Source: Resources Wire | Jay Currie | September 22, 2014 11:29 PM ET
The waves of mania which have propelled the legal marijuana business in the stock markets have been so extreme that the SEC and the OSC have both issued warnings about speculative excess. All types of companies are being floated, many of which have no license, no operations, no business and no money.
At the same time there is a real market for legal marijuana, worth billions of dollars, emerging in the United States. There is no question that marijuana – both medical and recreational – is here to stay. What may be puzzling for investors is how to participate in this boom while avoiding the various scams which blight the market.
Looking at this opportunity Chuma Holdings, Inc. (OTCBB:CHUM), formerly CannaMed Corp., realized that the cannabis industry lacked business services that are common for every other industry. This ranges from financing and payments solutions, through to regulatory compliance. The management at Chuma also recognized that in the midst of the stock market hype surrounding the marijuana industry, it made sense to quietly and effectively establish their business model, before making a splash.
Chuma’s CEO Jordan Shapiro explained, “We wanted to build a company with some substance, with a business model investors could sink their teeth into.”
Strategically, Chuma also decided to maintain a focus on just one market, the biggest market, California. Legal medical use in California has a nearly 20 year history. It is the most mature market for medical marijuana and that market is expected to be worth $980 million in 2014.
CEO Shapiro explains, “Our management is experienced in the California market. We know the California legal marijuana market.”
A year ago, working under the radar, Chuma’s management began to contact California dispensaries and growers. They were looking for situations where financing was required. Armed with a $1 million dollar war chest, Chuma set out to prove up its business model.
The company is excited about its progress to date. In an August 4, 2014 letter to shareholders, CEO Shapiro was able to disclose that Chuma had loaned funds to five separate California entities for the acquisition of agricultural properties which would then be leased by their respective owners to marijuana growers. He also disclosed that Chuma had completed a loan to a medical marijuana collective for working capital purposes.
The Chuma model meant that the company was able to report financing-related assets in its SEC 10 Q filed in late July. Having actual assets on the books was a critical part of demonstrating the viability of Chuma’s approach to the marijuana business.
“We don’t handle the actual product,” explained Shapiro, “Instead we provide seed-to- sale services to marijuana growers and dispensaries.”
The list of those services is comprehensive: financing, regulatory compliance consulting, banking and payment processing, management and marketing consulting and a host of other essential services are all offered under the Chuma brand.
Even though medical marijuana in California has been legal for 20 years, the business of growing and dispensing marijuana is still conducted on a very small scale. This is partially because of the way that the business has evolved but it is also because the markets have been wary of marijuana-driven offerings. This, in turn, has meant that it was difficult, if not impossible, to go to the markets to raise the capital necessary to scale up marijuana operations.
As incoming Chuma President Kevin Wright puts it, “This is a billion dollar industry where 90% of the transactions are in cash. The dispensaries and the growers have a very difficult time getting financing. Even though marijuana for medical purposes is legal in California, the banks won’t take their business.”
Offering turn-key solutions to growers and the collectives who run dispensaries makes sound business sense but it takes more than that to close the deal in the medical marijuana business. There has to be a degree of familiarity and of trust.
“Our team in California has over thirty five years experience. Since 2007 our team has worked with over 500 dispensaries dealing with the compliance and regulatory challenges they have faced. So we know our market and our market knows us,” said Shapiro.
Chuma’s proof of business concept means that it is ready to expand its business operations. “We are ready to take on more clients and provide more services,” said Wright.
On August 4, 2014, the company announced that it was going to the market to raise $10 million dollars by way of a private placement. “We’ve been on the road telling the Chuma story to brokers, bankers and accredited investors. They’ve been very interested,” said Shapiro.
By offering a conservative, business-driven way to invest in the growing legal marijuana industry Chuma is creating a vehicle for risk-adverse investors to participate in this growing sector.
“We want to build a company that investors can understand. A company with real assets, real revenues and real financials. We’ve made the business case, now we’re ready to scale,” said Shapiro.
CHUM trades on the OTC and, at the time of writing was trading at $1.20 with 54.6 million shares outstanding and a market cap of $65.5 million.
Article source: http://business.financialpost.com/2014/09/22/chuma-taking-pot-seriously/