The Cannabis Medicine Show
Prior to 1900, many medications and potions were not yet standardized and a huge unregulated industry of “healthful” concoctions known as patent medicines thrived. A misnomer, since only a few of them were actually patented, the term referred mostly to the proprietary, or secret, ingredients. Often referred to as tonics, the ingredients were not always beneficial and in some cases even detrimental to health.
Like other substances, the alcohol content of patent medicines was not disclosed, but one claiming to be a “stimulus to the body without intoxicating” was 41.6%, or 83 proof!
Some of those secret ingredients may have actually been toxic and contributed more to their customers’ demise than to their longevity. Some were well-intentioned and based on the medical knowledge of the times, but still might have contained highly addictive drugs and potions.
The soft drink industry actually evolved in part from the many patent medicines available during the second half of the 19th century. Some of the soft drinks we know were originally health tonics, created by pharmacists and, before the FDA came along in 1905, heavily laced with cocaine, among other drugs. Once they became more regulated, many of the harmful ingredients were replaced with flavorings and sweeteners. A relic of that history exists today in the colloquial term for soft drinks in Boston, “tonics.” In rural Virginia in the 1930s it was still common slang to call Coca-Cola’s “dopes.”
In 1885, Charles Alderton a young pharmacist in Waco, Texas, invented the tonic beverage Dr Pepper. The recommended dosage times were 10am, 2pm and 4pm and became the soft-drink company slogan.
John Pemberton, a doctor and pharmacist created a non-alcoholic version of a wine made from coca, then added carbonation. Pemberton claimed it cured everything from impotence to morphine addiction. But it was hardly benign. In fact, the coca leaf and kola nut used in the drink yielded cocaine and caffeine, hence the name Coca-Cola. In time, the small amount of cocaine was reduced but addicting your customers has to rank as one of the most powerful marketing tools ever invented.
Some made outrageous claims. Moxie certainly earned its name, being supposedly a cure for softening of the brain, nervous exhaustion, imbecility and helplessness, loss of manhood, locomotor ataxia and insanity!
The booming cannabis sector on the OTC might seem a little like the patent-medicine craze of the late 1800s and in a few ways it is not that different. Everyone has their own new formula for success but like the drugstore chemists and medicine show hucksters, some companies might not want you to know too much about the recipe they use, especially if it contains something toxic, like the financing.
Until legalization and regulation, companies can’t attract large investors and some might have to resort to some creative kitchen chemistry when concocting financial structuring. You don’t want to be investing in a cannabis company if there are a lot of secrets about the financial arrangements.
If you look at the two-year chart for the cannabis industry you will see a huge climb and spike early in 2014. This gave early investors great expectations about possible earnings. Unfortunately there followed a huge decline which drove down the share price of all the companies. Some investors might have jumped ship then, but usually they will hang on to collect on their investments when the prices improve; that has not happened so they may still be waiting in the background while the companies won’t divulge their investors or their arrangements with them. Companies which survived the 2014 boom and bust may have serious debt holders for their shares, so even if they have earnings and a rising share price, they could be cashed in. If too many shares sell too fast, the share price can fall.
Cash-strapped companies can become creative at raising more cash to survive, but they aren’t always in the best interests of the shareholders. Companies on the OTC may offer convertible securities to larger investors to raise money, for example. This can lead to shareholders holding proportionally less of the company and a drop in the share price once they are converted. These financial arrangements are sometimes referred to as toxic financing and that is one ingredient you don’t want to be a part of the company chemistry.
Trade secrets are one thing, but make sure they aren’t just hidden toxins in the history of the company. These surprises and secrets in your company could destroy your investment under the guise of improving its health. No single factor, like convertible securities, will undermine the company if other aspects remain positive, but the combination of other secrets could leave a very bad taste.
Many of the labels on the patent medicines had wildly unsubstantiated claims about improving your health and well-being. Don’t get addicted to the language and promises and forget to look at how the company runs its business. Make sure it is not just another medicine show, especially the traveling kind.