Creative Edge Nutrition, Inc. (OTCPK:OTC:FITX) is a Michigan-based nutritional science company that formulates, develops, and sells diet and health-oriented nutrition products through its operating subsidiary Cenergy. However, more interestingly, FITX is also involved in the production and selling of medicinal dried cannabis through its Canadian operating subsidiary known as CEN Biotech.
Since the beginning of the new year, the company has been pumping out more press releases than the number of public companies in the medicinal marijuana space being pumped. Additionally, many investors are speculative and remain on the sidelines due to the industry's current non-revenue generating nature, but that may no longer hold true for FITX in the coming months.
In late December of 2013, FITX received regulatory approval from Health Canada to build a facility designed for the commercial production of medicinal dried cannabis on an agriculturally zoned 10.3 acre site in the town of Lakeshore, Ontario, Canada. As of this past Monday, the CEO announced that the company has accelerated the construction process of its current 27,000 square foot facility and expects completion in roughly 8 weeks. This would put the company up for final inspection in early April before officially receiving a golden ticket to the green factory (Licensed Producer).
Additionally, the company plans to develop and release 50 strains of dried cannabis via proprietary technology and ip through a private partnership with RXNB. Furthermore, FITX has filed to produce and export 1.3 million pounds of dried cannabis, crowning itself as the largest producer in Canada's soon-to-be free market.
Since 2001, ailing patients in Canada were granted access to medicinal dried cannabis through its Marihuana Medical Access Regulations (MMAR) program. Under this program and if approved, patients have the following three options to obtain a legal supply: direct purchase through Health Canada, apply for a personal-use production license, or designate someone to cultivate on their behalf.
However, due to system abuse, crime, fire hazards, and ongoing concerns, a new system was introduced by the Canadian government in 2013 and hence, a legal free market, known as the Marihuana for Medical Purposes Regulations (MMPR) program, was born. In this new system, licensed users will be allowed to pick and choose between a variety of dried cannabis strains and multiple licensed producers in an open market at various prices starting April 1, 2014.
Currently, there are 6 Licensed Producers and free market projections put the average price per gram at $7.60 versus the going "street" price of $10-$12 per gram. Additionally, Canadian officials are projecting the free market to reach $1.3 billion in annual sales and to serve roughly 450,000 licensed users by 2024. Other important statistics can be found below:
- Current licensed users in Canada: 37,395
- Current personal-use licensed growers in Canada: 25,600
- 569 grams: estimated annual avg medicinal usage per patient
- 190,000+ kg of cannabis licensed out for consumption in 2013
Based on the figures above and assuming that all 37,395 licensed users purchase directly from a Licensed Producer, total industry revenue can potentially reach $161mm in its first year. However, due to resistance towards the new program some licensed users will continue to grow in-house, so, to be ultra conservative if we assume 50% participation rate in MMPR, we can still expect to see $81mm in annual sales.
In addition to FITX's market potential, the company has positioned itself to execute and fire on all cylinders once it receive the green light (inspection of its facilities) from Health Canada to start production. Main takeaways are:
- GrowLife (OTCQB:OTCPK:PHOT) - Interest Purchase Agreement
- Competitive pricing on growing equipment
- FITX receives 235,294,118 PHOT shares at $0.17 p/s ($40mm)
- OGI receives 25% ownership in CEN Biotech via PHOT
- OGI receives 7.7% of CEN revenues quarterly via PHOT
- OGI receives $100mm once FITX reaches 1 million lbs in total production and sales volume combined via PHOT
- RXNB Inc. - Licensing & Operating Agreement
- Access to patent pending THC research and development
- Access to patent pending cutting edge grow technologies in the field of medical marijuana (35 day grow cycle)
- Future access to 2,700 clinicians across the US
- Endexx Corporation (OTCPK:OTCPK:EDXC) - Contractual Agreement
- M3 technology - seed to sale tracking platform
- Phoenix Distribution - Sales & Distribution Agreement
- Access to Australian medicinal cannabis market via 500 stores
- Access to New Zealand medicinal cannabis market via 300 stores
There are two major milestones for FITX that I am anticipating. First, once the construction of its 27,000 square foot facility is complete it must receive final approval from Health Canada via inspection to become a Licensed Producer in Canada. We can expect this to happen in early April and if FITX receives approval, the PHOT IPA will kick in, sending a payment of $80mm in stock (PHOT share price @ $0.34) to FITX.
Second, if all goes well and approved to be a Licensed Producer, we can expect FITX to start selling in June/July. With the confirmation of sales and additional data (margins, total revenue, and market penetration) we will be able to quantify a more accurate picture of the Canadian cannabis market.
Disclosure: I am long FITX.