The cannabis market has come a long way in recent years. While marijuana is still considered a Schedule 1 drug under the Controlled Substances Act, the US has allowed patients with a variety of medical conditions to smoke marijuana in 23 states since 1996, and more states have moved to legalize both medical and recreational cannabis.
Alaska became the third state to allow individuals to grow, smoke and possess cannabis for recreational use, while Oregon became the fourth in July 2015. There have also been initiatives in the medical cannabis space, with both Texas and Georgia signing bills last year to legalize low-THC cannabis oil for the treatment of epilepsy and other chronic diseases.
Up north, Canada’s cannabis market had a major win in 2015 when the Liberal government won the federal election on October 19, 2015. Since the start of his electoral campaign, Justin Trudeau, the country’s elected prime minister, has made it clear that he will make legalizing marijuana across Canada a priority — he told CTV News that, if elected, he would begin working to regulate and legalize marijuana “right away.”
Canadian election results boost cannabis market
Unsurprisingly, many Canadian cannabis stocks reacted favorably to Trudeau’s election, with gainers including Canopy Growth (TSXV:CGC), an authorized licensed producer under Health Canada’s Marihuana for Medical Purposes Regulations. Canopy CEO Bruce Linton told the Investing News Network (INN) that the election was an important milestone for the industry as it’s put legalization front and center and created dialogue about the fact that cannabis is a commonplace product.
Canopy’s share price surpassed the $2 mark around the time of the election and has continued to increase. “Within a week or so of the election, we traded up as high as $3.65, which took our market cap in excess of $300 million. It has drifted down a little bit, but we are still north of a $200-million market cap and trading huge volumes,” Linton said. “It is a highly liquid stock in part because there has been a lot more focus on the stock given the election. That whole campaign and the conclusion of it really did put a platform in place for our next two or three years.”
The company has also seen massive growth in 2015 overall. Prior the the election, Canopy, formerly known as Tweed Marijuana, acquired Bedrocan Cannabis in an all-stock transaction. At the same time, the company announced Q1 revenues of $1.7 million, the first publicly announced million-dollar quarter in the sector.
“Having the two dominant brands that defined who we were when the election occurred, there is a reason our companies had the primary trade, and it is because we have the best medical position and the best recreational position,” Linton said.
Canopy reported revenues of $7.0 million, a 300 percent increase over the three months ended June 30, 2015 and a 39 percent increase over fourth quarter fiscal year 2016.
Overcrowding in 2015
Speaking to INN, Technical420 founder Michael Berger agreed that the Canadian election was a major cannabis space catalyst in 2015, but said that the industry also had a rough time due to the influx of companies to the space since 2014.
“There are currently too many stocks out there, with over 300 companies available for investment, and I would say 80 to 90 percent will not be around during the next two years,” he said. “One thing that it has really done to the market it spread out the capital among way too many companies. In early 2014 you maybe had 40 to 50 companies, and now that there are 300 the money is spread very thinly. It has been really tough for these companies to grow from a stock appreciation perspective. I definitely see a shakeout coming, it’s only a matter of time.”
Even so, he emphasized that there are a lot of legitimate companies out there. He said that in the fourth quarter of this year, securities analysts for penny stocks began pressuring investment firms to look out for penny stock fraud and to restrict trading in Canada securities, which “is going to be a headwind for a lot of the companies, but will also help with the shakeout process.”
Linton also spoke to the number of companies in the space, commenting, “the nice part is that there are a lot of companies popping up that wish to be in the business, but there are still currently a total of 26 licences issued in Canada, and we have four of them. There are only a handful of legitimate-quality companies.”
Changes in 2016
Moving forward, many will no doubt be eyeing Trudeau’s next moves toward cannabis legalization in Canada; the results of the US presidential election will also likely have a huge effect on the industry. Indeed, Berger thinks that the election is going to be a catalyst for legalization, and noted that a number of swing states have legalized some form of marijuana, while quite a few states are going to put recreational or medical marijuana on their ballots.
Another major catalyst for the cannabis industry in 2016 will be test results from GW Pharmaceuticals (NASDAQ:GWPH), which currently has three different drugs in the Stage 3 FDA testing phase. Those include Epidiolex for the treatment of Lennox-Gastaut syndrome, a rare and severe form of childhood-onset epilepsy, and Epidiolex for Dravet syndrome.
“Once one of these makes it through … it will change how the FDA and DEA view cannabis because they simply cannot pretend that there aren’t medical benefits associated with cannabis,” Berger explained. “So this will be a huge industry for the whole market in the short term.”
As of August 2016, GW has reported two positive Phase 3 trials for Epidiolex. The company is also on track for its NDAfor both Dravet and LGS indications, slated for H1 2017 submission.
Berger also noted Canopy Growth and Aurora Cannabis (CSE:ACB) as two companies of interest. He referred to Canopy as one of the best long-term investments and praised Aurora for its brand new, state-of-the-art facility. Aurora is licensed for both marijuana cultivation and sale under Health Canada’s Marihuana for Medical Purposes Regulations.
This is an updated version of an article first published on Dec 9, 2015 on Cannabis Investing News.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
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The latest infographic from Visual Capitalist takes a look at the growing recreational cannabis industry and outlines five things that investors interested in the space need to know.
Click here to view the infographic in the Visual Capitalist website.
Tweed Inc, a wholly owned subsidiary of Canopy Growth Corp. (TSXV:CGC), announced that it has renewed its license to produce and sell marijuana under Health Canada’s Marihuana for Medical Purposes Regulations (MMPR).
As quoted in the press release:
The renewed license, which is valid for 14 months until January 19, 2017, allows Tweed to produce and sell up to 3,500 kg of dried marijuana. In addition, Health Canada has renewed Tweed’s supplemental license to produce fresh marijuana and/or cannabis oil, over the same period.
Bruce Linton, chairman and CEO of Canopy Growth, commented:
This is an indication that Health Canada has confidence in Tweed’s ability to continue to meet the rigorous production, product quality, and security requirements of the regulatory regime. Producing cannabis of this level of quality on a large scale, ensuring it is delivered strictly to the designated registered patient, and ensuring the customer care experience is consistently exceptional, requires a high degree of expertise across multiple functional areas. Tweed continues to prove that we are unsurpassed in these capabilities.
Canopy Growth Corp (TSXV:CGC) announced that it has closed its bought deal financing, including the exercise in full of the underwriters’ over-allotment option, for aggregate proceeds of $14,376,035.
As quoted in the press release:
A total of 7,012,700 common shares in the capital of the Company (the “Shares”) were sold at a price of $2.05 per Share, for aggregate gross proceeds of $14,376,035.00 (the “Offering”). The Offering was underwritten by a syndicate of underwriters led by Dundee Securities Ltd. and including GMP Securities L.P., INFOR Financial Inc. and M Partners Inc.
Canopy intends to use the net proceeds from the Offering primarily for capital expenditures at facilities, operational expenses and general working capital purposes including salaries, general maintenance, utilities, costs associated with regulatory compliance, and costs associated with derivative product production and international programs.
Zynerba Pharmaceuticals (NASDAQ:ZYNE) announced its financial and operational results for the third quarter, highlighting a successful IPO and the initiation of its Phase 1 clinical trial for ZYN002 cannabidiol (CBD) gel.
As quoted in the press release:
Successful IPO: Zynerba closed its initial public offering of 3,450,000 shares of common stock at a public offering price of $14.00 per share, before underwriting discounts, on August 10, 2015. This included the exercise in full by the underwriters of their option to purchase up to 450,000 additional shares of common stock at the public offering price, resulting in gross proceeds of $48.3 million. All of the shares in the offering were sold by Zynerba.
Phase 1 Clinical Trial Initiation for ZYN002 CBD Gel: Zynerba initiated a Phase 1 clinical trial for its ZYN002 cannabidiol (CBD) gel on October 20, 2015. The “Single Rising Dose Study in Normal Subjects and Patients with Epilepsy” study evaluates the pharmacokinetic profile and tolerability of ZYN002 in 32 healthy volunteers and in 12 patients with epilepsy. Results are expected in the first half of 2016.
New Vice President, Manufacturing: Zynerba appointed Brian Boyd as Vice President, Manufacturing, on September 14, 2015. Mr. Boyd is a senior pharmaceutical manufacturing executive with more than 30 years of experience driving superior manufacturing process outcomes in the biotechnology and pharmaceutical industries. Most recently, he was Vice President, Process Development for Auxilium Pharmaceuticals and also held senior CMC and manufacturing roles with PolyMedix, Discovery Labs, Aviron/MedImmune Vaccines and US Bioscience/MedImmune. He earned a BS in Chemistry fromDenison University.
Six New Board of Directors Members: Zynerba appointed six new members to its board of directors on August 6, 2015, joining Chairman of the Board and CEO Armando Anido. The appointees offer extensive scientific, regulatory, commercial and financial experience and successful track records in development- and commercial-stage pharmaceutical companies. The new board members include Warren D. Cooper, MB, BS, BSc, MPFM, former CEO, Prism Pharmaceuticals; William J. Federici, MBA, CPA, Vice President and Chief Financial Officer of West Pharmaceutical Services; Thomas L. Harrison, LH.D, Chairman Emeritus of Diversified Agency Services, a division of Omnicom Group; Daniel L. Kisner, MD, former venture partner,Aberdare Ventures; Kenneth I. Moch, President, Euclidean Life Sciences Advisors; and Cynthia Rask, MD, board certified in clinical neurophysiology and former Acting Director, Office of Cellular, Tissue and Gene Therapies, US Food and Drug Administration.
Armando Anido, chairman and CEO of Zynerba, commented:
Following our successful initial public offering in August, we are well-positioned to advance the development of our pipeline of first-in-class transdermal cannabinoid treatments. We are rapidly progressing clinical development of these novel transdermal synthetic cannabinoid candidates, with the initiation of a Phase 1 trial for ZYN002 CBD gel in October and expected results in the first half of 2016. With a strong board in place, successful recruitment of additional key leadership and initiation of clinical development for ZYN002, we expect a productive year ahead as we work to take the company and its pipeline to the next stage.
FBEC Worldwide (OTCMKTS:FBEC) announced that it has signed a letter of intent to form a strategic partnership joint venture with DuBe, a hemp energy shot brand.
As quoted in the press release:
The two companies have come to terms on the development of a strategic partnership designed to fast track the expansion of the WolfShot™ and DuBe® hemp energy shots. The new partnership entity will also bring to market additional hemp, CBD, and cannabis related products. The Joint Venture will cross market and distribute both WolfShot™ and DuBe® family of products through one entity.
DuBe® already has a strong, national distribution network placing their hemp energy shot firmly in over 12 states, while FBEC Worldwide is set to begin distribution rollouts shortly. DuBe® has sold well over 1 Million units of their hemp infused energy shot generating over $1M in sales revenue. The new Joint Venture will bring FBEC Worldwide, Inc. instant revenue lines and cash flow to the Company.
DuBe® will also work closely with FBEC Worldwide’s Scientific Advisory team to bring new products to market including their current lines of hemp infused lip balm, CBD vaporizers, and rolling papers but also future lines like coffee, teas, power bars and infused liquor products. DuBe® has an existing relation with Green Cross of America in Nevada to develop THC and CBD brands of DuBe®.
Jason Spatafora, CEO of FBEC Worldwide, commented:
The DuBe® team is committed to all aspects of building a world-class quality brand, and the company is now looking forward to building that brand with FBEC Worldwide, Inc. Creating great products and brands isn’t just about the idea, success is about timing, execution and gaining market share via strong team. We are confident FBEC and their CEO will bring DuBe® and WolfShot™ to the next level and operate with greater economies of scale needed in today’s market.