Uncertainty in the Financing of Medical Marijuana Companies in Canada

How will recent court decisions and delays in the granting of producer licenses impact the ability of medical marijuana companies to raise capital?

Two major court decisions have forced Parliament to rewrite the new Marihuana for Medical Purposes Regulations (MMPR), which took effect April 1, 2014. MMPR makes ‘growing-your-own’ illegal, forcing patients to buy medical marijuana only from a licensed commercial grower. Thanks to a Federal Court injunction, however, patients who were authorized under the old regulations to grow their own medical marijuana, can continue to do so for now. MMPR also restricts patients to receiving their marijuana in dried form only. The BC Court of Appeal has decided that this restriction is unconstitutional and that patients have the right to choose the form of ingestion that works best for them, such as cookies, butters, tea or capsules.

With this backdrop, the ‘greenrush’ of applicants seeking producer licenses under the MMPR has caused a bottle-neck in Health Canada’s approval process. Only 15 producer licenses have been issued, with an estimated 300 applications still in the pipeline. Most applications will not complete successfully for various reasons, including a lack of financing. With over 9,000 registered patients but an estimated 500,000 people using medical marijuana in Canada, the first producers out of the gate will capture a large share of the market.

Two of the 15 licensed producers, Tweed and Organigram, are listed on the TSX Venture Exchange and their stock prices initially soared. Tweed’s shares have now settled at about $2.00, more than 50% lower than the highest trading price of $4.75 last year. Organigram is trading at about $0.50, which is down significantly from a high of $2.40. The few license applicants listed on the Canadian Securities Exchange are starting to languish.

Investment in medical marijuana companies had been ‘fired up’ in 2014, but things have cooled off somewhat — Health Canada’s review of license applications is slow, the regulations are in flux, and the investment community is becoming more selective and risk-averse. Many investors want to see and touch the actual license or at least a ‘Ready-to-Build’ approval letter from Health Canada before writing a cheque. Speculative players seeking a quick return on an inflated stock price for a wannabe producer may exit quickly, driving stock prices down. In the face of a changing landscape, it will be interesting to see how financing of this industry will look in 2015.

Tags: Securities, Claudia Losie, Article