Agoracom Blog

Smoking hot marijuana stocks could give investors a buzz

Posted by AGORACOM-JC at 11:41 AM on Tuesday, September 2nd, 2014
Dilys Chan, staff
10:53 AM, E.T. | August 30, 2014
Canadian, Energy & Resources

It’s an exciting time for medical pot in Canada. Two new licensed medical marijuana companies started trading on Monday: OrganiGram Holdings Inc. (OGI.V 2.27 0.02 0.89%) and Bedrocan Cannabis Corp. (BED.V 1.12 0.04 3.7%). They joined Tweed Marijuana Inc. (TWD.V 2.45 -0.02 -0.81%) on the TSX Venture Exchange, bringing the total number of publicly traded marijuana stocks in Canada to three. Both of the new stocks ended the week above their opening prices.

The trend in the commodities space will continue with a fourth company, Mettrum, to hold an IPO in September. According to Khurram Malik, a research analyst at Jacob Securities, the fledgling licensed marijuana industry is at very early stages of enormous growth.

“The [companies] on the Venture exchange with licenses – they’re going to go from $0 to $10 million in revenue pretty quickly in the next year. Tweed’s a perfect example. They’ll have 12 grow rooms up and running by the end of the year,” said Malik.

“The question over the next few months is how quickly suppliers can get their act together and start getting their supply in the market. It is a bit tricky to produce marijuana at a large scale.”

Producers who can ramp up capacity, production and revenue quickly enough can tap into a target market that could potentially generate $1.8 billion in annual revenue, he said to BNN.

The cannabis plant can be a legitimate treatment option for over 100 ailments, said Malik, with pain relief being a common use. With an estimated 500,000 medical pot users in Canada and only 13 suppliers licensed by Health Canada, there is significant demand for product.

“These are very profitable investments for investors to be getting exposure to,” he said.

Investors can compare two key metrics of companies as the industry matures, Malik said. The first is cost to grow product, measured in dollar per gram. The second is how effectively the company acquires customers, a metric that will become more important as producers seek to differentiate themselves from their competition.

Ultimately, Malik thinks marijuana will be legalized, though it’s unclear when that will happen. In the meantime, a regulatory challenge for producers is that they can’t market directly to the consumers or open storefronts. Potential customers need a medical document, similar to a prescription, which then allows them to choose a supplier. But, they have to research and find the supplier on their own. The industry depends on its consumers being self-educating.

Despite that inconvenience, Malik isn’t worried about demand being low for medical pot.

“Buying from the legitimate producers is cheaper, it’s a higher quality and it’s more convenient than going to your proverbial street corner and buying it black market at twice the price.”


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