Small Cap Investing w Stone Castle Investments’ Bruce Campbell – Ep. 8


Bruce Campbell is the founder and Portfolio Manager of Stone Castle Funds.

In this interview, we don’t talk about investment ideas or big wins. Instead we focused on what he likes to see from the opportunities and companies he invests in. From the funds he manages to the way he keeps deals on his radar, you’ll hear his inside perspective.

Bruce and his team manage six funds across various sectors including everyone’s favourites, cannabis and blockchain. He is a regular contributor to BNN Bloomberg, The Globe and Mail and a number of other media outlets.

There are lots of other good points here about both his views on industries he’s covering as well as what he likes to see in his investments.

Bruce Campbell on:


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* This is a software-transcribed article.

Cory: [00:00:00] In this episode I sit down with Bruce Campbell the founder and portfolio manager of Stone Castle funds.

Cory: [00:00:06] Him and his team managed six funds across various sectors including everyone’s favorites cannabis and blockchain. Bruce is a regular contributor on BNN Bloomberg, The Globe and Mail and a number of other media outlets. In this interview though we don’t talk about investment ideas or big wins. Instead, we’re focused on what he likes to see in the opportunities and companies he invests in. As one example, he says keep your correspondents concise. There are lots of other good points here including his views on the industries he’s covering as well as what he likes in the investments he’s making. Stay tuned as there’s a lot to learn.

Cory: [00:00:55] Online I have Bruce Campbell, founder and portfolio manager of Stone Castle funds. Bruce welcome and thanks for taking the time.

Bruce: [00:01:02] Yeah thanks. Thanks for inviting me. I’m glad to be here.

Cory: [00:01:05] Excellent. One of the things I’d like to do is just start off right away and get your perspective or your experience in your own words. Can you share a little bit about you and how Stone Castle came about?

Bruce: [00:01:18] Yeah sure. Thanks. So I’ve been in the investment business since ’93 so quite a while. Worked at… to start with… on the retail side and really wanted to work toward having my own shop and having my own company and being able to do what I wanted and sort of targeted the way I wanted to invest and didn’t want anyone else sort of dictating that. So while I was still still working in the retail side started to develop a methodology for investing where we looked at both top down and bottom up factors. And then in 2008 we launched Stone Castle we continued to grow since then and now we manage… I guess that’s six funds and we manage some generalist funds, an income fund, some cannabis funds, a blockchain fund. So we’re kind of all over the map but we really tend to focus on main growth company.

Cory: [00:02:21] Excellent. And with that previous experience you had to starting Stone Castle in 2008 as I understand you were with a larger fund or larger funds. What were those and what ultimately gave you the conviction to start this and focus on Canadian small caps?

Bruce: [00:02:39] Yeah, there’s never really been a focus on saying we’re going to have focused on small caps for say. What I focused on was really trying to figure out how to generate returns. And so what I did was initially started to just study a bunch of different investment methodologies. Was it growth, was it value? You know really what was that? And what worked? And tried to determine some factors that over the longer term really generated returns. And so, then I sort of isolated some of those. And then from there I started to actually manage portfolios using that methodology. But what I found was that there were still a fair bit that the market dictated from market… from returns. And so then I started to work on trying to figure out a methodology whereby we could reduce some of the volatility when the markets went down because even though we had great companies they would still go down as well. So that’s when I really implemented the sort of offense/defense piece to the portfolios that we talk now about. Being on offense or being on defense and most investors probably don’t know if they are on offense or defense and if they are it’s probably based on what they heard in the media just 10 minutes before you ask them. Whereas we have tools that help us to guide whether or not we’re on offense or defense. If we’re on offense we’re obviously fully invested if we’re not, we raise cash, we cut short positions as well in some of our funds. So we’ll do that and that really came from the experience that I had and was able to put all those pieces together. As far as the conviction to start Stone Castle was something that I’ve always wanted to do I come from a you know I guess I would be like fourth generation entrepreneur in my family. And so having my own business was not something that I was unfamiliar with. Both my father and grandfather in that position and heard stories of my great grandfather in that position. So you know obviously just put all the pieces and didn’t you know wasn’t something that happened you know irrationally or quickly. Methodically put all the pieces in place for it to happen and then and then pull the pen and made it happen.

Cory: [00:05:01] Well you’re going on 10 years now. So no doubt it’s been methodical and it’s obviously working out, your approach.

Bruce: [00:05:09] Yeah. I mean the interesting part was it probably, there was probably five years leading up to when I actually launched from when I said OK this is what I want to do before I felt that all the pieces were in place both from a performance standpoint and a track record that I had before to dealing with all of regulatory pieces to getting all the sort of day to day logistics operations in place. So it did take some time but you know it’s great now that it’s up and running.

Cory: [00:05:40] Yeah, well done, well done. When I look at the work you’ve done you now have six funds. Can you provide some color on those.

Bruce: [00:05:50] Yeah sure thing. So we have… we’ve got our own fund which is the Stone Castle fund and that’s where we fall into the sort of hedge fund category where we can be long and short. We’re typically looking for companies that have an earnings profile that’s accelerating on the long side in one that’s in the decelerating on the on the short side. And then we’ve managed two funds for four Purpose Investments out of Toronto. So we manage a growth mutual fund and the income mutual fund both of those are fairly similar as far as the methodology that we use as well as the methodology we use for Stone Castle fund. We’re looking for sort of similar profile of companies. There’s often lots of overlap between those three portfolios because we’re looking for similar type of quality and then we manage we manage a fund that we partner in with Spartan investments out of Toronto which is in the cannabis space. So it’s the Stone Castle Cannabis Growth Fund. We manage the public portion of the cannabis growth opportunity corporation portfolio which is also cannabis based as you would guess from the name. And then last fall we got approached to manage a portfolio for First Block Capital out of Vancouver which is actually a blockchain of doctors’ ETF. So it’s not when you sort of think of when you think of bitcoin or blockchain but these are actually the large companies that are using blockchain in their business to really change their business as they go forward. So we have quite a stable of funds that we manage.

Cory: [00:07:32] Yeah, no kidding. I mean it’s it’s quite the gambit there. When I hear about the different funds that are there the ones that spark me or the cannabis fund or the cannabis funds and then also the blockchain. And what I find interesting there and I’d like to get your perspective on is that the companies that you’d be bringing in there some of them will have seen the…. be towards the latter end or perhaps the higher end of their growth curve but I’m sure, and from a bit of research I’ve done, there’s very early stage companies you’re bringing their perhaps their pre public or just public. For CEOs and investment teams and IR managers, what should they know about how you look for these companies or what are you looking for and how do they come across your desk?

Bruce: [00:08:20] They come across our desk kind of in a number of different ways. I’m always kind of amazed that… at how we find things. We like to… kind of try to turnover as many rocks as we can. And what we find is that often a company that we may have identified two or three or four years before we might not invest in it initially. But we’ll watch it and then it becomes time when we do and that can come anywhere from where we’ve met a company at a conference and we’ve sat in front of the CEO as they’ve sort of pitched their business when they’re starting off to… you know, we deal with a number of the sell side analysts and brokers and I mean they’ll show us different ideas both pre public and public company and then we get a lot of we get a lot of ideas as well just sort of from random places. So you know, probably one of the best performing companies that we had in the portfolio in 2017 came from just a random e-mail that I got. Somebody who I didn’t know, they had obviously seen our profile, sent me an e-mail saying “hey, have you ever looked at this company. And by the way I owned some” and it wasn’t one that immediately I read the email as I go I got to research this but it was you know I sort of went into the folder and when we had time I took a look and said oh hey this is kind of interesting and you know we then met with management and did all the work and it ended up in the portfolio and it was up probably 400 percent in 2017 for us. So you never kind of know where they’re going to come from but we try not to be too close minded as far as you know when people want to show us opportunity.

Cory: [00:10:15] That’s not a bad success story on that and interesting to see how it came. Something that I’ve talked with others that I’ve interviewed on is… When going out to raise money or when going out to get institutional participation or investment you have to start early and sometimes that starting early to reference what you said is like a company could have approached you or pitched you four years ago in a conference. What’s your method to keep an eye on these companies and the backside of that question is. How should a CEO or an investee company look to keep on your radar in a tactful way so they can see or you can see the progress they’re making?

Bruce: [00:10:58] Yes. So as far as how we kind of stay up on on the different companies is… You know, we comb through a lot of research we comb through a lot of press releases, a lot of news releases and financial statements. So we’re sort of constantly doing that. We fortunately have put together some technology and some tools that help us to do that. As far as what a CEO should do to kind of stay on our radar you know we appreciate the direct contact with the CEO. And obviously with a bigger company that’s not always possible if you’re a… you know $50 billion dollar company you probably don’t have time to be phoning us. You probably have an eye our person that does. But we want to be probably kept up to trust with your development you know probably do a marketing meeting a couple times a year maybe once a quarter depending on how fast your business is changing or developing and you know as much as I don’t like e-mails sometimes because I get so much of it. Obviously that’s one way as well. You know we tend to get a lot of press releases or even CEOs or IR people who will say “oh hey, by the way did you notice this?”. And lots of times we already know it. But occasionally you know that’s stuff that we’ve missed. And you know brings it to our attention and we can focus back in on a name.

Cory: [00:12:41] Interesting. And when you speak about… well, in tracking these companies. Is there a balance between the metrics and the story you follow. I mean sometimes it’s there is the performance but you’re looking for the story of the vision for the growth of the company. How do you view that?

Bruce: [00:13:03] Well we look at… We obviously look you know and when we initially meet the company we’re probably interested from a couple of different perspectives. Either the concept sounds really interesting and we feel there’s an opportunity for them to be really successful or you know the numbers look really fantastic and are accelerating and then we sort of find out more about “hey, what is this business really about?” so both of those are what kind of a drive why we look at something but then the numbers are ultimately drive whether or not it stays with us. So like I said we have had examples where we’ve met you know a company at a conference and went “hey, that’s a neat concept. It’s really interesting” and then you just kept watching it and then “hey, you know what? Next quarter they’re going to be cash flow positive. Based on what we what we can see here” and take a position and the stock does really well as the rest of the market kind of recognizes “hey, this company is calling cash flow positive now”. or “hey, I have never heard of this company but hey look out faster growing in their cash flow positive.” So it’s just a function of staying on top of it all.

Cory: [00:14:20] I get you. And what’s that technology look like that that you use to follow these companies?

Bruce: [00:14:28] We use a number of different screening tools, you know as simple as we’ve got obviously pages of Launch Pad pages of Bloomberg on our Bloomberg terminals. And then we have some screens that we use where we have models that we fill for companies and their updated on a fairly regular basis and then as well we use some technology just to view technicals and things like that.

Cory: [00:15:07] Interesting. OK, thanks for that. If we could step back to talk about your cannabis funds and then the blockchain fund. Do you want to elaborate on what you’re looking at there and then the parameters of investment and I saw one headline that you’re gonna look at anything and everything on one of your cannabis funds. But what does that mean?

Bruce: [00:15:28] Yeah. So I mean that’s sort of changed over time. You know we initially started investing in the sector back in 2013 when what’s now canopy was about to go public. We invested in one of the private rounds. We felt that you know kind of over the next 10 to 15 years cannabis was going to be this huge growth business as the acceptance really changed from it being you know sort of this illegal substance that was in the black market to where we felt it was going to come more into the forefront. It’s actually happened a lot quicker than we thought. Initially when we looked at these companies, you know we were probably not unlike a lot other people where you know we were just trying to figure out like what the revenue was going to look like what their costs were going to look like and how much capacity they were going to have and that was you know important “like oh hey, these guys have a license they got a Health Canada lisence and they have this much size of facility.

Bruce: [00:16:29] They have the ability to fund it all. And that was what we looked at. And then you know sort of the next iteration of that was to look at what were some of the other verticals that they could possibly get into. How were they were distributing the product and then we started looking at some of the U.S. opportunities, and some of the international opportunities and now we’re you know we’re looking kind of beyond what traditional sort of people think of cannabis and so now we’re looking at companies that are doing other things. So I met this morning with a packaging company and that’s all they do is packaging for cannabis. You know we’ve met with companies that only do software for cannabis and that’s where we think it goes and we think that eventually it goes to where the pure pharmaceutical market not you know there’s always going to be a recreational slant to it much like there is with you know sort of alcohol or tobacco. But we also think that there’s going to be the huge medical side and then not medical and the fact that you know people are rolling up a dried flower and lighting it on fire. But medical in that you’ll go to your pharmacist and get a prescription and probably have no idea that some of the prescription or all the prescription comes from a compound that came from the cannabis plant and that you know it’s going to cure ailment and you’re going to feel better and you know if you look into it you might discover that that’s what it’s based on but you may not know that either and that’s where we think it gets significantly bigger and obviously that waive probably moves globally as you know we go from what now medical to you know just smoking that dried flower to recreational and then to pharmaceutical. So it’s sort of evolved over time what we look at.

Cory: [00:18:25] That’s really interesting your take on cannabis and I think that the larger picture is what I’m hearing. I mean right now they’re just perhaps it’s just the fanfare and hype of having a newly legalized recreational pastime. And with that so you get a lot of a lot more noise from the recreational side whereas what I’m understanding is your view is that moving this into cannabis, into the world of pharmaceuticals is where the vast amount of growth is going to be and really this becomes a pharmaceutical play and perhaps that’s going to completely dwarf what you’re seeing in recreation.

Bruce: [00:19:07] Yeah I think it certainly has the potential to be massive just as the recreational side is now. And I mean most people are looking at the recreational side thing like okay this is going to be massive but when you think about the plant itself it has been used for thousands of years by humans and but the reality of the situation is that you know the last hundred years really there hasn’t been anything. There hasn’t really been anything from a research standpoint done because there has been more or less prohibition against the plant worldwide and so now you think of the strive to be made the last hundred years from a medical technology and prescription standpoint. Well now all that technology is going to eventually work towards what different compounds of the cannabis plant can help humans that we sort of anecdotally know have been working on human bodies for thousand years.

Cory: [00:20:14] When you’re looking at opportunities that come to you. What’s the bite size you’re going after? And is it, for Stone Castle and your managed funds are you. Are you a lead investor or how do you approach the money that you put in?

Bruce: [00:20:31] You know that depends right. It depends on kind of what the opportunity is. You know, where… how far along the company is? What the liquidity opportunity is? So, you know it’ll vary like sometimes we you know we don’t invest much on the initial round or we might just invest a little. Other times you know we may invest more depending on kind of what stage they’re at.

Bruce: [00:20:55] Yeah I mean we’ll look at it for all of our portfolios. We… believe or not we’ve even held cannabis investment in our income portfolios when you know back when they were paying when they were actually paying us interest on those investments. Now a lot of them are paying shares as the interest but back when they used to pay us interest we would invest in the cannabis sector in our income portfolio as well. So you know pretty much every portfolio has the opportunity to have some exposure if it meets the parameters for that portfolio.

Cory: [00:21:31] Excellent. When when looking at the blockchain side. I mean we’ve got two. Well I think one very hot sector and then blockchain is seem to perhaps peaked a little too early on a little bit too much hype. But there’s… you know I think a lot of people think there’s a lot of value that’s that’s perhaps misunderstood that’s coming down the pipe. What’s your vision of the world of blockchain?

Bruce: [00:22:01] So ten years from now blockchain probably revolutionizes the way we do business in a lot of ways. We don’t necessarily probably even know what that is. You know a lot of people have equated it to what kind of the internet was. Twenty five years ago in that you know there is a group of people that knew about it you a lot of people had heard about it but they didn’t really know what it was going to do. But you know we know you know from anything from sort of smart contracts to logistics it’s going to have an impact. And you know sort where that eventually goes. Nobody I don’t think really has a real strong idea yet. But it’s certainly going to be something that is prevalent. Probably changes the way we do business.

Cory: [00:22:58] Yeah, I can… I agree with you on that. We don’t know yet but there’s no doubt there’s something there. Is there any specific sectors that you find most interesting?

Bruce: [00:23:11] No, Like I mean… so for the blockchain ETF that we managed for First Block it’s really adopters. So like as an example one of the companies that we have in there is Wal-Mart and most people don’t think of Wal-Mart as a blockchain company but we’re looking at it because of what they’ve done on their supply chain and logistics. So typically before if Wal-Mart had sourced produce it would take them seven days to track down where that produce came from. So you have produce that tainted with something and instead of being able to take the time to track down where it came from obviously a health risk. So instead they would just pull all of that product. So if there was lettuce and lettuce was contaminated it would pull all of the lettuce from all of their stores and there is a tremendous amount of food that was wasted because you know some of it didn’t come from the infected area. Now with blockchain they’re able to track down and within seconds they know exactly where it came from. And they also know where it’s gone to. And so you know as a result they can say OK well this truck had the latest on it and it went to these three locations. So you know we have to pull it from there and everything else is good and they know immediately where it is. So, we’re not looking for specific sectors. We’re looking for companies that are using blockchain and that’s how a lot of what the portfolio consists of now is using it from a logistics standpoint or using it from a financial services standpoint. That makes a lot of sense and the financial services companies are just starting to get into that.

Cory: [00:24:55] That’s such a great example and I’ve heard of a number of instances where you’re bringing blockchain into the world of food which is… I mean, what a prime fit. One of the things that you put forward with stone castle is transparency. And this is on your Web site with the values that you put forward and how you interact with your investors. Often times it’s very hard for CEOs to maintain communication let alone communicate in a transparent way especially when tough things happen or things go sideways or perhaps certain things aren’t met. Do you have any stories or examples where transparency has helped companies or CEOs and their businesses stay on side with you?

Bruce: [00:25:47] Well certainly you know… certainly we know that in the business world, you know… things don’t go perfectly all the time and if you’re trying to grow your business there’s going to be, there’s risks to that and there’s gonna be stumbling blocks and so we understand that we obviously don’t want too many of those or ones that have been done as a result of negligence but we understand that those things are going to happen and we understand that you know a management team is going to be watching that and need to be on top of that. As far as you know how they deal with it and how they report it to us. So, does it obviously make us happy if something like this happens? Of course not. But we’re going to have a lot more. We’re going to have a lot more respect for management and probably a lot more staying power with them than if they just pretend it didn’t happen. And I mean typical sort of corporate governance in bigger companies already have that in place. They have risk committees. They have audit committees. They have policies and procedures that make sure that those type of things don’t happen and if they do they’ve already sort of thought of how they’re going to deal with them. We really are starting to find though you know in the cannabis space that can really differentiate management teams in that we have seen examples and I won’t name any names where cannabis companies have had what would be considered sort of catastrophic failures but they’ve tried to just cover them up so maybe they had facility problems or they had crop problems or they’ve had sales problems. And you know they don’t actually come out and say oh by the way we had these problems. So you know we certainly have more respect for the teams that are open and honest and forthright with the information and good or bad.

Cory: [00:28:00] It’s got to be a pretty pretty tough pill to swallow for a CEO to I have to disclose information like that and perhaps have that deeper transparency. I mean in a public light. But yeah, is there any way you’ve seen it done well? To where you decided, you know what? The way they communicated that from the discussions we have we now recognize and we’re going to move forward. Any examples there?

Bruce: [00:28:32] Yeah I mean there’s you know… There’s certainly been examples where you know say a company has some type of misstep. Maybe that’s an earnings misstep for a quarter maybe that they missed the project or they didn’t get a contract or something like that.

Bruce: [00:28:50] And because of the reporting you know where the stock gets punished by the market will step up and invest in it because we go. OK well you know this isn’t a regular occurrence and oh the CFO has explained to us like that. Yeah this happened and here’s the five steps that they’ve taken to alleviate that happening again and oh by the way you know this is what we’ve done since we found out about that and here’s where our business is now and it’s going to be even stronger in six months or a year. As a result we’ve decided to invest more as opposed to running you know running the other way because you know management was trying to hide something and eventually hit the street.

Cory: [00:29:36] I get you I think it’s from there almost taking the opportunity to communicate, explain and then that gives you the opportunity to step in and perhaps average your cost down in something that you have a belief in that’s definitely a good company. So with all that you have going on now. And this is more of a of a general question. What projects are most exciting? I mean across six funds and some very exciting industries, where are your eyes set and what have you got your sights on?

Bruce: [00:30:10] Yeah, I mean like we’re you know we’re watching everything. Because we have generalists funds and we’ve got an income fund and we have to sort of be watching everything. So you know, I’ll do an analyst call on mining and hang up and do an analyst call on our company call on cannabis and then you know read a blockchain report and followed up by you know financial services. Right. And we kind of cover cover the gamut obviously with the specialization that we’ve done recently in the cannabis sector probably takes up a little bit more of our time than the other businesses. So I mean we still find that quite exciting because we think that there’s going be a huge change to that business and that sector over the next decade with blockchain. But that being said we have generalist funds where people are paying us to manage those funds and we’re still trying to figure out like… does this company have the ability to grow and if it does you know does everyone see it? And is it priced into the stock? And if not, can we invest and make you know make outsized returns on this? So know we’re really looking at everything.

Cory: [00:31:32] I got you on that. OK. So to wrap up. Can you share any final thoughts for CEOs or IRR professionals on the best ways to communicate with you? The best ways to communicate the market for their companies?

Bruce: [00:31:51] You know with the age of technology it should be relatively simple. You know we’re looking at people who are consistent with their communication. So you know kind of comes from the same consistent format. You know we kind of know what to look for with so much information flow nowadays. Obviously you know short and concise is better than not if we wanted more information we can always reach out to people. But if if it’s too long winded chances are you get believe that that could be a voicemail or an email or a press release. You know we just don’t read it all and I mean our attention spans are short as everyone else does. So you know clear and concise is probably… is the way to go from from that perspective.

Cory: [00:32:47] I appreciate the note that even as a heavy heavily analytical profession your attention span is as short as everyone else’s.

Bruce: [00:32:56] Yeah, sure.

Cory: [00:32:58] And for anyone or for our listeners. Anyone who would like to follow your work or get in touch with you or Stone Castle, what would be the best path to do that?

Bruce: [00:33:10] As far as following our work goes I mean there’s kind of lots out there. So we put together, for the two funds that we manage or Purpose we put together what we call our holdings report which goes out every two weeks from our office. And it actually details all of the holdings in the portfolio. So when you talked about transparency earlier this kind of hits that point in that you can see a snapshot in time of exactly what we own in the portfolio. If you look at it two weeks later you can see exactly what was changed in the portfolio. We also talk about our top down approach whether or not we’re on offense or defense you know exactly what our thoughts are. We run a distribution list for that. I sent out as an e-mail with a with the link and you just send an e-mail to you can be added to that list. In addition to that we’ve put out a monthly commentary for our own stone castle fund. We’ve put out commentaries for the Spartan fund which is the Stone Castle Cannabis Growth Fund on a monthly basis as well. And then for the CGOC, the Cannabis Growth Opportunity Corporation we do a quarterly webinar where we participate and get some thoughts on that. I’m on Twitter as well so @SC_Funds is me and you know quite often I’ll post stuff about kind of what we’re looking at or what we see. Also you know [00:34:44] we’ll keep up on [0.4] updates as far as whether or not we’re on offense or defense or if we’re having a webinar on our top down indicators which we do once a month. And then as far as you know for people who are interested in our Stone Castle Fund then yeah you can reach out to us by phone or in our details are at or again send an email to

Cory: [00:35:11] I’ll put that information in the show notes and otherwise Bruce I want to thank you for your time. You brought some really interesting insights there and I’m sure it’s going to be valuable to many others so thank you very much.

Bruce: [00:35:25] My pleasure.


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