Source:  Midas Letter, Written By: July 31, 2014


The flood of mining companies petitioning Health Canada for a license has petered down to a trickle in recent weeks after Canadian Securities Administors issued a warning to investors questioning the ability of the would-be licensed producers to legally produce a single plant. Since the issuance of a grand total of 12 licenses in 2014, the process appears to have come to a grinding halt, and no more licenses appear to be forthcoming in the immediate term.

What does this mean for investors left holding the empty baggie?

As usual, it comes down to supply and demand.

Listen to the interview with MMPR Consultant George Routhier:

On the demand side, the requirement for licensed medical marijuana users in Canada to source their bud from Marihuana for Medical Purposes-licensed producers has hit a snag with the granting by Judge Manson in the Supreme Court of Canada of an ‘interlocutory injunction’ to a group of plaintiffs. The plaintiffs argued that they would not be able to afford medical marijuana from licensed producers, who were expecting an average price of between $8 and $12 per gram.

At this point, those who were licensed to grow under the precursor to the Marijuana for Medical Purposes, the Medical Marihuana Access Regulations, can still grow their own, or have someone grow it for them.

Listen to the interview with MMPR Consultant Ivan Ross Vrána:

On the supply side, there has yet to materialize any evidence to suggest that the 12 currently producing licensees are facing anything resembling a shortage. And in terms of demand from investors for medical marijuana companies who are actually growing and shipping medical marijuana, there remains but one choice.

Tweed Marijuana Inc (TSX:TWD)’s valuation seems to be holding steady in the $100 – 120 million range, which would be a reflection as much of its last financing price ($3.20 a share) as the fact that it remains the country’s only publicly traded licensed marijuana grower. The financial statements released by the company for its first quarter of 2014 ended March 31 reported no revenue as they hadn’t shipped any marijuana at that point, so we still don’t know whether or not the company is actually making money.

Listen to an interview with Tweed Chairman Bruce Linton:

The company paid $3.6 million in total cash plus half a million shares for a 350,000 square foot facility in Niagara-on-the-Lake, Ontario in the second quarter, so that will certainly negatively impact 2nd quarter results. The acquisition consists of the building plus a ‘license application in progress’, which is a ballsy move on the company’s part.

Mettrum, another licensed producer, is now in the process of becoming pubic by way of a reverse takeover into Capital Pool Company Cinaport Acquisition Corp. (TSXV: CPQ.H), concurrently with a $35 million financing.

Listen to an interview with Tilray Exceptional Cannabis Products President Brendan Kennedy:

And eagerly anticipated Bedrocan Canada should soon be publicly traded. Bedrocan is a Canadian subsidiary of Bedrocan based in the Netherlands, who is the only company that legally ships marijuana for medical use across international borders.

The raft of CSE, TSX Venture and OTC companies who are cashed up but license-free have more or less reached a point of zombie-ism as they can’t move one way or the other without the prized licenses.

Ivan Ross Vrána, principle of Aslan Ross Consulting and a former Health Canada consultant who now assists would-be growers through the license application process, doesn’t think there will be any movement on licenses before the end of summer, as according to him the government ‘shuts down for the summer’.

And there is growing reason to believe there may be no more licenses issued until the outcome of Health Canada’s appeal of the injunction allowing the licensed users of medical marijuana in Canada to continue growing it themselves or having someone grow it for them.

Health Canada Appeal of the ‘Allard Decision’

At this point, it seems likely resumption of the issuance of licenses to marijuana producers in Canada will not likely resume until the outcome of Health Canada’s appeal of what has come to be known as the ‘Allard Decision’ is heard on Februrary 23rd, 2015. I imagine it will likely be up to another 3 months before a judgement is rendered, at which time, assuming the court rejects the plaintiff’s claims and enshrines the MMPR as law, licensing for medical marijuana facilities might resume.


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