North America's medical marijuana industry has been struggling with keeping momentum since Colorado put the industry on many investors' radars, catapulting some not so deserving stocks. What seems now like a slow leaking bubble, it's said that only companies with the ability to obtain licenses, build out manufacturing plants and produce goods will be the ones to shape the market and as it turns out, the unlikely low valuation players appear to have the most potential.
Health Canada's Medical Marijuana industry expects the MMJ market to be a conservative $1.3 billion market with over 450,000 patients by 2025. Unlike the United States, Canada's medical Marijuana industry is approved nationally and federally, allowing for more opportunity. US counterparts still struggle with federal barriers, in some cases causing unjustly prosecutions.
In this article, we've re-explored three (3) US public companies who have tenaciously ventured into the Canadian Medical Marijuana space; Creative Edge Nutrition (OTC:FITX), Easton Pharmaceuticals (EAPH), Enertopia (OTCQB:ENRT). In a humble opinion, only 1 of the 3 companies we are exploring maintains a healthy market cap compared to its peers - appearing less attractive as an investment but not necessarily less of a buy.
Easton Pharmaceuticals (OTC:EAPH): Highly Undervalued. Serious Potential.
Easton Pharmaceuticals (OTC:EAPH) currently maintains the lowest market cap compared to its peers at 10M. Since January, EAPH has had some highs and lows. Easton (EAPH) announced over a year ago it was moving into the Medical Marijuana industry greatly benefiting Easton's stock price. From a 52 week low of $0.0013 to a high just under $0.10 cents with several wild 50% swings along the way, Easton has been a trader's fantasy stock, making money for many traders with its wild swings. In early July the stock quickly recovered from a $0.013 low back up two (2) days later to a strong $0.03. The obvious truth here is that Easton (EAPH) has just as good a story and potential as does each of its peers with market caps of over $200 Million. Easton (EAPH) and Creative Edge Nutrition (OTC:FITX) both have properties in Canada's new MMPR system and both have letters to build from health Canada which make them 2 out of only 25 other companies. This compares to the over 1300 applicants who are waiting to get a letter to build but will most likely never get it. Easton's market cap is $10 Million while maintaining other products, which if the company succeeds in growing, could make this stock a huge winner even without the medical marijuana business. Easton recent announcement was followed with another 20% rebound, which continues to make this a big money maker for investors. Recent financial statements show Easton with just under $800,000 in cash, plus investments in other medical marijuana company's and assets such as AMFIL Technologies. This company may have the best potential to make many high risk opportunistic investors extremely happy once again. The next run-up on a new product launch, could possibly take it to new sustained levels.
Enertopia (ENRT): Low Value. Low Opportunity
Enertopia (ENRT) has applied to become a licensed producer under Canada's MMPR program. With 2 of Enertopia's projects (World of Marijuana Products Ltd. and The Green Canvas Ltd.) having been part of the Canadian MMAR program, the company may have an advantage over many new operations with no prior history of handling medical cannabis through Health Canada. The company has experience with the old MMAR program. Although the company continues to move its three projects closer to licensing there remains a big hurdle to overcome which investors should be wary of. Enertopia and their partners only recently submitted an application with Health Canada. They are number 1200 out of 1300 or something like that. They don't yet have a letter to build from Health Canada and are not even close to it as does Easton (OTCPK:EAPH) and Creative Edge Nutrition (OTC:FITX). Enertopia trades with a market capitalization of approximately $11.6 million, which is the second lowest market capitalization among its peers (see Figure 1 below). While Easton Pharmaceuticals Inc. (EAPH) trades with a lesser market capitalization, the company is well-below many of its industry peers that trade with market capitalizations in excess of $50 million.
Figure 1 - Peer Comparison by Market Capitalization - Source: OTC Markets & TMX Group
A lower market capitalization doesn't necessarily mean that a stock is undervalued given that these companies are all in various stages of approval, but a higher market capitalization clearly represents greater expectations on the part of shareholders. Whether or not these expectations are met or exceeded depends on management, but lower expectations are easier to exceed than higher expectations.
Enertopia's modest $11.6 million market capitalization suggests that the market remains cautiously optimistic about an eventual approval, while investors in some other companies in the space appear to have already priced in an approval. That said, investors would be wise to diversify their exposure in the space, while being aware of the risks that an approval may not materialize for some or all of the firms.
Creative Edge Nutrition (FITX): High Value. High Risks.
This company carries the highest evaluation among all of the Canadian Medical Marijuana company's. With 3.5 Billion shares in the float it is safe to say that it has a huge following based on its market price and market cap. Yet this also means it is also the less likely to make another big run-up. A huge amount of shares outstanding and only a property to fall back on makes this stock a win or die stock. Unlike Easton Pharmaceuticals (EAPH) it has no other business to rely on. It's fortunate that it has a letter to build in hand as the word being leaked out by industry professionals is that no other licenses will be handed out in Canada except to the ones who already have the all important letter to build which are only 25 out of 1300 applicants. If and when FITX does receive their license, 3.5 Billion shares outstanding makes this the least attractive stock to hold. But with such a big following, who knows.
- Company Website
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Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Disclaimer: Pennysheets.com is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations nor is endorsing any stocks mentioned as an investment to readers, but is strictly providing their own opinions and thoughts. For making specific investment decisions, readers should seek their own independent investment advice.