The second wave of the Canadian Medical Marijuana market is crashing ashore bringing with it serious, well funded, companies with real business plans. After the first wave of promotion of companies in the Canadian Medical Marijuana space, savvy investors are looking for companies which have real business models to address this billion plus dollar market.
Changes to the medical marijuana (MMJ) regulatory regime in Canada have created a window of opportunity for efficient, compliant marijuana grow operations. FV Pharma International (OTCPK:FVPI) positioned itself to enter this growing market. (Website - which is very informative - is here http://fvpharma.com/)
MMJ itself has been transformed in the last decade. Originally, Health Canada, in order to comply with decisions of Canada's Courts which mandated the availability of MMJ, set up a system geared to the needs of what it believed would be, perhaps, 2000 qualified users. The number of users in the system ballooned so that instead of 2000 Health Canada was faced with requirement that it have a system to meet the needs of 45,000 current users and a projected 450,000 in ten years time. (Read a Canadian Medical Marijuana backgrounder here.)
The entire system had to be rethought. Critically, the security and record keeping requirements in the system had to be scaled to industrial levels of MMJ production. The new Health Canada model was designed to ensure the MMJ requirements of Canadian users were met by the private sector.
The new regulations launched a green gold rush as literally hundreds of companies applied for the producers' licences. So many companies applied that the licensing system has been overwhelmed.
FV Pharma (Canada) a privately held company which recognizes the MMJ opportunity. It has applied to become a licensed commercial producer of marijuana under the Health Canada rules. It is taking a section of the former Kraft food factory in Cobourg Ontario and transforming it into a state of the art licensed facility for the growing, harvesting and processing of medical marijuana.
Through a Share Purchase Agreement FV Pharma (Canada) will become the working subsidiary of a listed company which is now called FV Phama International Corp. trading on the Over The Counter Bulletin Board exchange under the symbol FVPI (OTC.BB: FVPI). Becoming a subsidiary of the public company means that FV Pharma can access the capital markets to finance its program for growth.
Having access to the capital markets is important to finance FV Pharma's projected rapid expansion and, depending on events, the very real possibility of producing for the recreational market.
Financing is certainly useful, but even more useful is FV Pharma's methodical business plan. While many of the other Canadian companies in the medical marijuana space have taken on significant lease commitments, FV Pharma has adopted a leasing strategy based on an option model. Instead of leasing their entire projected premises, they have leased a small section with an option to rent more space as their operations expand.
It might seem like a small thing, but in a competitive market place "burn rate" is critical as a company waits for its licence and for its customers. Timing in the medical marijuana business is critical. Having a small, proof of concept, facility as a company waits for a licence is just good business.
FV Pharma plans to expand its operations to meet market demand but it recognizes that that demand needs to be cultivated. Determining which strains and strengths of medical marijuana are most in demand is one side of the equation. Developing programs to reach out to the existing Canadian MMJ users, their caregivers and the informal network of dispensaries across Canada is the other element for success in a competitive marketplace.
Finding registered users and ensuring that the marijuana grown meets their requirements is the core of a profitable medical marijuana business. Each registered user is expected to purchase between 30 and 60 grams of medical marijuana a month.
High demand medical marijuana is expected to retail at between $7.50 and $12.50 a gram. Average that to $10 and each user represents gross revenues between $300 and $600 per month. Keeping grow costs low means that margins of $7-8 per gram are possible.
The profit from a single user can run between $2520 and $5040 per user per year.
FV Pharma's business plan avoids creating more supply than it has distribution channels for. It has secured an initial 13,000 square feet of space for up to 8 grow rooms each with potential production of 500 KG per year.
This preliminary facility includes an option in the lease which would allow the company to build out to a planned capacity of 80 500KG grow rooms all of which would be financed internally.
For FV Pharma, the slow licencing process for MMJ in Canada is actually an opportunity to build a growth focused business on a solid financial, operational and marketing foundation. Taking full advantage of this opportunity and preparing for the explosive growth the Canadian medical marijuana market is projected to attain in the near future makes FV Pharma (OTCPK:FVPI) a company to watch.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.