Enertopia Corp. (OTC: ENRT), an aspiring licensed producer under Canada’s Marihuana for Medical Purposes Regulations (“MMPR”), has been making steady progress towards securing a license in what Health Canada expects to be a $1.3 billion market with over 450,000 patients by 2025. During this time, the stock has maintained a relatively low valuation while steadily growing the number of followers.
In this article, we’ll take a look at management’s prudent approach, the stock’s low relative valuation, and the increasing number of followers.
Enertopia has taken a “no non-sense” approach to applying to become a licensed producer under Canada’s MMPR program. With 2 of Enertopia’s projects (World of Marihuana 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.
Management also has ample experience in both horticulture and the capital markets. President & CEO Robert McAllister has over 20 years of experience in the capital markets, including 11 years of working as a corporate executive in the metals and energy industries. Meanwhile, Director Mathew Chadwick has over 20 years of experience working in horticulture, including 10 years under the MMAR program.
Leveraging its prior history with the MMAR program and management’s dual skill sets, the company continues to move its three projects closer to licensure. The GTA project in partnership with Lexaria Corp. (OTC: LXRP) recently received municipal approval, security upgrades are underway at the Green Canvas project, and the World of Marihuana project is awaiting a Health Canada site visit.
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. (OTC: 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.
Enertopia may have a modest market capitalization, but it has accrued a large following on both SeekingAlpha and InvestorsHub (see Figure 2 below). As of July 30, 2014, the company has more combined followers than peers like Modern Mobility Aids Inc. (OTC: MDRM) and even the MMPR-approved Tweed Marijuana Inc. (OTC: TWMJF), despite its comparatively lower market capitalization.
Figure 2 – Followers by Website – Source: SeekingAlpha & iHub
A greater number of followers aren’t a guarantee of liquidity or price appreciation, but a greater following should help the company maintain a fair valuation. Since these followers will likely be alerted when significant corporate events occur, they may decide to take action and buy or sell stock depending on the news and ultimately adjust the company’s valuation as necessary.
If Enertopia is successful in obtaining licensed producer status under Canada’s MMPR program, these followers will likely be aware of the development and may in turn help generate liquidity and adjust its valuation accordingly.
Enertopia’s prudent management, low valuation, and growing number of followers make it worth a look for investors in the space. While uncertainties remain within the Canadian MMPR space, investors seeking exposure should consider diversifying their exposure to increase risk-adjusted returns, as the company remains a viable option within a rapidly growing industry.
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