It is not a prank. Come April 1st, not only will Canada's MMPR program roll-out but also Uruguay's* legalization of marijuana will take effect. Investors can smell the green. While investors in the US are patting themselves on the back for monumental Colorado and Washington, these countries are implementing historic reform that will change the face of the marijuana business, forever.
Canada, ahead of the curve
I've mentioned this before but it bears repeating: Canada's Medical Marijuana Purposes Regulations (MMPR) program is a game changer. MMPR allows corporations to legally grow, sell, ship, and destroy marijuana. It also allows businesses to export and import the green machine. As more countries deregulate the herb, Canada will be at the forefront to meet the demand.
There are many exciting players in this industry, some of which are already public. I'll look at four companies: Enertopia, Cen Biotech of Creative Edge Nutrition, Tweed, and Abattis Bioceuticals. With the exception of Tweed, each company is traded publicly. Tweed bears mentioning because of its plan to go public. Each company presents a nice pitch, making investors salivate at the prospects. I'll try to be as fair as possible.
This list is not exhaustive. Everyday there are new players. Although 'new' is not quite the right word. There has not been a 'new' marijuana company for a while. Since most of the new players are not really 'new,' I would approach with caution. Before investing in any of these companies spend some time looking at past filings. For Canadian companies, go to sedar.com. For US, go to sec.gov. Always do your own due diligence. This is not my money you are investing. It's yours.
Enertopia (OTCQB:ENRT) and The Green Canvas
The name 'Enertopia' will soon become familiar to most Canadian pot-stock investors. I have written about Enertopia previously, expressing a strong degree of caution. Enertopia hopes to capitalize on this industry through its strategic partners 'The Green Canvas' (TGC) and 'World of Marihuana' (WOM). According to the CEO of Enertopia, Robert McAllister, both companies have 'a long history' working with patients under Canada's old medical marijuana program.
Tim Selenski of Green Canvas has supplied marijuana to his community in Regina, Saskatchewan for 13 years. Mr. Selenski has been a longtime advocate of marijuana patients. As an advocate, Mr. Selenski has gone on the record expressing his apprehensions regarding the ethicacy of the new system. Despite this, Mr. Selenski has joined forces with Mr. McAllister.
Partnering with Mr. Selenski I believe is a strong move for Enertopia. IF Mr. Selenski gets an MMPR license, Enertopia has a shot. His community relations put Enertopia in a strategic position to retain Mr. Selenski's loyal following.
I have been criticized previously for not discussing World of Marihuana. I've avoided it precisely because of the uncertainty of its existence prior to November 9, 2013, the same day WOM launched its website. I also have concerns regarding the background of the people involved: Matt Chadwick and Fred Otchere. I would greatly appreciate any background information prior to November 9th. Another concern is that on October 4, 2013, Robert signed a consulting agreement with Olibri Acquisitions to assist with "oil & gas exploration." A month later Enertopia goes into the marijuana business.
Alan Brochstein, of 420investor, recently interviewed CEO Mr. McAllister. This exposure will definitely help 'pump' Enertopia's stock price. In fact, this is not the only publicity Enertopia has sought. Shareholders are currently paying for a, "Market Awareness" program with Agoracom to "raise the brand awareness of Enertopia among small-cap investors." If you are a believer in the 'pump', I believe there is a way to play this. But I warn more conservative, inexperienced investors to approach with caution.
There's not much to say about this company except that expect it to explode when it goes public. Tweed Inc. plans to go public through a reverse merger with LW Capital, listed on the TSX exchange. In case you were wondering, yes LW Capital's shares are closed for trading and will not be reopened until it is public. The date of its offering has not been disclosed, as of yet.
The Canadian investor community highly anticipates a successful launch for Tweed. Unlike Enertopia, Tweed has its MMPR license and expects its crops will be ready by April 1st. Tweed's 150,000 square foot facility was once the home of a Hershey's Chocolate factory. In contrast, Enertopia's facility is significantly smaller, and only has 60,000 square feet. At full capacity, Tweed's facility can grow up to 15 million grams of weed.
At the rate it's taking for other companies to get their licenses, Tweed will be the first publicly traded MMPR licensed producer. The company projects revenues of $100 million within the first two years.
Cen Biotech, a Subsidiary of Creative Edge Nutrition (OTC:FITX)
Cen Biotech has enjoyed considerable coverage in market news, partly from its incessant announcements of plans to capitalize on the Canadian market.
I'll be frank. The enthusiasm for Cen Biotech is a bit mind-boggling. I understand the enthusiasm for the industry, but I don't understand the logic of investing in a company that posts pictures of large tracts of dirt. I get the picture-progression motif. This is to reassure investors that there will be a facility. Even though I am not a big fan of Enertopia, at least they have a facility.
Cen Biotech's planned facility when completed is expected to be 58,000 square feet, which will sit adjacent to Creative Edge's 26,000 square foot facility.
CEO of Creative Edge Nutrition, Bill Chaaban, has spent a considerable sum on marketing the stock. The company seems very concerned with reminding investors of its big plans. From holding 'Open Houses' to redundant daily updates, it is suggestive that Mr. Chaaban has concerns of losing its investor enthusiasm. Now, Cen Biotech has resorted to releasing daily updates to discuss previous updates. For instance, the company issued a press release on March 11, 2014 reminding investors that on February 26, 2014 it has received "the first right of purchase of a pharmacy license in the State of Michigan" with its partner RXNB Inc. Essentially: there is no license, yet.
Back in Canada, Cen Biotech also anticipates that it will receive its MMPR license. Unfortunately, it will be unable to do so until it has a facility up and running that meet necessary security requirements. Unable to meet security requirements has precluded many MMPR applicants from receiving their licenses. The concern over security was the main justification for the MMPR program. Individual growers were felt to be unable to afford the security system necessary to control the black market. Requiring companies to install state of the art security hopes to mitigate that. (Investors should also look into the security industry in Canada).
Then there is the issue of costs. Building from scratch is a risky and costly move. Cen Biotech claims that will cost them $16 million to put together the facility. In contrast, Tweed spent only $5 million acquiring their $100 million Hershey Factory. Additionally, Zenabis of International Herbs Medical Marijuana Ltd, will acquire the former Atlantic Yarns 400,000 square foot facility in northern New Brunswick. It seems the smarter players are acquiring existing facilities rather than building from scratch.
Finally, Creative Edge is not cheap. There are currently 3.5 billion shares authorized, 3,417,417,549 of which are outstanding and only 2,295,374,724 billion in the public float. Additionally, there are 1 million preferred shares, 500,000 of which have a 5000:1 voting right. That leaves 1,122,042,825 restricted shares. As Creative Edge will only be able to issue an additional 82.5 million shares, in the event it needs to raise additional capital its options are limited to executing a reverse split, a forward split, or authorizing additional shares. This could cause significant dilution.
With that said, Growlife's (OTCQB:PHOT) 25% equity position in Cen Biotech is comforting. And as the picture-timeline of the facility becomes more facility and less mud, I can see speculators injecting new capital into this stock. But as investors are anxiously trying to determine the winner, they might 'swing' to other more established MMPR licensed producers, and reconsider Cen Biotech after it completes its facility.
As a hedging strategy, it might be more advantageous at this point to invest in the Canadian market indirectly through Growlife rather than through Cen Biotech. Through their partnership, GrowLife will issue to designated CEN Biotech shareholders a total of 235,294,118 shares of restricted GrowLife common stock. Although I would have preferred Growlife pick a partner with more certainty, the partnership has definitely pumped new speculation into these stocks. For more thorough coverage of Growlife, you can click the link to read an argument for 'short' position versus a 'long' position.
Abattis Bioceuticals Inc. (OTCQB:ATTBF)
Abattis gives investors something to be bullish for. Of course I want to stress that investors should approach with caution. This stock exploded in the last month and I can tell investors have been scratching their heads trying to figure out why.
This company deserves its own write-up. As I've already covered this company before, I try not to be redundant. There are a lot of positives here.
Abattis is five companies in one. This is a "hedging strategy" in order to work in the current legal market. However, CEO of Abattis, Mike Withrow, has structured his company so that it can capitalize in a fully legalized market. Their main strategy, "GDERS," which stands for "Grow, Dry, Extract, Refine, Sell," is not only to diversify in this emerging market, but also maximize profits as an importer/exporter. The five subsidiaries of Abattis are:
- Biocube Green Grow has developed a modular unit, the "BioCube," that is 16x16x8, which can grow up to 240 plants in a single unit. The "Biocube" equipment is designed to modulate 240 plants individually to get the desired THC/CBD levels in the product. The 'BioCubes' are not only for growing cannabis but can be used with any type of plant life. Biocube is the 'Grow and Dry' portion of the 'GDERS' strategy. Additionally, Abattis' Biocube has recently acquired Green-Gro ltd. proprietary fertilizer formulae and juices. In exchange Green-Gro happily accepted 300,000 shares of Abattis. There are currently twenty-five stores throughout California, Oregon, Washington, and Colorado that carry Green-Gro products.
- Biocell Labs has a lease on a 13 million dollar facility, which will be used primarily for the 'refining' and 'selling.' Biocell has access to flash-freeze technology. In the world of cannabis refinement, flash-freeze will be able to extract CBDs without damaging the purity of the product. Biocell has applied for a license for the purgenesis facility.
- Northern Vine is set up for neutraceuticals. This subsidiary of Abattis has an import/export relation with China. This company has applied for a controlled substance license. Northern Vine has partnered with Experion Biotechnologies Inc., which has received a zoning permit to grow medical marijuana.
- The other subsidiaries are: iJuana Cannabis, which has applied for an MMPR license; and North American Vine, which extracts neutraceutical products.
I would be highly suspicious of any company that says invest in us because we have a lot of subsidiaries. That is not why I invest in this company. I invest in the people.
I recommend checking the other members of Abattis. For now, I want to introduce Dr. Michelle Sexton and Dr. Kaleb Lund, newest additions to the Abattis team. Dr. Sexton is the founder of Phytalabs based in Washington State. Dr. Lund is the scientific director of Phytalabs. Phytalabs is an I-502 registered and compliant facility for the testing of CBDs and related plant compounds. Dr. Sexton is one of the co-authors of I-502, the bill that legalized marijuana in Washington. Dr. Sexton has been a longtime expert in the field of natural medicine and medical marijuana.
A concern for investors might be that Abattis has doubled their share-count from 30 million to 62 million. This issuance was to grant incentivizing stock options for many of the companies and consultants listed above as well as to raise capital to pay off existing debts. The company now has 3.1 million in the bank and is debt free. The goal of Abattis is to work with multiple producers but be the single point of contact for consumers.
I see the strengths of Abattis as follows:
- Experienced and knowledgeable team
- Unique Technology
- Exclusive Patents
- Hedging Strategy
- "GDERS" Business model
- Debt free
- Fully reporting (through sedar.com)
- 3.1 million in the bank
- Still acquiring key licenses
I believe Abattis has developed a strategy to set it apart from the other players. Whereas Enertopia, Tweed, Zenabis, and Cen Biotech are mainly focusing on producing, Abattis has structured a multilayered approach to capitalize on both producing and cultivation. I am very bullish on this company.
There are a several logical fallacies when it comes to markets: if company 'A' is destined to fail, then its competitor, company 'B,' will succeed; and conversely, if 'A' succeeds, then 'B' will fail. The belief is predicated on the faulty assumption that only one can succeed. In fact, it works just the opposite. Although competition can knock out competing players, 'the rising tide lifts all ships.' And conversely, a tsunami can sink them all. That tsunami of course would be the re-criminalization of marijuana.
Nevertheless, investors want to be able to portend who will have the edge. More important than having the largest facility, Canadian marijuana market will be won out by the player who most understands that this is about patients and medicine. This is the rhetoric that pushed legislation through to legalize medicinal marijuana. Capturing the market will depend on the player's ability to brand itself as a caregiver. The old branding of marijuana relied on illicit sounding names to suggest the strains' potency. In the biopharma market, building customer relations with patients is primarily about trust. This trust is built on the belief that the producer has the patient's wellbeing in mind.
This market is bubbling because of anticipation. In fact, nearly all of the stocks that have announced plans to enter the marijuana industry have seen their stock jump. Some more than others. Marijuana investors should be less concerned with trying to predict the winner. If this industry is successful, the legitimate companies will succeed. The marijuana economy is dependent on the mutual success of all the players involved. At this point, it is only a matter of deciphering which companies are strategically utilizing capital and which ones are just playing with mud.
*Note: Uruguay's role is important and it deserves coverage. I hope to research this in a following article. On December 10th of last year, Uruguay, as you might recall, was the first country to officially legalize marijuana. The government estimates that the underground market traffics $40 million a year in marijuana sales. Because this is a much smaller market, I recommend looking into funds that deal with real estate or export/import.
Disclosure: I am long ATTBF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no positions in FITX, PHOT, ENRT. I may initiate a position in ENRT and possibly PHOT.
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