As those watching the resource space are no doubt aware, the first six months of 2014 saw quite a few junior miners make forays into the medical marijuana sector.
Encouragingly for those companies, swathes of investors have been only too eager to follow. However, many analysts believe that’s a problem, in part because the sector is so new, but also because there’s still so much bureaucratic red tape and uncertainty surrounding marijuana use, even for medical purposes.
It’s thus unsurprising that “caution” and “profit” were the words of the hour at Monday’s Canadian Investor Conference marijuana panel, which featured activist Jodie Emery, Daniel Kiselbach of Deloitte Tax Law, Midas Letter’s James West and Paul Pelosi, Jr. of Verde Science (OTCMKTS:VRCI).
Why be cautious?
Giving his take on the need for caution, West explained that, at least in Canada, there’s a disconnect between what licensed commercial growers think they can achieve and what is actually achievable. Specifically, he said, those growers “predict that they will realize a price of $8 per gram” when “probably 25,000” of the 38,000 medical marijuana users registered with Health Canada “have been on disability and paying less than $1 a gram from compassionate growers and suppliers.”
While that could be a “great opportunit[y]” for traders able to ride stocks up as they’re buoyed by marijuana-related plans, it also means that ultimately there will be a “very slow and consistent degradation for the sector as a whole” as companies that don’t follow through on those plans disappear.
On a similar note, Emery pointed out that companies hoping to grow marijuana “are being promised a marketplace that … does exist,” but is already being served. In her opinion, it will thus be tough for companies to make the money they’ve been promised unless the market expands via “legalization for all” or unless they can “offer something that people can’t get elsewhere.”
Kiselbach was a little more positive, pointing to Tweed Marijuana’s (TSXV:TWD) success after listing on the TSX Venture Exchange and commenting, “there are opportunities, at least at this point in time, for making money.” However, he said, companies must do “careful planning in order to be profitable,” and unfortunately many are not making an effort to do so.
Those comments may sound daunting, but none of the panelists denied that profiting from medical marijuana is indeed possible. Here’s what they said when asked which companies they think are “doing it right.”
- West: “The best-looking business plan I’ve seen yet belongs to a company called THC Bank, which focuses on protecting and preserving the genetic integrity of various strains of marijuana for growers.”
- Kiselbach: Kiselbach again identified Tweed as a company that is making money.
- Emery: Though she noted that she wasn’t there to offer stock picks, Emery did point to her own success at working “in the marijuana industry without actually dealing with marijuana itself.” She also emphasized the importance of supporting companies that advocate for full legalization.
- Pelosi: “Investors do flock to corporations which have strong corporate governance,” said Pelosi. Additionally, he noted that corporate mission is important, as is growth potential for revenue, a quality he believes Verde Science certainly has.
Certainly some food for thought for investors watching the sector.
Stay tuned for a video interview with Jodie Emery.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.