Canada’s Marihuana for Medical Purposes Regulations (“MMPR”) program has been mired in controversy since the beginning. After switching from the Medical Marihuana Access Regulations (“MMAR”) to the MMPR program in October 1, 2013, Personal Use Production Licenses (“PUPL”) and Designated Person Production Licenses (“DPPL”) were phased out on March 31, 2014.
The transition from the MMAR to the MMPR program was designed to move marijuana production out of homes and into tightly regulated corporations. Unfortunately, these dynamics translated to an immediate increase in costs for many medical marijuana patients, which led to lawsuits against Health Canada to permit home growing until a better plan was established.
In the meantime, Health Canada has approved 13 licensed producers under the MMPR program that have already begun selling product. These sales are likely to accelerate as the new MMPR program picks up steam, with the government projecting about $1.3 billion per year in revenue by 2024, while home growing operations are likely to end in the near-term following the court resolutions.
Industry Heating Up
The large potential market for licensed producers under the MMPR program has led to tremendous investor interest in the space. With four licensed producers undergoing transactions to become publicly traded, including OrganiGram Inc. (TSX-V: OGI), Mettrum Ltd., Bedrocan Canada Inc., and PharmaCan Capital, investors will have the ability to invest directly or indirectly in seven of the 13 licensed producers.
Tweed Marijuana Inc. (TSX-V: TWD) (OTC: TWJMF) was the first publicly traded licensed producer and has already achieved a market capitalization of over $100 million, as of August 2014. Many private licensed producers have also reported rising demand from fund managers and venture capital firms looking for a piece of the action, signaling investor confidence in the MMPR’s ultimate success.
With many of these publicly traded companies already reaching $50 to $100 million valuations, investors may want to take a look at promising aspiring licensed producers that may be trading at a discount. Diversification across several companies that are approved and/or seeking approval may be the best way to reduce risk in a sector that is characterized by its high volatility.
Making Steady Progress
Enertopia Corp. (OTC: ENRT), with a market cap of only $10.6 million, is an aspiring licensed producer under Canada’s MMPR program that sets itself apart from the competition. With extensive experience under the prior MMAR program, the company has experience growing and handling medical marijuana, unlike many other newer applicants, and regulators know they can trust the firm to deliver on its promises.
The company’s three major projects are all making steady progress. Security upgrades are being installed at the Green Canvas project in Saskatchewan; design upgrades are in the works at the GTA project in Ontario in partnership with Lexaria Corp. (OTC: LXRP); and, the World of Marijuana project is awaiting its Health Canada site visit as the government continues to work through its backlog.
The company is also actively pursuing opportunities to diversify into related areas like oils, edibles, and industrial hemp markets across North America. Management hopes that these efforts to establish multiple revenue streams will reduce risk for investors and ultimately help internally finance its growth. These efforts also set the company apart from many other pure-plays in the space.
Canada’s medical marijuana space may have had a rough start, but the MMPR program appears to be picking up steam. As Health Canada’s site visits take place, many companies are also becoming acquisition targets, as evidenced by Tweed’s acquisition of Park Lane Farms following its approval earlier this month. These dynamics could justify even higher valuations for smaller firms in the space.
Enertopia has a key advantage with its MMAR operating history and experienced management team. As it continues to progress towards licensure, investors in the marijuana space may want to take a second look, including those involved with U.S.-based companies like Medical Marijuana Inc. (OTC: MJNA) or Hemp Inc. (OTC: HEMP), given Canada’s more established federal-level programs.
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