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Summary

  • These Canadian laws are very different: MMPR is highly regulated with safety/quality lab-tested assurance and MMAR is not adequately regulated/open for abuse with safety/quality not enforced.
  • Unregulated MMAR marijuana gray/black markets are associated with endangering safety and the youth, as well as increasing crime.
  • Canada has increasing debt and an illicit drug (marijuana) crime burden, which could be reduced with the MMPR and its potentially large market cap.
  • MMPR provides faster and easier access to safer MMJ; MMPR has the capability of diminishing illegal grow-ops. However, if MMAR coexists with MMPR, MMPR will likely surpass MMAR.
  • There are a few existing licensed MMPR companies and many applicants, and I list here several potential prospects that I believe will meet MMPR's criteria.

There has been a lot of interest in cannabis stocks lately in both the United States and Canada. However, the cannabis stocks recently developed in Canada have tremendous potential and actually much more potential than most United States cannabis stocks as marijuana is currently federally illegal in the U.S. The Marihuana for Medical Purposes Regulations (MMPR) law has recently been put into effect in Canada and allow for commercial companies to manufacture and distribute marijuana (and any activity in between seed to sale), which has also allowed imports and exports through some of these companies.

There is considerable controversy in Canada in regard to the Marihuana for Medical Purposes Regulations (MMPR) and the Medical Marihuana Access Regulations (MMAR) laws. The MMAR was supposed to be effectively dissolved on March 31, 2014. However, on March 21, 2014 a judge has reversed this order allowing people to grow, sell, and consume marijuana under the MMAR laws. During that time the MMPR had not been effectively established (supply could not meet demand and/or strains needed were not available, with the required THC/CBD levels) on or by March 31, 2014. This ruling has been appealed and production has begun for companies with MMPR licenses. In this article, I will present details about the MMPR, MMAR and various related issues.

The MMPR

The Medical Marihuana Purposes Regulations (MMPR) recently came into existence on April 1, 2014. These laws were created to "provide access to quality-controlled marihuana for medical purposes, produced under secure and sanitary conditions, to those Canadians who need it, while strengthening the safety of Canadian communities. In addition, the new regulations will also enable more choices of marihuana (marijuana) strains and licensed, commercial suppliers," according to the Minster of Health. Basically, MMPR was made to replace the MMAR and effectively reduce the number of people that are abusing the MMAR laws, illegally profiting, increasing safety of both the product and the environment it is being created in, while making it more accessible and more affordable to retail consumers of MMJ.

The main purpose of the MMPR is to regulate companies that produce MMJ. According to Health Canada, these companies will be subject to a "comprehensive compliance and enforcement regime for licensed commercial producers, centered on regular audits and inspections." MMPR companies will have to be compliant and comprehensive with record keeping, security, and quality control. The MMAR on the other hand, has no enforced safety and inspection requirements.

The Medical Access Regulations (MMAR)

The Marihuana Medical Access Program (MMAP) was established in 1999. MMAP decided to severely limit medical marijuana (MMJ) to those that were in need. In July 2001, the MMAP was replaced by the Marihuana Medical Access Regulations (MMAR). These laws were created to authorize persons to possess dried marijuana/seeds, produce marijuana, and allow designated-person (third-party) production with the support of a physician. Basically, the MMAR was designed to allow people with illnesses/ailments to produce/consume MMJ for the purpose of therapy and treatment. The number of growers/users has been vastly increasing over the years. While many people with a medical condition are benefiting from MMJ under the MMAR laws, it has been deemed to be open to abuse. The MMAR has not kept adequately addressed concerns regarding youth, safety, crime and product quality.

Unregulated Cannabis Gray/Black Markets Associated with Endangering Safety, Crime and the YouthSource: Statistics Canada's Website.

Many grow operations exist in residential areas where children are also present and are exposed to marijuana and chemicals, which is a valid safety concern. More specifically, besides the chemicals, pesticides, allergens, marijuana by-products being put in the air, there are "electrical fires, serious mould problems and violent home invasion by criminals," according to Health Canada and Royal Canadian Mounted Police.

However, the most alarming issue is that organized crime or individuals operating outside the law have been thriving off the sale of marijuana. It is relatively easy for members of these organizations or individuals that decide to illegally grow/profit off of marijuana to obtain seeds, clones, dried herb, extracts, and growing equipment. Canadian law enforcement has been struggling with these organized criminals and individuals operating outside of the law for years, and you can see by the influx of arrests during these various years since 2001 it has an average of 68,000 with a range of 60,000 to 80,000 marijuana arrests a year.

Canada today has no laws supporting recreational use and mandatory criminal offenses in which probation/fines and/or jail/prison time is almost always assumed if that person is charged. Besides that aspect, individuals operating outside the law can effectively have an "off the record" relationship with a grower or somebody that knows a grower. Thus, MMAR is a gray market, which effectively allows a black market to exist.

Youth Accused of Police-Reported Drug Offenses

Source: Statistics Canada.

As you can see from about 1999 to 2007, you see an increasing trend of youth being accused of a drug offense. The MMAP began in 1999 and the MMAR took over in 2001 and is still in effect. Perhaps seeing MMJ usage or it becoming more widely available made youths more susceptible to drug use. If MMAR is still in effect, one would expect the youth to be more susceptible to high levels of cannabis use and this number will likely increase. If the MMAR is dissolved then youth drug use would likely diminish, as law enforcement will be able to more easily detect and deter illegal grow-ops.

Canada's Debt and Crime Rate Burden

Source: Officer of the Auditor General of Canada.

In a General Auditor Report addressing illicit drugs and the federal government's role, it is estimated that cannabis (marijuana) accounts "for over two thirds of the charges, and about half of all charges were for possession." It also states that the economic costs of illicit drugs "include costs of health care system, lost productivity, drug enforcement costs, and property crime… exceed $5 billion a year." That's a lot of money that could significantly be reduced if MMPR succeeded the MMAR.

Marijuana, Its Prices and Estimated Market Cap (Varies)

The price of marijuana usually depends on four factors: quality, yield, availability, and potency. Typically, MMJ in Canada has ranged from $5-$12 a gram (pharmaceutical, high-grade MMJ, indica and/or sativa hybrids, not lower grades) with a few common outliers ($2-$3, this is the cost of growing MMJ to a private/personal MMAR grower and sometimes this price is passed on to consumers whom they usually know on a personal level or a "friend of a friend") and some MMPR and MMAR dispensaries ($8-$12, a lot depends on those four factors). There are even some companies under the MMPR laws that are actually offering marijuana for lesser prices than MMAR dispensaries, but typically both MMAR and MMPR dispensaries offer marijuana to the retail MMJ consumer at prices ranging from $5-$12 per gram, most strains fall in between the $5-$8 range.

It is estimated that there are 2.3 million Canadian marijuana users and roughly 770,000 kg of annual consumption of marijuana (Canadians purchasing illegal marijuana or "self-medicating" are paying $8-$20 a gram). It is reported that there is currently 40,000 registered MMJ users, I believe this number is a conservative estimate, but it is difficult to document the actual amount of MMJ users under the MMAR laws, and more MMJ users will come to light as the MMPR progresses.

MMJ users typically range from moderate users (1-3 grams a day) to chronic users (4-10 grams a day). The MMPR will easily receive 30,000 to 40,000 MMJ users, which would result in an annual market cap of $219 M (30000 X 365 annual X 4g/day X 5 average price per gram) to $511 M (40000 X 365 X 5 X 7). So let's say the MMPR captures half the "annual consumption of marijuana," we would have an annual market cap of $1.54 billion to $3.08 billion, MMPR will likely capture at least a quarter of this market, which is an annual market cap of $770 million to $1.54 billion. Please keep in mind that these numbers could easily be incorrect and actually be much greater since a lot goes undocumented with the MMAR in effect. But also watch what happens with the MMAR and how many MMPR companies exist (currently 13, maybe 10-30 more within this next year), as this will affect the market cap.

Making MMJ Faster, Easily Available and Safer for the Patient

It is actually easier for MMPR patients/consumers to "legally" obtain MMJ in comparison to people that were "legally" obtaining MMJ under the MMAR. This means that MMJ patients/consumers now no longer need to streamline their information through Health Canada, which can be a difficult and longer process. These MMJ patients/consumers can go through an established MMPR company, use either a signature from a nurse practitioner or a physician, and legally obtain up to 3x the amount of their assigned amount (prescription) or 150 grams, whichever is lesser. These companies may also allow copayments, insurance programs, promotional activity and discounts which is beneficial for MMJ patients, as it can increase cost efficiency and accumulation.

Whereas MMPR provides for regulated MMJ, under MMAR such regulation is lacking and the MMJ is not tested nor is quality assured. This may not be that important to a recreational user, but if health is involved this is an extremely important aspect that is currently going ignored under the MMAR laws. MMJ will be thoroughly tested to insure quality and product safety under the MMPR laws. Quality and safety of MMJ can easily be jeopardized by the fertilizers used, pesticides, byproducts, bugs, male/female plants, what comes in contact with the plants (where it is grown), and many other variables. It is necessary that these MMJ patients receive the highest-quality and safest marijuana available to help alleviate and hopefully eliminate symptoms and ailments, instead of posing health risks which some MMJ (under the MMAR or black market) could very well be doing, especially if it is not tested or if the grow sites are not inspected.

How MMPR Will Successfully Diminish Illegal Grow Operations (if the MMAR Is Discontinued)

If the MMAR is dissolved, I hear a lot of misconceptions that people will be turning to the "black market," people will grow illegally and the MMPR will not be successful. The government can easily enforce the disbandment of the MMAR while successfully implementing the MMPR. These are the ways that most illegal grow operations could be effectively discontinued:

1. Marijuana (Cannabis) emits a gas and uses lighting that can be detected by infrared sensors. Helicopters can use infrared sensors and easily fly over buildings and areas to discover marijuana grow operations. This would be most effective in cities and smaller heavily populated areas, still possible for rural areas, but keeping watch on roads from rural to more populous areas would be effective as well. Law enforcement has been using this method for years.

2. It takes a great amount of energy/electricity to grow marijuana. Typically marijuana is grown in light cycles, this is easily identified by electric companies and often flagged if 'suspicious activity' is suspected. Consequently, the electricity company and/or law enforcement will investigate the issue. Again this method has been used for years.

3. Specific supplies and equipment are required for growing marijuana. If this equipment is ordered or bought it can be also flagged and investigated as suspicious behavior. Law enforcement has been using this method for years as well.

4. Perhaps the most common method of eliminating illegal activity to date is people telling on each other or "snitching."

If MMAR is declared dissolved, these methods would effectively diminish any illegal marijuana cultivation and any further illegal process such as distribution and promotion of cannabis to youth.

How MMPR Will Surpass MMAR (in General)

It is possible for the MMAR to be allowed to coexist and if that happens MMPR will likely dominate the MMJ scene, however there will be various issues, which could make growth slower. The MMPR companies are offering varieties of outstanding quality MMJ which is quality/safety controlled, consumers know exactly what they are consuming and they are operating within the safety and standards of that company and government. The MMPR allows MMJ patients to benefit from marijuana and not have to worry about any negative legal repercussions (huge benefit) and to know that the MMJ doesn't contain any harmful byproducts, since it is thoroughly tested for quality and safety (another huge benefit). It is much easier and affordable for people to legally obtain MMJ under the MMPR, since now you can have a nurse practitioner or physician sign your MMJ acquiring document, vs. under the MMAR only a physician can allow a patient to acquire MMJ.

History from different industries and markets have indicated that commercialization and capitalization usually wins -- e.g., Walmart, Sam's Club, CVS and Walgreens vs. Mom and Pop; Redbox or Blockbuster, Hollywood Video, Mom and Pop Video Rental Outlets; eBay... Of course, down the line you'll have some Best Buy/Circuit City/Radio Shack issues or Google/Apple/Microsoft issues (apples to oranges, I know, but similar concepts), but we'll get to those issues when we reach them down the road. It is important to remember people had placed doubt on all of these businesses and their reception. Ultimately having more product, more choices, cheaper prices, and better quality usually succeeds the competition.

MMPR's Existing Companies and Potential Prospects

There are total of 13 companies with MMPR licenses, with only one that is publicly listed on the TSX (Tweed/TWD/TWMJF), and a few others are in due process. There are currently 600+ applicants for an MMPR license, due to the various safety, regulatory, and efficacy requirements it is likely that less than 10%-20% of these companies will receive an MMPR license. The companies that already have their MMPR license are currently producing marijuana, soon this newly formed industry will be at full capacity.

Existing Companies That Are Publicly Listed

Tweed Marijuana (V.TWD, TWMJF*)

Market Cap

114M

Shares Outstanding

35.3M

PPS

2.99

Website

http://www.tweed.com

*TWMJF is a trade reporting instrument/a reflection of the foreign shares, not additional shares being listed. The ticker is valid for trade and was created when foreign shares of Tweed Marijuana entered into a U.S. account, it was not requested by Tweed.

Bedrocan (in the process of going public) -- http://www.bedrocan.ca

Potential Prospects That Are Publicly Listed

Medican Enterprises (OTCQB:OTCQB:MDCN)

Market Cap

66.5M

Shares Outstanding

40.3M

PPS

1.65

Website

http://www.medicaninc.com

Abattis Bioceuticals (OTCPK:OTCQX:ATTBF)

Market Cap

51M

Shares Outstanding

47.6M

PPS

.98

Website

http://www.abattis.com

Affinor Resources (C.AFI/RSSFF)

Market Cap

15.6M

Shares Outstanding

35.4M

PPS

.38

Website

http://www.affinorresources.com

Enertopia/Lexaria (OTCQB:OTCQB:OTCQB:ENRT/OTCQB:OTCQB:OTCQB:LXRP)

Market Cap

22M / 5M

Shares Outstanding

87.3M / 18.6M

PPS

.25 / .25

Website

http://www.enertopia.com / http://www.lexariaenergy.com

CEN Biotech Inc. (OTCPK:OTCPK:FITX)

Market Cap

297M

Shares Outstanding

3.4B

PPS

.087

Website

http://www.cenbiotechinc.com

Modern Mobility Aids (OTCPK:OTCPK:MDRM)

Market Cap

24M

Shares Outstanding

195.5M

PPS

.12

Website

http://www.marijuanahmo.com

Supreme Pharmaceuticals (OTCPK:OTCPK:SPRWF)

Market Cap

7M

Shares Outstanding

144.8M

PPS

.045

Website

http://www.supremepharmaceuticals.com

There is definitely vast potential in this newly formed industry. I feel that ultimately MMPR companies will capture a vast majority, if not all MMJ users and this upward trend will likely continue as the MMPR continues to exist. Ultimately, MMPR companies and their potential is largely underestimated.

Due to the current market caps, amount of shares, and PPS of these publicly listed MMPR applicants there is the possibility of companies dramatically increasing their PPS due to the anticipation and/or reception of an MMPR license. Companies will likely increase their value as the chances of receiving an MMPR license increase, such as recruiting exceptional leadership/experts and acquiring interests which are progressive towards receiving an MMPR license and their business. Those with MMPR licenses are likely to increase their PPS with increasing demand and supply issues, anticipation of earnings, and various catalysts pertaining to that particular company and/or the marijuana industry within Canada. Increased earnings could lead to further progression in the industry and dividends.

This is a very important time period for both MMPR applicants and licensees. When reviewing and considering whether or not to invest in an MMPR company, it is very important to look at the company's management when deciding if a company can fulfill the numerous tasks required by the MMPR. I believe the prospective companies I've listed will meet the necessary criteria, but whether or not they receive an MMPR license is a different story. Please do not make any decisions solely based on this article, research the MMPR/MMAR/Canada topic yourself and make your own decisions. Whether or not you're investing in the MMPR, I think it's definitely very interesting what is happening with these companies, the MMPR, the MMAR, and Canada, in general.

Comparing and contrasting the MMPR to the MMAR is a sensitive issue, but unfortunately the MMAR has been repeatedly abused and has in turn caused negative impacts on Canadian society, safety, economy and possibly even health since people growing under the MMAR are not testing for product safety (mold is a prevalent issue and has been discovered in grow-ops). MMAR may or may not continue to exist, it seems that MMAR makes it easy for people with MMAR licenses to grow/consume MMJ but as a result is indirectly/directly causing a negative impact on Canadian society/economy, as well as possible health and safety risks. I believe that MMPR's testing and regulation of MMJ, as well as increasing the accessibility and availability of MMJ will give MMPR a significant advantage regardless. Whether the market cap of Canada's MMJ industry proves to be $219 million or $1.3 billion, this number will likely increase as time progresses.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Canada And Cannabis: The MMPR, The MMAR, And The Great Debate

Additional disclosure: I may also initiate a long position in V.TWD, MDRM, and/or SPRWF over the next 72 hours