is connected to Mona, Mackay and CannaVest. Mackay’s path to obtaining most of his $1.8 billion of shares in CannaVest starts with Roen Ventures, a company that last year agreed to lend $6 million to CannaVest. Roen Ventures was formed by Mona and Llamas, according to a lawsuit filed against Mona and Mackay in Nevada state court.

The lawsuit, filed in February by Far West Industries, claims that Far West obtained a $17.7 million judgment in 2012 against Mona and others relating to a fraudulent land transaction in California. According to the second amended complaint, Mona testified in the judgment debtor exam that he received $3 million that he loaned to Roen Ventures, which lent the money to CannaVest. Mona then testified that in the last year he sold his interest in Roen Ventures and its $3 million note to Mackay for $500,000 -- making Mackay and Llamas the owners of Roen Ventures, the second amended complaint says.

Mona testified that there is another $22 million judgment pending against him connected to another real estate deal, the second amended complaint says. Far West claims in its second amended complaint that Mona’s loan to Roen Ventures was fraudulent and "intended to prejudice creditors like Far West by concealing and wasting assets." Mackay declined to comment on the lawsuit, except to say that "from my perspective, it's frivolous and doesn't hold water." Mona did not return a call seeking comment for this article.

In January of 2014, CannaVest said in an SEC filing that Roen Ventures is now wholly owned by Mackay, who acknowledged in an interview that he has bought out the stakes of Llamas and Mona in Roen Ventures. According to the January SEC filing, Mackay, through Mercia Holdings and Mai Dun Limited, now owns 100 percent of Roen Ventures, which has converted its loans to CannaVest to 10 million shares of CannaVest stock.

How did Mackey get the rest of his shares in CannaVest? In November of 2012, two of Mackay's companies started acquiring shares of a publicly-traded OTCBB company called Foreclosure Solutions, mostly from H.J. Cole. The man behind the deal was Stuart Titus, who loaned the Mackay companies the money and whose General Hemp also participated, taking a 7.1 percent stake. Foreclosure Solutions became CannaVest and last week for some reason CannaVest moved to distance itself from Titus, saying in a press release that Titus no longer has any affiliation with CannaVest and owns less than 2 percent of the company.

There is another connection between CannaVest and Llamas. On the last day of 2012, CannaVest agreed to buy assets from something called PhytoSphere, including a license to use its brands, for $35 million in five payments of either cash or stock. When the deal closed last year, CannaVest issued 900,000 shares to PhytoSphere, which distributed the shares to its sole owners, Medical Marijuana and Hemp Deposit and Distribution Corporation, according to an SEC filing. Llamas used to be president of Medical Marijauna and its financial statements have previously described Llamas as the president of Hemp Deposit and Distribution Corporation. Llamas' LinkedIn (LNKD) page says he is the founder of Hemp Deposit's CannaBank business. 

"To draw an inference that Mike Llamas has something to do with CannaVest is absolutely wrong," says Mackay. "Llamas is not a member of the board and has absolutely no influence. I know Michael Llamas and am familiar with him but he has no control on any aspect of CannaVest. He may be a shareholder of CannaVest."

CannaVest’s most up-to-date books show $10.7 million of assets. For the nine months ending Sept. 30, 2013, the last time period for which CannaVest reported financials, revenues were $1.35 million and losses were $28.4 million. Mackay concedes these fundamentals don't really support a sky-high stock valuation.

"What you have here is in some ways, in my mind, is a perfect storm where for some reason marijuana stocks are getting some probably under normal reasonable terms outlandish valuations. I can't control that because we don't put out a lot of news, we are not out pumping stock," says Mackay. "I am focusing on CannaVest and the fundamentals of this business as a member of a board of directors rather than pumping stock in a stock play."

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68Comments
Mar 10, 2014 6:47PM
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I hope Pot becomes legal in all states and through the feds. Let's make room in our jails and prisons for rapists, killers and crooked politicians that are creating real problems in society.
Mar 10, 2014 3:32PM
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"CannaVest is focused only on hemp-based products."

 

Hopefully the headline writer knows the 180-degree difference between cannabis and hemp, but that would be asking a lot, wouldn't it. The difference is like the gulf between near-beer and a stout ale.

 

Our textile industry certainly knows the difference -- it has fought long and hard to keep hemp banned in order to promote more expensive, less durable fibers.

Mar 10, 2014 5:34PM
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The largest drug dealers are ones in white coats or nice suits. Its only ok to sell dangerous drugs as long as you have FDA Approval to do so. The banning of future research into any schedule 1 drug (including marijuana) prevents us from truly knowing the positive and negative effects. Also the research the differences between smoking, vaporizing, and edibles as smoking anything is bad for your lungs.
Mar 10, 2014 5:29PM
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Legalize hemp...you can make clothes, cooking and heating oil, paper and a ridiculous amount of other things out of it...the Constitution was written on hemp paper...some politician was being "bought" by cotton farmers and had it banned...surprised...
Mar 10, 2014 4:42PM
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When it hits $4.20 a share, buy, buy, buy!!!
Mar 10, 2014 5:16PM
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The people who invest in weed today are going to be crazy rich in 20 years.
Mar 10, 2014 4:42PM
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"Are Pot Stocks A Little High"  Ha Ha Ha!!!...wait...LOL!!!
Mar 10, 2014 4:44PM
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Even if he does make a billion, the govt will arrest people like him on some bogus charge! Unless you are Big Phrma....they will do what they can to stop this great plant from being recognized as a normal plant again!
Mar 10, 2014 7:03PM
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There has been a very long waiting period for this product to become commercially produced once again so it is not surprising that because of the significant demand that has built up over the years that many are investing robustly in the early producer's stocks.  As the pressure grows to generally legalize cannabis on a national level we will see much more speculation along with much more fraud and scam type investment schemes.


I would advise anyone contemplating any investments in hemp, cannabis, or marijuana related stocks to do some serious homework before sinking any money into them.  My gut tells me that if anyone is going to make a killing in the legalization of this product it most likely will not be some insignificant little upstart company.  Since big pharma is potentially losing a lot of revenue from their cannabis substitutes business my guess is that they have already ramped up some major production areas that are presently "off the radar" but waiting to go into full scale production once the go ahead is given.


There are other major corporations as well that are much better financed and in much better positions to come on-line quickly with high grade product.  Lets face it, business is business and no qualified business manager is going to pass up a potential cash cow like the cannabis business.  Most of these little guy stocks will drop like flies once the big boys kick into high gear.  The new ones simply won't be able to compete.  That is how capitalism works.  Let the little guys do the leg work then crush them with your size and weight once the coast is clear and reap all of the profits that they had hoped would be theirs.  Everyone from the pharmaceutical business to the agribusiness people are undoubtedly watching this with a very close eye and sharpening their utensils in preparation to carve up the fresh turkey once it comes to the table.  So watch where you put your money.     

Mar 11, 2014 12:03AM
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I don't know what the big deal is.

My stock pot is pretty high up on a shelf, but when I need it, I just use a chair.

Mar 10, 2014 4:05PM
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Because of cannabis.....the green herb as mentioned in the book of Genesis......Three industries should start worrying: Alcohol, Oil, and Pharmaceuticals

Mar 10, 2014 6:45PM
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...and all of this behind the scenes trading by shady individuals is different from the S & P 500 companies and their stock in what way?
Mar 10, 2014 7:40PM
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The whole Obamaville economy is a bubble - might as well get stoked and enjoy it while we can.
Mar 10, 2014 1:43PM
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Dude must be stoned to crash his own stock........ put the bong down.
Mar 10, 2014 9:38PM
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GO GO GO GO ! The more the suits can make $$$ The sooner they may get their head out of that HOLE ? 

hopefully be for the rest of us die of cancer & all the other chit ! 

Mar 10, 2014 11:04PM
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legalize it finally, then it can truly be researched on the harm it will do to the body, all i have heard is there has never been a confirmed case of cancer, well not many told the doctor they smoked weed on a regular basis. Anytime smoke or foreign matter enters the lungs the outcome will not be good. Finally we will get some good data on this drug.

Mar 10, 2014 7:05PM
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If the price don't come down , I can get it a lot cheaper on the streets , and it's the same weed .
Mar 10, 2014 1:51PM
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The stock is sure "coming down" from a close of 117 yesterday.  That's pretty high!
Mar 10, 2014 10:02PM
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The problem created is you have a big company with stock market unlimited cash support that drives everyone else from business this is completely unethical and will mean that laws will be created to give big business the upper hand.   And keep the poor.. well poor.
Mar 10, 2014 6:40PM
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My Pot Stock Plays are HESG and LATF, both you can still get for under a penny a share.
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