A few junior resource explorers and project developers are hopping on the medical marijuana bandwagon in what could turn out to be a last-ditch effort to stave off extinction. For speculators looking to make some quick cash, though, the ride could turn into a ‘bad trip’.
Sparking this recent ‘pot stock’ boom was a decision by Canadian regulators to allow licensed producers to grow medical marijuana on a commercial basis beginning on April 1, 2014. On that day, Health Canada said the 40,000 Canadians currently licensed to grow their own medical marijuana will have to dispose of their present stash and get future medicine from commercial growers.
According to cannabis industry research firm ArcView Market Research, the legal market for cannabis in the United States alone could expand 64% this year to US$2.34-billion, and 700% to $10.2-billion over five years.
For the select group of resource juniors looking to go this route, history suggests that this could be another sign of a market bottom for the sector. In a recent Financial Post interview, mining analyst and newsletter writer John Kaiser sees this as being similar to the ploys by resources companies in the late 1990s and early 2000s to jump on the dot-com boom following the Bre-X sample salting scandal. After the dot-com bust, the junior resource sector began what turned out to be a five-year bull market that ended in 2007.
One of the first juniors to express its intention to enter the medical marijuana business was Next Gen Metals Inc. (CSE: N), which on the same day it began trading on the Canadian Securities Exchange announced plans to diversify into the Legal Medical Marijuana and Industrial Hemp industries in North America. Its stock price has soared more than five-fold since. Next Gen had just $308,658 in working capital at the end of 2013 but has recently reported that would raise up to $2.75 million through a non-brokered private placement at $0.55 cents a unit.
“Next Gen’s vision is to be a leading provider of venture capital, management expertise, education and a facilitator for this explosive new industry,” said President and CEO Harry Barr. Sounds a lot like the tech start-up ‘incubators’ that popped up during the late 1990’s.
Satori Resources Inc. (TSXV: BUD) is another recent success story with its March 11, 2014, announcement that Scott Walters, who specializes in due diligence as it relates to a variety of consumer and agricultural products, particularly in relation to Marijuana for Medical Purposes Regulations (MMPR), has been appointed as special Advisor to the company.
Satori stock skyrocketed 186% to 10 cents that day and continues to hover at that level. Satori was formed as the spin-co resulting from the closing of the acquisition of St. Eugene Mining Corporation Limited by Claude Resources Inc. in February, 2012, and its sole asset is its 100% interest in the Tartan Lake Mine Project in Flin Flon, Manitoba. Perhaps not coincidentally this is near a Hudson Bay Mining and Smelting facility where government-contracted mine-based marijuana grow ops supplied around 20% of the regulated Canadian market before they were shut down in 2009. Satori had just $132,852 in working capital as of September 30, 2013.
Other juniors trying, or suspected to be trying, to get into the medical marijuana space include Alchemist Mining Inc. (TSXV: AMS), up 146% since March 12, Thelon Capital (TSXV: THC), up 186% since announcing on February 28 that Scott Walters would be joining its Board, and most recently Cavan Ventures (TSXV: CVN), up 29% in the two days since the graphite explorer said it was considering getting involved in the medical marijuana industry.
Speculators wanting a pure medical marijuana play should take a look at Tweed Inc., which is expected to become publicly traded soon with its announced reverse takeover of LW Capital Pool Inc. (TSXV: LWI.H). Tweed operates out of a former Hershey candy factory in Smiths Falls, Ontario and became a licensed producer and seller of medical marijuana on January 27, 2014. The company expects 1,000 customers by April 2014 and 3,000 by the end of the year and forecasts 80% gross margins for its operations.
There’s also Toronto-based PharmaCan Capital, which is set to go public on April 1, 2014. PharmaCan has a capital fund that invests in companies that could make a significant impact within the global medical and legal marijuana markets.
Speculators, however, may have already missed the boat on Abattis Bioceuticals Corp. (CSE: ATT) shares, which have skyrocketed 7550% so far in 2014.
Canadian-listed medical marijuana firms are also hoping to follow in the footsteps of their U.S. counterparts, some of which have seen meteoric rises in their share prices since January 1, 2014, when Colorado allowed retail sales of marijuana. Shares of Hemp Inc. (OTCPK: HEMP), for example, soared 1400% in the first five weeks of the year.
For individuals with the desire to roll the dice in this highly-speculative sector remember that most of these companies, particularly the resource juniors, have either just announced intentions to go into the medical marijuana business or are in the process of applying for a license. Thus, the better bet would be to stick with those that are already licensed to sell the product.
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Sean Mason
Writer & Editor, Smallcappower.com
Email: sean@smallcappower.com
