XEBRA (XBRA: CSE) COULD HAVE MEXICAN MARI-JUANA MONOPOLY

Within days—a decision from The Supreme Court in Mexico could result in Xebra Brands (XBRA: CSE) having an effective monopoly on the entire legal Mexican cann-abis market for CB-D and CB-G.

With Xebra’s largest shareholder being a founding family of a multi-billion-dollar Mexican beverage company—this company could have its products in front of the entire country within weeks of a favorable ruling.

This may be the biggest event driven catalyst that any of us will ever see. 

This would not be a permanent monopoly——but a monopoly that I believe could last for one to three years. 

Certainly long enough to make Xebra a takeover target for any company interested in accessing cann-abis consumers in a country with 130 million people.

And with Mexico being within the North American free trade zone (USMCA), there is down the road potential for export of cann-abis products from Mexico to Canada and the US!

This process started three long years ago when Xebra quietly embarked on a challenge on an inconsistency in Mexican cann-abis law. 

The Mexican Congress has passed a bill that allows commercialization of any cann-abis product with a TH-C content of less than 1%. That approves CB-D and CB-G products.

BUT—the Mexican Criminal Code and General Health Law have yet to be reformed to be in line with that—and that blocks any cann-abis company from operating legally.

Xebra has successfully taken this issue all the way to the Supreme Court of Mexico, and if they win an injunction, it would give this company the right to begin commercial operations—immediately! Them and nobody else!

If Xebra is successful, anyone else who wants to commence legal cann-abis operations will also have to go through the same multi-year injunction process.

The story is captivating. 

The very man who co-wrote the existing Mexican cann-abis legislation that Xebra is challenging…is part of the Xebra team and helped them identify the opportunity! There’s an influential Mexican business family involved.

And now is the time to look at this story because…

 

You Make Money In This Sector Heading Into Legalization

 

The recipe for success in making big returns in the cann-abis sector is pretty simple——you just need to get in before the market gets a whiff of legalization.

Hundreds of billions in shareholder value was created in Canadian pot stocks in 2017, pre-legalization. 

Billions more was created in November 2020 in the US as Joe Biden was elected.   If the market senses legalization, cann-abis stocks, the entire sector rockets higher.

I believe that moment is now at hand for Mexico. There is a lot of money on the table here—and it’s concentrated in one tiny micro-cap—Xebra.

Xebra’s Supreme Court ruling would OBVIOUSLY be a major catalyst for the company and its shareholders. 

But I think independent of the injunction, Xebra is still very strongly positioned– because Mexico is about to have its cann-abis moment and this company is the single best way to play it.

Canada had its cann-abis legalization market moment in 2017/2018. Every stock in the sector went ballistic during the lead-up to the big moment and then as it happened—-the tiny ones went crazy. Even the big ones like Canopy Growth went up 7 to 8 times on legalization excitement. 

The same thing happened again in the United States last year when Biden won the election. And Biden hadn’t even come out as pro-legalization.

If investors get just a sniff of legalization, they start buying everything cann-abis they can get their hands on.

Again, the tiny cann-abis stocks went up like rockets and the tier-one operators like Trulieve went up 6 to 8 times.

A better comparison for Mexico and legalization though may actually be Colombia.

In 2018 Canadian cann-abis companies went on an acquisition binge in Colombia on the premise of “First in Wins”. At that time Colombia had recently started legal licenses to grow mari-juana.

Examples from Colombia——Aurora Cann-abis acquired a company called ICC labs for $290 million.  Aphria closed a deal now worth $300 million to acquire Scythian’s Colombian assets.  Canopy Growth acquired Spectrum Cann-abis Colombia.

The big companies were tripping over themselves to get into Colombia when Colombia legalized. The cheapest deal there was $97 million with Aurora paying the most at $300 million.

But compared to Mexico the Colombian consumer market is small. It’s tiny. Plus, until recently, you couldn’t even export the cann-abis flour from Colombia and Colombia is not part of the USMCA free trade zone. M&A acquisition prices in Mexico have to be even higher given its long-term importance.

Given what happened in Colombia what do you think Aurora or Canopy will be willing to pay to have a first mover advantage in Mexico?

It’s easy to see the long-term appeal of Colombia (and Mexico) for cann-abis operators. Producing a gram of cann-abis outdoor in perfect year-round weather in Colombia costs 5 cents versus as much as $1.50 in Canada and much of the United States, where you need to build and operate an indoor warehouse. And construction costs are muuuuuuuch lower too, as shown in the following table: 

That is why legalization in Mexico could produce the same kind of land grab by both Canadian and American cann-abis companies…except BIGGER. Mexico is CLOSER, which will cut shipping costs. And it’s part of USMCA – the North America free trade zone.

Plus——Mexico has 130 million people and Colombia has 50 million, so access to the Mexican domestic market should be worth more.

The future of cann-abis—as legalization everywhere occurs and it becomes truly mainstream—is that it will be sourced from cheaper, warmer, year-round outdoor growing locations.

Well we know what happened with many other American and Canadian crops under free trade—industrial scale production went south——and cann-abis is sure to follow, such like it did with avocado, grapes, and tomatoes to name a few.

Mexico could be the primary supplier to Canada and the USA—making the first few successful companies there very valuable.

 

From Day 1 Xebra Was Built As An M&A Play

 

After Canada, the US, Colombia—Mexico is up next. Cann-abis stocks that focused on those countries took turns creating HUGE shareholder value. Mexico will be no different and it could be happening within months.

What are American, Canadian or Mexican companies willing to pay if Xebra’s injunction ruling is favorable and gives them a HUGE 1-to-3-year head start in Mexico?

Colombian early entrants were acquired at $100 to $300 million. Today Xebra has a market cap of CAD$25 million and seems to offer so much more….

Xebra’s largest shareholder is a founding family of one of the largest beverage companies in Mexico. A company of global scale. A business that gives Xebra direct access to an extensive distribution network in Mexico, and also in the U.S. and other countries.

This shareholder has been intimately involved as Xebra has created its beverages——clearly with a long-term intention in mind. 

When I spoke with Xebra’s management they made one thing very clear to me. Right from day 1 the plan for this company was to build and then monetize. 

They are looking to have a big windfall success story for shareholders just like early Colombian operators did at $100 million to $300 million price tags when Colombia opened up in 2018.

The next couple of months are going to be wild for Xebra.

The Supreme Court ruling on the injunction is Catalyst #1. I can’t calculate what the market value of this company could be if a positive ruling comes down. I’ve never priced out the value of a monopoly before.

What I do know is that within weeks of a successful ruling there are going to be Xebra cann-abis products going into retail locations across Mexico and the bidding war on who acquires Xebra begins.

I think a favorable injunction ruling makes Xebra an instant take-over target. I want to be very clear on what the injunction means. It means they can legally import seeds. They can plant, harvest, and process he-mp, create CB-D and CB-G products, sell them domestically, and export—-Mexico is part of the free trade zone.

Xebra will be the only company in Mexico with the legal right to do all of these things.

Catalyst #2 is legalization in Mexico——which could realistically be happening within months. Everyone is fixated on progress (or lack thereof) towards legalization in the US but the place where eyes should be focused is in Mexico.

Even without a successful injunction ruling, I believe that there is no other publicly traded stock that offers exposure to Mexican legalization——and we have seen how itchy the buying trigger finger gets on cann-abis investors as legalization comes to a head.

Longer term all of the big cann-abis companies need to get a foothold in Mexico. This is where cann-abis is going to be grown, and where cann-abis products will get manufactured, at a fraction of the cost and exported into Canada and the United States.  All of the big boys have to play this upcoming Mexican license grab.

Shorter term the focus is on the injunction ruling——which is truly the largest single event catalyst I have ever seen in terms of immediate market value relative to the current market cap of any company.

Get your popcorn ready. The next couple of weeks could be exciting for Xebra.

XEBRA BRANDS  has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.