Canada's Marijuana Market: The Good, Bad, And Ugly

| About: Mettrum Health (MQTRF)
This article is now exclusive for PRO subscribers.

Summary

Canada's new medical marijuana law has created exciting investing opportunities.

American investors holding onto speculative Canadian marijuana stocks should look at the YTD performance of licensed producers ("LPs") to manage expectations.

"First-to-market" may have turned out to be a disadvantage, as cash burn remains high as demand remains weak.

Long-term prospects remain bullish for some of the licensed marijuana producers, if they can survive the winter.

There is no question that this is an exciting time for investors, market historians, and marijuana enthusiasts. Canada's Medical Marihuana Purposes Regulations ("MMPR") has broken new ground for the investing universe, as it experiments with a legal marijuana commodities market. The achievements and missteps in Canada's historic MMPR program will be studied, praised, and ridiculed for years to come.

Since April, we have been at the edge of our seats scrutinizing every development. "Which company will get a license to sell marijuana next?" "Should I invest in publicly traded companies with licenses to sell marijuana in Canada? Or should I invest in companies waiting on a license?"

So far, there are twelve speculative Licensed Producers publicly trading (mostly) over-the-counter.

Rather than trying to figure out which 'speculative' play is best, investors should take a look at the current progress and financial performance of licensed producers to manage expectations.

Bedrocan, Mettrum, and Tweed

So far, out of the six publicly traded Canadian Licensed Producers ("LPs"), only three have sufficient financial reporting for a comparative analysis:

  1. Tweed Marijuana Inc. (OTCPK:TWMJF) (TWD)
  2. Bedrocan (BED) (OTC:BNRDF)
  3. Mettrum (OTC:MQTRF)

Although licensed and publicly traded, Organigram (OTCQB:OGRMF), T-Bird Pharma (TBQBF), and Aphria Inc. (OTCQB:APHQF) do not have sufficient financial reports for meaningful analysis.

Branding Medicine

Due to Health Canada's advertising prohibition against marijuana, LPs have to find alternative ways to gain market share. One strategy is to develop sophisticated product branding.

Tweed

Tweed Marijuana Inc. gained superstar status as the world's first publicly traded company to sell marijuana. The high has worn off a bit as six other companies have gone public. Nevertheless, Tweed still boasts the highest market cap, at a $90 million CAD market cap.

Tweed currently offers patients eleven different strains to chose from and has twelve more in production.

Tweed has tinkered with its branding but also incorporates names familiar to aficionados.

Has this strategy been successful?

Bedrocan

In the branding department, Bedrocan clearly has a leg up. Bedrocan boasts superior pedigree as a descendent of the Dutch king of cannabis. Bedrocan BV is the only company licensed by the Dutch Ministry of Health to produce cannabis. Bedrocan BV has been developing and perfecting its strains since 1984. Bedrocan now offers five of these strains to Canadians:

  1. Bedrocan
  2. Bedrobinol
  3. Bediol
  4. Bedica
  5. Bedrolite

Every Canadian is guaranteed the authenticity and potency of the strain from the Netherland's Office of Medicinal Cannabis.

Mettrum

Mettrum had a rough beginning. When Mettrum tried to move into the Muskoka town of MacTier to set up their marijuana facility, the community fought back. Even national hockey hero, Bobby Orr, trashed Mettrum. Ultimately, Mettrum found a new location, obtained its license, and even developed a unique branding system called the "Mettrum Spectrum."

The Mettrum Spectrum simplifies the divergences of the motley plant into six easily distinguishable categories.

Who Branded It Best?

Marijuana is moving off the streets and into the hospitals. Asking a doctor for a prescription of "Chocolate Chunk" or "East Sour Diesel" to treat pain seems not just out of date it is also is degrading. The LPs have all found ways to rebrand their products but only Tweed relies on the street brands for product recognition.

Will it be effective in the long run?

Financial Performance Year-to-Date

As of this week, we now have the data for the year-to-date performance of three publicly traded marijuana companies, Tweed, Bedrocan, and Mettrum. The bottom line for all these companies: they are not surviving on their merits. They are currently heavily dependent on financing to keep their businesses afloat.

Income Statement Year-to-Date

Mettrum

Tweed

Bedrocan

Revenues

$1,521,543

$504,353

$1,086,744

Costs

$(1,033,414)

$(320,598)

$(682,184)

Gross Profit

$488,129

$183,755

$404,560

Profit Margin

32%

36%

37%

Loss From Operations

$(2,985,349)

$(3,751,564)

$(1,560,528)

Operating margin

-196%

-744%

-144%

Net loss*

$(4,006,955)

$(6,293,183)

$(4,121,477.00)

Net loss per share

$(0.21)

$(0.24)

$(0.07)

Still, there are some indicators of which businesses could thrive if demand increase. Currently demand is weak due to the slow pace at which new patients are enrolling into the MMPR system. So far, only a total of 13,700 individuals have signed up, 5,000 of which were approved to purchase marijuana under the old system.

Facilities

Size

Max Capacity

Mettrum: 3

Bennett Road facility

14,480 ft2

2,500kg

Bowmanville Facility

60,000 ft2

8,000kg

Agripharm

20,000 ft2

4,000kg

Bedrocan: 2

Facility 1

3,500 ft2

240kg

Facility 2

52,000 ft2

4,000kg

Tweed: 2

Smiths Falls facility

168,000 ft2

15,000kg

Tweed Farms

350,000 ft2

45,000kg

The Good

Demand

Who leads the pack in sales? Let's get to the punchline: not Tweed. And no, it's not Bedrocan. Surprise, it is Mettrum. I was surprised as well.

In fact, Mettrum's latest MD&A disclosed that they "temporarily stopped accepting new clients in late June as it reached its production capacity at its existing licensed facility."

Bedrocan's sales may have been higher had it requested authorization to sell more than 240kg annually.

Both Mettrum and Bedrocan have maximized patient capacity. Mettrum has decided to increase production next year by 150kg whereas Bedrocan will not change its quota.

YTD Sales

Patients

Market Share

'15 Prod. Authorization

Mettrum

232kg

2,100

15.3%

650kg

Bedrocan

145kg

1,300

9.49%

240kg

Tweed

Est. 70kg

Est. 850

6.13%

3,500kg

Unlike Bedrocan and Mettrum, Tweed has not disclosed how many patients it has nor how many grams it has sold this year. Just going off its sales, it seems like they may have sold about 70,000 grams to date. And if we assume the average patient buys 22 grams a month, it likely only has around 850 clients. Still, Tweed's authorized production seems woefully optimistic for 2015.

That both Mettrum and Bedrocan maxed its patient load suggests demand was within their expectations. In comparison, Tweed seems to anticipate a global shortage.

Investors of licensed and speculative producers should keep in mind the following: did anticipating demand help or hurt the company's ability to control costs?

Year-to-Date Performance
Q1 Q2 Q3 Total
Mettrum $170,349 $715,131 $806,412 $1,691,892
Bedrocan $209,553 $383,828 $493,363 $1,086,744
Tweed $188,236 $316,117 $504,353
Total Sales $379,902 $1,287,195 $1,615,892 $3,282,989
Est. Grams sold @ $7.5 50,654 g 171,626 g 215,452 g 437,732 g

I went ahead and broke down average sales for the three companies. Mettrum leads in both average monthly sales and sales for Q3:

Avg. Sales Q1 Avg. Sales Q2 Avg. Q3 sales Average Monthly Sales
Mettrum $56,783 $238,377 $268,804 $187,988
Bedrocan $104,776 $127,943 $164,454 $120,749
Tweed N/A $94,118 $105,372 $100,870

Even factoring in that each company did not begin selling at the same time, all three companies received licenses to produce marijuana.

Received License

Began Shipping

Months Selling

Months of Data Available

Mettrum

1-Nov-13

Jan-14

12

9

Bedrocan

16-Dec-13

Feb-14

11

9

Tweed

18-Nov-13

5-May-14

7

5

Mettrum and Bedrocan took two months to begin shipping after they obtained their licenses, while Tweed took seven. As some may recall, Tweed had issues early on shipping product.

Institutional Investors

Fidelity Management Research and Company or FMR LLC, has acquired an 8.32% stake in Mettrum. The valuation of the investment equates to little more than $6 million but represents a significant milestone for the future of medical marijuana investors. FMR's AUM is roughly $1.9 trillion.

Given the warnings regarding investing in 'pot', FMR appears to be taking a bold step in the face of regulatory scrutiny. This seems to be a testament to Mettrum's performance.

Fidelity is not the only fund holding pot stocks.

Institutions

Mettrum

Tweed

Bedrocan

Goldman Holdings Ltd.

9,668,750

Mackenzie Investments

1,005,900

Front Street Capital

107,900

Fidelity Special Situations Class

1,481,000

Redwood Diversified Equity Fund

209,000

Fidelity Management & Research Company

4,198,300

Palos Management, Inc.

240,000

Ark Fund Management, Ltd

58,500

Marquest Asset Management Inc.

28,966

Percentage Held

9%

3.32%

16%

Hedge funds are clearly more bullish for Bedrocan and Mettrum than Tweed. This is a clear vote of confidence from institutional investors. This should give some relief for retail investors who are concerned about valuations. And they should be concerned. The valuations do look bad.

The Bad

Regulatory Hurdles

As discussed in a previous article, proponents of the old system, Medical Marihuana Access Regulations ("MMAR"), want to dismantle the new law. A federal court has ordered an injunction to allow individuals to continue to grow for personal use until the legality of the new system has been decided. As a result, MMPR only serves 13,700 patients as 32,359 continue to obtain their marijuana under the old system.

The market pool of eligible patients for MMPR has been increasing at a 15% monthly rate. But this might not matter if MMPR is ruled unconstitutional come March 20th, 2015. We may still see LPs growing and selling cannabis but expected future demand will be weak and there won't be as much room for all the LPs.

Valuations

The valuations appear disconnected from rationality. However, it would be mistake to try to value these stocks based on reasonable metrics.

Mettrum

Tweed

Bedrocan

Liabilities

$(3,103,446)

$(2,186,825)

$(4,833,117)

Total Assets

$40,396,416

$25,363,164

$19,404,516

Price/Book ("P/B")

1.81

3.45

3.42

Cash

$27,840,310

$8,357,196

$2,840,484*

Revenues Per share

0.045

0.013

0.016

Price/Sales ("P/S")

44.264

167.851

45.827

*Bedrocan also has $8,276,581 held in a Canadian financial institution with a 1.4% fixed interest rate.

It is not unusual to see high P/S ratios for 'hot' companies. But usually these stocks are in the tech or pharmaceuticals industry. Licensed MMPRs have been given a "premium" based on the barriers to entry of this market. But as more and more companies obtain MMPR licenses, this premium becomes less and less valuable. At some point (hopefully soon), investors are going to have to start scrutinizing these companies based on normative financial metrics.

For now, let's just see which company is best at moving product.

Inventory Turnover Rate

A high turnover rate is a positive indicator that the company is able to quickly sell harvested cannabis. A turnover rate less than one means that inventory levels are piling up and while sales lag.

Mettrum

Tweed

Bedrocan

Inventory Q2

$635,771

$1,202,350

$270,717

Inventory Q3

$355,835

$652,513

$125,940

Inventory Turnover rate

1.11

0.26

1.61

Bedrocan's turnover rate is clearly the most efficient. It has limited is authorization to annual sales of 240kg. Also, its inventory levels are going to be significantly lower because it imports finished goods. Bedrocan's turnover rate could be higher had it been growing its cannabis in Canada rather than importing.

Measuring the fair value of Cannabis inventory can be tricky. Below I compared three different inventory turnover rates comparing 'cannabis', total biological assets, and total declared inventory. Note 'total inventory' does include plants, seeds, cannabis as well as the harvest in process.

Inventory Turnover Measured As

Finished Goods

Biological Assets

Total Inventory

Tweed

0.94

0.199

0.26

Mettrum

1.65

2.46

1.11

No matter how we look at Tweed's inventory turnover rate, it is disappointingly low. Note how Mettrum's rate is in line with Bedrocan's when we exclude everything but harvested cannabis.

Marijuana producers that demonstrate efficiency with their inventory turnover rates exhibit signs of strong management skills and awareness of the market. They are able to grow sufficient amount of cannabis to meet demand, which means capital efficiency. Companies that lack in this area will burn cash at high rates.

And high cash burn is when the picture starts to look ugly.

The Ugly

Cash Burn

Without cash to operate, a company will be faced with a difficult choice: increase debt, dilute the equity, or declare bankruptcy.

So how have these three commercial MMPRs fared year-to-date?

Mettrum

Tweed

Bedrocan

Total Working Capital Raised

$35,478,725

$25,428,926

$15,770,204

Cash And Cash Equivalents

$27,840,310

$8,357,196

11,386,241

Working Capital

$28,231,319.00

$10,022,665.00

$7,645,775.00

%Decrease in Capital

-20%

-61%

-52%

Net cash (loss) from operations

$(2,242,514)

$(6,712,218)

$1,958,290

Total Costs YTD

$(12,313,876)

$(17,206,234)

$(12,239,622)

Decrease in Capital

$(7,247,406)

$(15,406,261)

$(8,124,429)

Tweed is burning its cash twice as fast as its competitors. This is probably the most concerning issue of this report.

Also, I want to highlight that only Bedrocan has seen positive cash flow from operations. This already makes it a lot more appealing than both Tweed and Mettrum. However, all three companies are experiencing negative cash flows. This is because sales are still not significant.

So where is all that cash going?

Mettrum Tweed Bedrocan
Cost of Goods $(1,033,414) $(320,598) $(682,184)
Expenses $(3,473,478) $(4,766,233) $(2,004,034)
General and administrative $(200,832) $(1,637,282) $(608,707)
Rent and facilities $(306,005) $(723,757) $(476,010)
Research and development N/A $(118,468) N/A
Amortization $(64,349) $(189,794) $(116,583)
Professional Fees $(1,210,342) N/A $(202,000)
Marketing & Promotion $(302,473) $(1,266,018) $(713,952)
Share-based Comps $(139,375) $(1,330,913) $(39,216)
Salaries and Wages $(1,250,102) N/A $(323,576)
Cash Operating Expenses $(4,303,168) $(4,066,123) $(2,530,419)
Total Nonrecurring Costs $(6,417,507) $(11,619,404) $(9,229,558)
Listing fees $(1,021,606) $(1,259,892) $(2,587,013)
Investing In Property And Equipment $(5,395,901) $(10,359,512) $(6,642,545)
Capital spent $(10,720,675) $(14,746,233) $(7,687,521)
Total Costs $(10,924,399) $(16,706,235) $(11,915,776)
%General and administrative -6% -34% -30%
%Rent and facilities -9% -15%
%Research and development -2%
%Amortization -2% -4% -6%
%Professional Fees -35% -10%
%Marketing & Promotion -9% -27% -36%
%Share-based Comps -4% -17% -2%
%Salaries and Wages -36% -16%
Total Expenses -100% -100% -100%
%Listing fees -16% -11% -28%
%Investing In Property And Equipment -84% -89% -72%
%Total Nonrecurring Costs -100% -100% -100%

Mettrum's reported activities only for the last six months whereas Bedrocan and Tweed reported nine.

So each 50%-60% of each company's total costs went towards investing in property and equipment. Those costs theoretically will not be recurring. Listing fees are also a nonrecurring cost (note that listing fees made up 21% of Bedrocan's costs!).

Months Till Insolvency

Excluding the purchase of property and equipment as well as other nonrecurring costs, how many before each LP runs out of cash? Recurring costs will be COGS, SG&A, and Salaries. Let's imagine that all three companies costs and revenues do not increase nor decrease. How many months will it take till each company runs out of cash?

Mettrum

Tweed

Bedrocan

OPEX & COGS YTD

$(4,506,892)

$(5,266,232)

$(2,686,218)

Expenses p/m

$(751,148.67)

$(931,138)

$(334,451.56)

Revenues p/m

$253,591

$100,870

$120,749

Losses p/m

$(497,558)

$(830,268)

$(213,702)

Cash And Cash Equivalents

$27,840,310

$8,357,196

$11,386,241

Months of Operations

55.95

10.07

64.07

Mettrum has 56 months; Bedrocan 52 months; and Tweed about 11 months. This is not the doomsday scenario. This is the 'status quo'.

Adjusting for amortization, certain share-based compensation, and nonrecurring professional fees:

Mettrum Tweed Bedrocan
Expenses $(3,092,826) $(4,066,123) $(2,328,419)
Revenues $1,521,543 $504,353 $1,086,744
Losses P/M $(261,881) $(395,752) $(137,964)
Cash And Cash Equivalents $27,840,310 $8,357,196 $11,386,241
Months of Operations 106.31 14.49 91.49

The picture slightly adjust if we only consider the last three months of operations as our 'status quo':

Last Three Months

Mettrum

Tweed

Bedrocan

Losses p/m

$(606,720.33)

$(806,204.33)

(142,276.00)

Months of Operations

45.89

10.37

77.92

%Change in Losses p/m

22%

43%

-33%

Losses increased for both Mettrum and Tweed whereas Bedrocan was able to reduce its monthly losses.

Adjusting for amortization, certain share-based compensation, and nonrecurring professional fees:

Last Three Months
Mettrum Tweed Bedrocan
Monthly Losses $(342,387) $(419,705) $(114,818)
Months of Operations 81.31 19.91 96.55

Let's assume that SG&A remains the same. How much does each company need to increase gross profits by to sustain their operations?

Losses p/m

Gross Profits p/m

Revs To Sustain Ops

Sustainable Annual Revs.

Mettrum

($260k) to ($600k)

$81.3k $85.3K

3X to 8X

$12.8m to $26.2m

Tweed

($400k) to $(800k)

$20k to $25k

20.5x to 34x

$14m to $42.4m

Bedrocan

($115k) to ($201k)

$45k to $58k

4x to 6x

$5.8m to $9m

Running out of cash is an ugly thought and unless the situation change, it looks inevitable from this vantage point.

Looking Ahead: 2015

Mettrum has increased authorized production by 30% for 2015; Bedrocan did not choose to increase it but will start paying an additional $634,680 a year for rent. Tweed anticipates dramatic growth in 2015.

2015
Mettrum Tweed Bedrocan
Cannabis Sold 650kg 3,500kg 240kg
Revenues $4,875,000 $26,250,000 $1,800,000
Costs of goods $(3,224,000) $(17,062,500) $(1,200,000)
Gross Profit $1,651,000 $9,187,500 $600,000
Expenses $(5,132,332) $(5,334,372) $(2,710,424)
Cash gain/(loss) $(3,481,332) $3,853,128 $(2,110,424)
Cash at the beginning $27,840,310 $8,357,196 $11,386,241
Cash at the end $24,358,978 $12,210,324 $9,275,817

If Tweed can sign up the patients, then 2015 will be profitable. In order for Tweed to hit this target of selling 3,500kg, it will need to sign up 16,253 patients. That's assuming the average patient consumes 0.59g a per day.

This scenario is not so farfetched. If MMAR gets overturned in 2015 and half of the patients choose Tweed as their provider, then it could reasonably sell 3,500 kg. In the instance that the Courts rule to allow people to grow for themselves and allow patients to buy from LPs, the patient pool is expected to increase only 30%. Below are my estimates:

Mettrum Tweed Bedrocan
Cannabis Sold 650kg 250kg 240kg
Revenues $4,875,000 $1,875,000 $1,800,000
Costs of goods $(3,224,000) $(1,218,750) $(1,200,000)
Gross Profit $1,651,000 $656,250 $600,000
Expenses $(5,132,332) $(5,334,372) $(2,710,424)
Cash gain/(loss) $(3,481,332) $(4,678,122) $(2,110,424)
Cash at the beginning $27,840,310 $8,357,196 $11,386,241
Cash at the end $24,358,978 $3,679,074 $9,275,817
Decrease -13% -56% -19%

Tweed's client pool increase by 30% and sells 250 kg for the year. This is a slightly more positive outlook than presented earlier in this article but still disappointing.

The truth may be found somewhere in the middle. So, Tweed could either kill it next year or may end up running out of cash. If MMAR is overturned, Tweed may end up absorbing a large portion of the patient pool.

Estimates to Profitability

I have put together estimates to determine the future profitability. All estimates are based on Health Canada's estimate growth of the marijuana market.

Bedrocan

Mettrum

Tweed

Comparative

The Lowdown:

The Good: Mettrum boasts the highest sales of the three and it has raised the most capital. That will sustain it for at least four years. But it's burning through cash fast. High cash burn makes it vulnerable.

Management was successful at capturing a 15% market share early on and if demand picks up, Mettrum could prove successful once again.

But there's no guarantee that it will be able to maintain that success.

Mettrum's gross margins are the lowest and expenses are the highest. It makes up for its expenses from its sales. But it is not sufficient.

Reasons to like:

  1. Highest monthly sales and gross profit
  2. Institutional Bullishness
  3. Solid turnover rate
  4. Captured significant market share (demand exceeds capacity)
  5. Sophisticated Branding ("the Mettrum-Spectrum")
  6. Substantial amount of capital

Reasons to avoid:

  1. Sufficient capital for 45-55 months
  2. Needs to boost sales 7 to 8 times to be sustainable
  3. Low gross margins

Right now, Mettrum looks good. But Mettrum could be great. The company should have no issue being able to survive if it can maintain a CAGR of 50% to 70% for the next four years. This would be significantly higher than the current growth rate of the growth rate of MMPR. Estimates have it that Canada's marijuana market will grow annually between 30%-45% for the next ten years. I estimate that Mettrum will need to control 12.5% to 13% of the market share by year four. However, Mettrum could also cuts costs as a way to guarantee its solvency.

There's a lot of potential for Mettrum. And that makes it kind of exciting. With some adjustments, Mettrum could be a real winner.

The Bad: Bedrocan gets the 'bad' title not because I think the company is bad but because there are still a lot of unknowns. Although it seems like the safest bet at this point, a lot may change once it stops importing.

Bedrocan impressed me for having the highest inventory turnover rate and the lowest monthly losses. It won't need to increase revenues significantly to remain solvent. Also, management demonstrated its efficiency by reducing losses by -33% this past quarter.

Although monthly sales are not the highest, it boasts the highest gross margin. This might be due to Bedrocan's internationally recognized brand. It can charge more and may need to spend less on marketing than its competitors. Also, it has the benefit of exclusive access to its Dutch sister's choice cannabis.

However, everything might change once it stops importing. Will costs get out of hand? Will it be able to reproduce the same quality as the stuff it's importing?

Reason to like:

  1. Efficiency at limiting costs
  2. High inventory turnover rate
  3. Institutional Bullishness
  4. Internationally Recognized Brand
  5. Most likely to remain solvent

Reasons to avoid:

  1. Costs may increase once Canada grow-up is completed
  2. Still losing money
  3. Growth may be insufficient
  4. Potential insolvency
  5. Still has to build out facility and may need additional financing

For now, Bedrocan gets the "bad" title because of the unknowns. Bedrocan's operations could improve. They may even be able to turn a profit faster than its competitors. Or, Bedrocan may not be able to reproduce the European magic in North America.

Upside: Even if MMAR stays, we may see Canadian cannabis connoisseurs compelled to taste the best that the Dutch have to offer.

The Ugly: Tweed either needs to boost revenues by at least 29 times what it is currently making within the next 10-15 months or it will have to raise an additional $7m to $10m to make it through another year.

Tweed's low inventory turnover and high costs are causing it to burn its capital at an accelerated rate. Although it has put a ton into building up its company, it is nowhere near sustainable. Tweed has the largest growing capacity, which has made it appealing up until now. But Tweed makes it seem like you can be 'Too Big to Fail.'

2015 may be a turnaround for Tweed or investors will be forced to bail out the struggling MMPR or let it go.

Reasons to like:

  1. Largest production capacity at 60,000 kg
  2. IF demand picks up exponentially, it's massive grow-up could capture market share
  3. US investors are bullish
  4. 2015 could be a turnaround if it can increase sales

Reasons to avoid:

  1. Most likely run out of cash within a year
  2. High Costs
  3. Needs to boost sales 30-fold within the year
  4. Potential bankruptcy, dilution, or increased debt

If MMAR gets overturned, Tweed could be that high-risk/high-reward play. But it seems this 'high reward' is conditioned on demand substantially increasing due to patients under MMAR enrolling into MMPR. This also assumes that patients under MMAR will automatically go to Tweed. I think this is highly doubtful as most MMAR residents are resentful of the privatized medical marijuana system, and no one symbolizes that better than Tweed.

The other long shot for Tweed is the potential export market. Similarly, there's no guarantee that Tweed will benefit from exporting marijuana. Tweed hopes to sell 3,500kg in 2015. Let's hope that it does.

Conclusions

"Willy Wonka: How did you like the chocolate factory, Charlie?

Charlie [Chuck Rifici] Bucket: I think it's the most wonderful place in the whole world!

Willy Wonka: I'm very pleased to hear you say that, because I'm giving it to you."

Former CEO of Tweed, Chuck Rifici, was so excited to have his very own marijuana factory. Yet, barely half the year went by before Mr. Rifici resigned. Reasons have been given, but all felt unsatisfactory. Needless to say, Tweed looks like a disaster and needs a miracle for it to survive.

And by miracle, I mean a lot more cash.

The ugliness of Tweed's balance should not color people's hopes of a privatized marijuana market. Despite their faults, Bedrocan and Mettrum have redeeming qualities. With substantial, but not unreasonable, growth both could have sustainable operations.

It might take a few years before the commercial producers turn a profit but there's reason to believe it'll eventually happen. These companies are basically starting from scratch on unexplored terrain.

The upside for investors of speculative plays: As cash burn remains high, the "first-to-markets" may end up shutting down in a years time.

The downside: As demand remains weak, there may not be any need for new licensed companies. For investors hoping to cash big on a speculative marijuana stock promising to sell hundreds of thousands of kilograms to Canadians, hate to break it to you but the market isn't there.

It is still anyone's guess how this will all turn out. Big Pharma or Big Tobacco may eventually step in and just buyout all of the LPs as marijuana becomes mainstream. But if things don't improve, it's going to be ugly for everyone.

For Financial sources see www.sedar.com

One last thought

Some investors may have found the information in this article useful. Some may have found it upsetting. Although I come to many conclusions in this article, I intend this piece for informational purposes only. I am not offering financial advice. Nor am I advocating anyone buy, sell, or hold any investments. The reason I no longer hold speculative LPs, nor wish to do so, as it can cloud judgment.

As I stated once before, "Investors should take caution before investing in a stock just because you saw someone mention the ticker symbol in a twitter post or in a Seeking Alpha article." Markets are unpredictable because there are always unforeseeable events.

Hopefully moving into 2015, we can start to see a legalized marijuana market succeed with grace and integrity rather than getting absorbed by futile pump and dumps.

Addendum

Publicly Owned

  1. Bedrocan
  2. Mettrum
  3. Organigram
  4. PharmaCan
  5. T-BirdPharma
  6. Tweed Marijuana Inc

Privately Owned LPs

  1. Broken Coast Cannabis Ltd.
  2. Canna Farms Ltd.
  3. CanniMed Ltd.
  4. Delta 9 Bio-Tech Inc.
  5. MariCann Inc.
  6. MedReleaf Corp.
  7. Tilray

Speculative LPs Publicly Trading

  1. Abattis Bioceuticals (OTCQB:ATTBF)
  2. Affinor Resources (OTCQB:RSSFF)
  3. Cannabis Science (OTCPK:CBIS)
  4. Cen Biotech (OTC:FITX)
  5. Easton Pharmaceuticals (OTCPK:EAPH)
  6. Enertopia (OTCQB:ENRT)
  7. Lexaria Corp (OTCQB:LXRP)
  8. Matica Enterprises (C.GRF)
  9. Maple Leaf Green World Inc. (CVE: MGW)
  10. Medican Inc. (OTCQB:MDCN)
  11. Modern Mobility Aids (OTCPK:MDRM)
  12. Supreme Pharmaceuticals (OTCPK:SPRWF)

For Financial sources see www.sedar.com

Bedorcan
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Revenues $1,973,452 $3,186,873 $4,829,954 $6,877,360 $9,142,533 $11,279,088 $12,938,387 $13,988,739 $14,545,924 $14,807,565
Cost of goods $(1,282,744) $(2,071,467) $(3,139,470) $(4,470,284) $(5,942,646) $(7,331,407) $(8,409,951) $(9,092,680) $(9,454,851) $(9,624,917)
Fixed costs $(882,924) $(882,924) $(882,924) $(882,924) $(882,924) $(882,924) $(882,924) $(882,924) $(882,924) $(882,924)
G&A $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377) $(1,512,377)
Sales&Marketing $(2,071,467) $(2,414,977) $(2,407,076) $(1,828,507) $(563,954) $(646,919) $(699,437) $(727,296) $(740,378) $(768,226)
Gain/Loss $(3,776,060) $(3,694,873) $(3,111,894) $(1,816,732) $240,631 $905,460 $1,433,697 $1,773,461 $1,955,394 $2,019,121
Mettrum
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Revenues $4,940,000 $8,082,436 $12,408,645 $17,895,163 $24,090,361 $30,091,635 $34,944,656 $38,242,251 $40,244,580 $41,456,188
Cost of goods $(3,211,000) $(5,253,583) $(8,065,619) $(11,631,856) $(15,658,735) $(19,559,563) $(22,714,027) $(24,857,463) $(26,158,977) $(26,946,522)
Fixed costs $(988,000) $(1,454,838) $(2,233,556) $(3,221,129) $(4,336,265) $(5,416,494) $(6,290,038) $(6,883,605) $(7,244,024) $(7,462,114)
G&A $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610) $(1,961,610)
Gain/Loss $(1,220,610) $(587,596) $147,860 $1,080,568 $2,133,751 $3,153,968 $3,978,982 $4,539,573 $4,879,969 $5,085,942
Tweed
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Revenues $2,528,936 $3,832,799 $5,457,514 $7,255,037 $8,950,495 $10,267,228 $11,100,733 $11,542,886 $11,750,511 $12,192,474
Cost of goods $(1,643,808) $(2,491,319) $(3,547,384) $(4,715,774) $(5,817,822) $(6,673,698) $(7,215,476) $(7,502,876) $(7,637,832) $(7,925,108)
Fixed costs $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214) $(4,000,214)
Gain/Loss $(3,115,086) $(2,658,734) $(2,090,084) $(1,460,951) $(867,541) $(406,684) $(114,957) $39,796 $112,465 $267,152

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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

Editor's Note: This article covers one or more stocks 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.