2015 Canadian Medical Marijuana Outlook: Foggy with Sunny Patches

James West
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Companies Discussed in this Article

The Canadian Medical Marijuana experience for investors has for the most part been a tremendous letdown thus far. When Tweed Marijuana Inc. (TSX.V:TWD) lost 10 percent on its first day open of $3.32, and as of Friday last week accumulated a total YTD loss of 41 percent, the writing was on the wall.

Of course, that does not apply to insiders and early stage investors. Tweed founders paid as little as $0.15 a share, and their instant wealth came at the direct expense of retail investors.

But that is the game, and anybody who cries about it has no business investing in it.

Since Tweed’s underwhelming debut, there have been millions of dollars vaped by both licensed producers who are publicly traded, publicly traded mining companies who say they are on the cusp of a sex change, and even private co’s who are locked in liquidity limbo as their applications for production licenses flutter uselessly in the wind like war-ravaged flags. ‘Burn rate’ has taken on a whole new meaning in this context.

From the abysmal and bizarre rantings of CEN Biotech’s embarrassing and ludicrous claims that its going to produce “600,000 kilograms” of dried marijuana per year, to the quiet sophistication of Bedrocan Canada’s automated no-touch production systems for genetically identical strains of pharmaceutical grade marijuana, the range of experiences for investors mirrors the range of credibility in the industry.

A year into the publicly traded marijuana company experience, profit and capital gains remain elusive. So what’s the prognosis? Where is there a credible forecast on who’s going to win and who’s going to lose?

The Canadian Securities Regulators, in classic ‘slam-shut-the-barn-doors-after-the-horses-escaped’ form, issued a second warning against the medical marijuana industry as a whole.

As with any industry, there are always an evolving set of threats and opportunities that are exacerbated or ameliorated according to individual strengths and weaknesses.

Here then is an overview of those threats and opportunities, followed by a summary take on each of the publicly traded medical marijuana companies.

Industry-Wide Threats Specific to Canadian MMPR Companies

There are two significant threats to the entire MMPR-regulated roster of companies that could send the entire industry into a terminal downward spiral.

The Allard Case
Just before the official MMPR rules took effect on April 1st, 2014, a group of medical marijuana users who were licensed under the forerunner to MMPR, Medical Marijuana Access Regulations, challenged in the Supreme Court of British Columbia the constitutionality of being forced to source their weed from MMPR registered growers.

They were successful, and obtained Injunctive Relief from Judge Michael Manson who found that, among other conclusions,

“The Applicants who held, as of September 30, 2013, or were issued thereafter a valid Personal-use Production License pursuant to section 24 of the Marihuana Medical Access Regulations, or a Designated-person Production Licence pursuant to section 34 of the Marihuana Medical Access Regulations, are exempt from the repeal of the Marihuana Medical Access Regulations and any other operation of the Marihuana for Medical Purposes Regulations which is inconsistent with the operation of the Marihuana Medical Access Regulations, to the extent that the Designated-person Production License or Personal-use Production License held by the Applicant shall remain valid until such time as a decision in this case is rendered at trial and subject to the terms of paragraph 4 of this Order”

So they are allowed to continue to grow their own and source their own until the outcome of the supreme court appeal by Health Canada, now in its fourth week in Vancouver, British Columbia.

The implication, if the Supreme Court decides to permanently enshrine an individual’s right to grow their own marijuana in law, is that all Canadian medical users of marijuana might then have the right to produce their own pot over sourcing it from MMPR growers, thus undermining the entire investment thesis of the industry.

Growers who I’ve spoken with disagree, and uniformly opine that regardless of the outcome of the Allard challenge, MMPR will apply to all subsequent prescription holders of medical marijuana. That belief, however, is inconsistent with history, and smacks more of a belief in what they need to believe.

So that’s one major potential wrinkle in the blanket.

Vancouver Cops Not Enforcing Laws
Meanwhile, in Vancouver, city police have elected to ignore the law against marijuana sale and possession, which has given rise to at least 60 new ‘dispensaries’ that provide weed for as little as $4 a gram. While there is supposedly a requirement for a doctor’s prescription, those without can log onto Skype and receive one in under two minutes simply by claiming stress as a medical condition. Essentially, this is a wide open market for recreational marijuana.

This is tantamount to undermining the viability of licensed producers and of the entire MMPR regime. If these unregulated and thus lower cost vendors are allowed to proliferate, it will be very difficult for MMPR producers to garner market share.

In the United States, Washington State growers are already going out of business en masse thanks to a glut of supply, and the same is nervously anticipated in Colorado. The problem of course being that, at the end of the day, marijuana is about as tough to grow as canola, and will suffer commodity pricing as a result. Thus only the biggest, cheapest growers will survive.

Performance Lacking

Here’s the visual summary of the publicly traded MMPR producer’s performance to date. The order reflects the order in which the companies went public.

Tweed Marijuana Inc.

(TSX: TWD.V)

Last Trade: 2.02 Day’s Range 2.002.10
Trade Time: Mar 17 52wk Range: 0.01 – 4.75
Change: down-0.07 (-3.35%) Volume: 122,122
Prev Close: 2.09 Avg Vol (3m): 119,798
Open: 2.10 Market Cap: 82.09M
Bid: 2.01 x N/A P/E (ttm): N/A
Ask: 2.08 x N/A EPS (ttm): -0.30
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

Listen to an interview with Tweed Marijuana CEO Bruce Linton:


Bedrocan Cannabis Corp

(TSX: BED.V)

Last Trade: 0.77 Day’s Range 0.750.77
Trade Time: Mar 17 52wk Range: 0.50 – 1.45
Change: up+0.03 (+4.05%) Volume: 189,687
Prev Close: 0.74 Avg Vol (3m): 211,348
Open: 0.75 Market Cap: 53.49M
Bid: 0.76 x N/A P/E (ttm): N/A
Ask: 0.78 x N/A EPS (ttm): -0.02
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

Listen to the interview with Bedrocan CEO Marc Wayne:


OrganiGram Holdings Inc

(TSX: OGI.V)

Last Trade: 0.43 Day’s Range 0.430.46
Trade Time: Mar 17 52wk Range: 0.07 – 2.40
Change: down-0.03 (-6.52%) Volume: 136,119
Prev Close: 0.46 Avg Vol (3m): 97,601
Open: 0.46 Market Cap: 21.94M
Bid: 0.43 x N/A P/E (ttm): N/A
Ask: 0.44 x N/A EPS (ttm): -0.41
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

Listen to an interview with OrganiGram CEO Denis Arsenault:


T-Bird Pharma Inc.

(TSX: TPI.V)

Last Trade: 0.495 Day’s Range 0.4950.55
Trade Time: Mar 17 52wk Range: 0.35 – 0.95
Change: down-0.035 (-6.60%) Volume: 58,306
Prev Close: 0.53 Avg Vol (3m): 74,405
Open: 0.53 Market Cap: 22.805M
Bid: 0.495 x N/A P/E (ttm): N/A
Ask: 0.55 x N/A EPS (ttm): -0.04
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

Listen to an interview with T-Bird Pharma CEO Robert Gagnon:


Mettrum Health Corp.

(CDNX: MT.V)

Last Trade: 2.00 Day’s Range 2.002.00
Trade Time: Mar 17 52wk Range: 1.50 – 2.49
Change: 0.00 (0.00%) Volume: 2,590
Prev Close: 2.00 Avg Vol (3m): 13,838
Open: 2.00 Market Cap: 67.43M
Bid: 1.95 x N/A P/E (ttm): N/A
Ask: 2 x N/A EPS (ttm): -0.27
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

No Interview with Mettrum CEO Michael Haines despite multiple invitations:


PharmaCan Capital Corp

(TSX: MJN.V)

Last Trade: 0.60 Day’s Range 0.590.60
Trade Time: Mar 17 52wk Range: 0.48 – 1.00
Change: down-0.02 (-3.23%) Volume: 8,000
Prev Close: 0.62 Avg Vol (3m): 48,067
Open: 0.60 Market Cap: 9.22M
Bid: 0.5 x N/A P/E (ttm): N/A
Ask: 0.62 x N/A EPS (ttm): -0.17
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

Listen to an interview with PharmaCan CEO Paul Rosen:


Aphria Inc

(TSX: APH.V)

Last Trade: 0.87 Day’s Range 0.840.87
Trade Time: Mar 17 52wk Range: 0.40 – 1.20
Change: up+0.05 (+6.10%) Volume: 30,187
Prev Close: 0.82 Avg Vol (3m): 85,669
Open: 0.84 Market Cap: 33.65M
Bid: 0.78 x N/A P/E (ttm): N/A
Ask: 0.87 x N/A EPS (ttm): -0.12
1Y Target Est: N/A Div & Yield: N/A (N/A)
Chart showing the development of {0:name}

No Interview with Aphria CEO Vic Neufeld available despite repeated invitations.

Buy, Sell or Hold?

A lot of investors have rushed into the medical marijuana sector and lost their money. There is a new wave of publicly traded marijuana companies on the horizon, though these typically are not pure producers. MidasLetter ranks and quantifies all the producers publicly listed in Canada for subscribers.

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.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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