Source: Sunny Freeman [email protected]
A flurry of Canadian resource exploration companies are abandoning the dream of striking it rich in the gold rush in favour of what they see as the next big thing: the green rush.
The Street is starting to take notice of a trend in penny stocks jumping into the medical marijuana industry. A number of shell companies are appearing on the market, while other resource companies in the struggling sector are diversifying in search of greener pastures.
Most of these companies have neither seedlings nor medical marijuana licences, but that has yet to deter eager investors. Their share prices still go soaring at the hint of a joint venture with a pot producer or the arrival of a new board member with a marijuana-laced resumé.
“It’s like a Klondike gold rush. It’s a whole new industry,” said Zachary Stadnyk, whose health care-focused management team recently took over Supreme Resources and renamed it Supreme Pharmaceuticals. Since the company announced in January its new interest in the marijuana industry, its stock has hit a two-year high of eight cents per share.
“Mining companies are used to chasing big gold discoveries, and I guess in that regard this is very similar. It’s a brand new start.”
The medical marijuana industry is expected to experience massive growth over the next decade, with the number of registered patients predicted to grow to more than 400,000 from about 40,000 currently, generating $1.3 billion in annual revenue.
At least 10 companies listed on small Canadian venture exchanges have announced their intent to enter the sector in recent weeks. This Tuesday marks the cutover to new medical marijuana regulations from Health Canada, which aim to privatize the industry. Ottawa wants all medical marijuana cultivation to be carried out by government-approved commercial producers that sell their product for more than what it costs patients to grow their own — between five and 10 times more.
The government’s plan was dealt a blow by a court injunction on March 21, which ruled that medical marijuana patients who grow their own plants should be allowed to keep doing so, at least until a constitutional challenge is heard over Ottawa’s pot plan. Share prices among many of these so-called penny stocks have fallen off since the injunction. The government said Monday it will ask the Federal Court of Appeal to overturn the injunction.
The industry’s profit margin and potential for growth (especially if Canada ever decides to legalize recreational use) have already enticed more than 600 players to apply for a producer’s licence.
Only 12 have been approved by Health Canada so far, and the injunction is expected to seriously dampen demand for commercially grown medical marijuana for the near future. But junior mining companies are still eager to jump on the bandwagon.
Alchemist Mining hasn’t put out a press release since July and its website is out of order, yet it has seen its share price spike more than 200 per cent this month on mere murmurs that it is overhauling to enter the space.
Terra Firma Resources hit a one-year high of 4.5 cents the day it appointed a medical marijuana consultant, while Next Gen Metals share price jumped from about 5.5 cents to more than 70 cents after sending out a series of pot-related press releases.
The lack of concrete business plans hasn’t dented the miners’ confidence in their ability to lead in an industry that is as different from their business as rocks are from plants.
“The medical marijuana business is slowly recapitalizing the junior mining industry in Canada,” Next Gen CEO Harry Barr said in a press release.
“Who better to build the infrastructure of this new industry than a group of savvy mining execs? That’s right, mining execs,” he said in another of its releases on its newly green website.
The company cites competitive advantages including management’s financial contacts for venture capital, and its track record of negotiating joint venture deals and managing private and public companies.
Lexaria Energy, which has been in the oil and gas business since 2005, told investors this month it is shifting focus to medical marijuana, which it called a more promising growth market than oil. It formed a joint venture, paying grow operator Enertopia Corp. to get involved and appointing Enertopia’s CEO to the oil company’s advisory board.
The news sent its stock soaring to a historic high, up from one cent a share to 80 cents a share just before news of the injunction.
“The medical marijuana business just might be one of the most recession-proof industry sectors there are,” it told investors.
“It’s not as big a leap as you might think,” the company says on its website, explaining that both oil and medical marijuana are heavily regulated businesses, so its expertise is relevant.
Article source: http://www.huffingtonpost.ca/2014/03/31/medical-marijuana-mining-penny-stocks_n_5062688.html?utm_hp_ref=canada-business