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Canadian cannabis creates profits

Friday, June 13 12:37:16

By unlocking the once-obscure medical marijuana market, Canada has created a fast-growing, profitable and federally regulated industry with a distinct appeal to the more daring global investor.

About a dozen producers of the drug will find themselves in the spotlight this year as they consider going public or prepare to so through share sales or reverse takeovers to capitalise on recent regulatory changes, investment bankers said.

The Canadian companies are in a race to raise money to build facilities, attract patients and grab shares in a market projected to grow to C$1.3 billion in the next 10 years.

Despite facing considerable risks, they have the advantage of being in one of the few countries where medical marijuana is legal nationwide and where licensed operators can mass-produce it.

In the United States, the drug remains illegal at the federal level. Some 20 U.S. states have legalised medical marijuana, but investors worry about the prospect, however remote, that the federal government may strike down those laws.

Although the U.S. market is home to companies including Medical Marijuana Inc and Cannabis Science Inc, their northern counterparts are likely to benefit from greater legitimacy and legal clarity. Sources said much of the private equity investment in the Canadian industry had come from the United States.

"Canada is one of the few countries anywhere where its citizens have a constitutionally protected right to access medical marijuana with a physician's consent," said Paul Rosen, chief executive officer of PharmaCan, a holding company with large stakes in four producers. "And you've got the government trying to create an industry around it."

Tweed Marijuana Inc, which converted an old chocolate factory into a marijuana farm, led the pack by becoming the first publicly held Canadian company in the sector. Its April offering was oversubscribed within 15 minutes of being announced, sources said.

Inspired by Tweed, PharmaCan plans a listing in the next month or so. Producers Organigram, Aphria and Bedrocan expect to go public in the next three months, while CannMedica and others are looking at doing so.

Highlighting the industry's mainstream allure, Tweed's listing was led by two highly respected Bay Street firms, mid-sized investment bank GMP Securities and boutique adviser Jacob Securities. (Reuters)