A Timeline Of Tweed Marijuana And A Brief Look At Canada's Marijuana Market

| About: Canopy Growth (TWMJF)

Summary

Two additional companies with licenses that have gone public: Bedrocan and Organigram.

Health Canada projects higher growth, which is very possible but depends on a few variables. Canada has a potentially large marijuana market.

MMPR's growth/success is dependent on two catalysts: the MMAR/MMPR litigation and Canada's 2015 election (legalization). Until the outcome of these events are decided it would be recommended to exercise caution.

The Marihuana for Medical Purposes Regulations (MMPR) allows corporate companies in Canada to produce, sell, import and export medical marijuana (MMJ). The MMPR was set to replace the Marihuana Medical Access Regulations (MMAR) on May 30, 2015, but a court injunction had reversed this order and a trial on this matter has been set for February 2015. In a previous article, I cataloged the ongoing concerns between the MMAR and the MMPR. Either the MMAR and/or the MMPR could be affected and the success of the MMPR and its companies could be relative to the outcome of this trial. It would be important to note "the government's facts" (see below in Final Thoughts), but it would be recommended to exercise caution until the outcome of this event is decided. There are currently only 13 licensed MMPR producers with Tweed Marijuana Inc. (TSXV.TWD, OTCPK:TWMJF) being the first to be publicly traded. There will be approximately "50 licensed producers" as Health Canada sifts through the applicants.

Tweed was incorporated in 2010 and "became a licensed producer of medical marijuana on Jan. 27, 2014," to produce and sell medical marijuana to patients within Canada under the new MMPR laws. Tweed Marijuana was introduced as an IPO on April 4, 2014, it opened at $4.60 reaching as high as $4.75 and a low of $2.35, closing at $2.59. For a little over the next month, its price was a bit erratic ranging from approximately $2.40-$3.90. From mid-May it has ultimately maintained a range of approximately $2.40-$3.00. The N.Y. Times, Forbes and many other mainstream news companies have written articles on Tweed and the MMPR. The importance of Tweed Marijuana is that it was the first publicly traded company with an MMPR License. This sets a bar/expectations for MMPR companies and is heavily looked to, as it is the first of its kind so it might be helpful to take note of Tweed's timeline and how certain events may have affected the stock.

Tweed Marijuana

Tweed's inception as a public company did not go perfectly according to plan and they have been facing supply issues, while the outlook/growth of the MMJ market in Canada has been uncertain.

Tweed's Timeline

1. Tweed Marijuana is publicly listed as TWD (April 4, 2014).

2. Shipment seized (April 4, 2014).

3. Tweed denounces TWMJF with no affiliation or approval by its company.

4. Delivers its very first medical marijuana shipment to customers on the week of May 5, 2014, but controversy stirs on Twitter and other social media over the quality and limited amount of the MMJ.

5. Articles were written about Tweed Marijuana in regards to the MMPR (Ottawa Citizen, N.Y. Times, Forbes) and featured on ABC Fusion's America with John Ramos.

6. Tweed's Anniversary - Acquires new MMPR applicant "Park Lane" (350,000 sq. ft. greenhouse).

7. Tweed announces two strains added to inventory with more strains to be added next week and they will "begin registering new customers from its waiting list shortly."

8. Tweed announces license approval of greenhouse facility ("Park Lane").

9. Tweed announces fiscal Q2 results (Reported revenue was $188,736, "coming from the last two months of the quarter") and Chuck Rifici relinquishes his position as CEO of Tweed Marijuana.

Possibly a mishap or slower than expected progress may have prevented a sufficient rise in Tweed's value. This may be due to a lack of experience, a series of unfortunate events and/or the current market conditions. Satisfying the consumer/patient should be any MMPR company's ultimate priority and thus making sure supply is available for demand and meeting utility levels is of utmost importance. The advantage Tweed has is that it was one of the first companies to receive an MMPR license, which ultimately gives them a "leg up" or first-mover advantage and possibly room for error, since there are only a limited number of companies with MMPR licenses.

They have recently been issued an additional MMPR license for their recently acquired 350,000 sq. ft. greenhouse facility and their "Hershey" facility is already 168,000 sq. ft. Tweed possesses a great amount of potential growing space and it is currently using "over 150,000 square feet for its operations." Of course, the success of this company and the MMPR will be largely dependent on what happens with the MJ/MMJ Market in Canada, which is fixated on the results of Canada's election (legalization) and the litigation between the MMAR and the MMPR.

While Tweed was the first company to go public, it certainly wasn't the last. There are at least two additional companies with licenses that have gone public: Bedrocan and Organigram.

Bedrocan Canada (TSXV.BED, OTC:BNRDF)

Bedrocan is a Netherlands-originated company and has been producing pharmaceutical-grade cannabis for over 10 years under "the Dutch government remains the only source in the world for medicinal-grade cannabis that is exported for patient use in full compliance with international laws and regulations." They are currently building a 52,000 sq. ft. facility in Toronto, while importing MMJ from the Netherlands. They have begun clinical trials in Canada, with exclusive access to a marijuana placebo (patent) which could help contribute and actualize the medicinal benefits of marijuana, as well as create their own products and extract/concentrate derivatives (e.g., epidolex).

Note: BNRDF, similar to Tweed's TWMFJ, 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 Bedrocan Canada entered into a U.S. account, it was not requested by Bedrocan.

Organigram (TSXV.OGI, OTCQB:OGRMF)

Unlike Tweed Marijuana and Bedrocan Canada, Organigram has actually placed itself on an American exchange (OTCQB:OGRMF). Bedrocan and Tweed have more than likely opted out of placing themselves on an American exchange as marijuana is still federally illegal. A filing statement from July 30th had stated, "The Facility is approximately 11,600 sq/ft in total located at 35A English Drive, Moncton, New Brunswick, with stacked production capabilities resulting in 14,890 sq/ft of usable space. Organigram has commenced production with 20 varieties of marijuana under cultivation." A press release from Sept. 10, 2014, has stated that they are constructing 12 additional grow rooms. I am under the impression that they are building their facility to 20,000 sq. ft. or greater. On Sept. 2, 2014, they had announced the first shipment of product sent to customers/patients.

A Brief Look At Canada's Marijuana Market

The current amount of MMJ patients in Canada is over 40,000 with any new patients that are added becoming patients under the MMPR. Health Canada has projected the number of MMJ patients will be "up to 450,000" with a "1.3 Billion" annual market cap by 2024. This type of growth is very possible, in fact this growth outlook could actually be modest, but the growth of the MMPR largely depends on what happens with the MMAR and the MMPR in regard to the court injunction trial that will begin February 2015.

The legal landscape is constantly changing in Canada. The constitution states that Canadian citizens have the right to access marijuana but there is no stipulation in the constitution on being able to grow your own marijuana. The debate between the MMAR and the MMPR is a very important one and could ultimately decide whether or not the MMPR undergoes vast/exponential growth.

This debate largely revolves around affordability, the MMPR licensed company's prices are very similar to the walk-in dispensary prices under the MMAR. However, people who grow their own under the MMAR for the low production cost of $2-$3 a gram disagree with paying higher prices under the MMPR, even if it has quality assurances (tested for harmful byproducts or contaminants) with regulation and taxation that the MMAR does not have. There have also been unintended side-effects associated with the MMAR which have had a negative impact on Canada's economy and society, while disrupting the youth and possibly even one's health. These unintended side effects could add additional costs to the low price of marijuana under the MMAR.

Depending on the results of Canada's election next year, it is possible that full legalization of marijuana could occur next year. It is yet unclear how legalization would be implemented if legalization did occur. But there is the possibility that these MMPR companies could be utilized to successfully implement legalization, if legalization does occur in 2015. Legalization would more likely prove successful with a functional model that supports regulation and taxation, while increasing/improving the jobs and economy in Canada and minimizing social risks/hazards.

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 $5-$15 a gram). It is said that "40% of Canadian cannabis is produced in British Columbia" and British Columbia's industry is estimated to be worth $6 billion annually.

Final Thoughts

The MMPR companies and the MMPR in general, could be very successful and experience substantial growth, but this seems rather dependent on what happens with the MMAR and MMPR litigation, and whether or not legalization is implemented. Until the results of these two variables/catalysts, it would be recommended to exercise caution. The center stage of the MMAR and MMPR litigation are two conflicting arguments: 1) according to the Government's Facts registered with the Supreme Court of Canada, "As the MMAR expanded and as large quantities of marihuana were produced by individuals in homes and communities, Health Canada became aware of a number of serious unintended consequences, including: violence, home invasion, theft, homicide, and the presence of firearms; diversion to the illicit market; production over the limit authorized by Health Canada; the presence of mold and toxic chemicals, such as pesticides and fertilizers; fire and electrical hazards; the emission of noxious odors; and various risks of children living in or near residential growing operations."

And 2), there is unavoidable downside to the MMAR, but patients under the MMAR argue that the prices under the MMPR could make their medication unaffordable. However, most MMPR companies are implementing different discount programs and some are even toying with the idea of insurance. Whether or not legalization occurs in Canada seems dependent on the Liberal party winning the prime minister election (Justin Trudeau) and the majority position in both the Senate and the House of Commons. Of course, anything is possible and 2015 should definitely be a noteworthy year in Canada.

Disclosure: The author is long BNRDF.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author is long Bedrocan Canada (BED) on the Toronto Stock Exchange (TSX).

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