CSA Warning on Medical Marijuana Co.s Too Little, Too Late

James West
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Shutting the barn door after the horses have already escaped is the image that comes to mind on the alert issued by Canadian regulators pertaining to medical marijuana investments in Canada.

I suppose it could be considered laudable that the Canadian Securities Administration has finally piped up about the dubious nature of the majority of medical marijuana pubcos raising money from investors across Canada. Never mind that the TSX Venture Exchange and the Canadian Securities Exchange have been accommodating to say the least, and duplicitous at worst. The problem lies in the fact that the first wave of would-be medical marijuana companies are now plump with freshly plucked investor dough, and the rising prices they warn about have already reversed, in many cases, vapourizing investor wealth in the process.

For the record, there is just one publicly traded, medical marijuana company in Canada who is actually growing and shipping medical marijuana to patients. That is Tweed Marijuana Inc. (TSX.V:TWD) .

All the rest of the public companies are either pursuing a different angle on the nascent industry, or have merely submitted an application to Health Canada, who is rejecting them by the hundreds (literally) each month. Yet the TSX and the Canadian Securities Exchange continue to list companies whose business model is reliant upon the acquisition of a commercial growers license. Many of these companies are publishing press releases that are downright misleading in their language, and they engage less-than-scrupulous IR firms who project their ebullient messaging under the guise of third party endorsement.

Is it any wonder the TSX Venture and the Canadian Securities Exchange struggle endlessly with credibility issues when it comes to their international reputations? How can investors even consider either exchange when the regulators can’t even differentiate between a viable business and a complete pipe dream?

Admittedly, the very nature of a ‘venture’ exchange is to provide a forum where entrepreneurs can access capital, and where investors can speculate on the success of such entrepreneurs in their ‘ventures’. However, the function of the regulator should be the scrutiny of the proponents’ histories in terms of creating (or destroying) shareholder value, and the basic premise that the business is predicated on.

We may as well compare these companies to mining companies, since most of them once were, and some of them still are, mining companies. In order for a mining project to pass muster with the TSX Venture Exchange, the project has to be located in a place where mining and exploration is unequivocally allowed. A company that tries to register claims on Antarctica or in downtown Toronto is not going to be approved to solicit investment from unsuspecting investors.

Nor should a company who is not permitted to grow or sell marijuana be allowed to raise money from unsuspecting investors on such a premise. The degree of separation between the approving exchanges and the Canadian Securities Administrators is unlikely to be considered by international investors. To all appearances, it appears that the regulators are in fact duplicitous in the listing of highly improbable issuers.

The ability to raise capital from Canadian investors for legitimate business ventures will become tougher and tougher if this laissez-faire, caveat emptor environment is allowed to persist. The reputation of Canada as a whole as a place to invest suffers as result.

James West

James West

Editor and Publisher

I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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