Whitefish, MT / April 15, 2014 / Canada’s Marihuana for Medical Purposes Regulations (“MMPR”) went into effect on April 1, 2014 replacing the Marihuana Medical Access Regulations (“MMAR”) that previously governed use of the substance. Under these new regulations, patients may only purchase medical marijuana from Licensed Producers, which has created an enormous opportunity for public companies in the space.
On April 10, 2014, Medican Enterprises Inc.’s (OTC: MDCN) wholly owned subsidiary Canaleaf Systems Inc., signed a definitive purchase agreement to acquire 50% of International Herbs Medical Marijuana Ltd. (“IHMML”) - an entity that has applied to be a Licensed Producer under Health Canada’s MMPR. According to management, IHMML is in the inspection process of acquiring its MMPR license.
Click here to view company Press Release detailing this acquisition.
Click here to view company 8k detailing this acquisition.
According to the company releases IHMML will initially be operating out of a 400,000 sq. ft. facility in Athloville, New Brunswick, which if licensed, would provide an immediate distribution channel in Canada. In addition, the company has contracts to purchase a ~300,000 sq. ft. facility in Pokemoush, New Brunswick that has the potential to reach 600,000 sq. ft., as well as a 25,000 sq. ft. facility in Delta, British Columbia.
In this article, we’ll take a closer look at the implications of Canada’s MMPR laws and how Medican Enterprises’ definitive agreement signing with IHMML will provide them access to the Canadian marihuana market.
Transitioning from MMAR to MMPR
Under MMAR regulations, patients were permitted to grow cannabis themselves, designate a person to grow for them, or purchase the substance directly from Health Canada. MMPR is a new set of rules requiring patients to purchase all cannabis from large-scale commercial growers known as Licensed Producers. The switch was designed to improve access to cannabis and provide patients with more choices.
With nearly 40,000 patients enrolled under the MMAR program, the market opportunity is enormous for large-scale growers. The Canadian government expects these figures to soar to upwards of 400,000 patients over the next ten years as cannabis becomes more widely acceptable for medical use. Patients should also have easier access given that doctors are now the only gatekeepers.
Patients that wish to use medical marijuana must now obtain a prescription from a doctor, choose a licensed provider, and then have the medical marijuana mailed directly to their door. More than 5,000 doctors have prescribed medical marijuana in the past to patients, suggesting a broad acceptance in medical communities. While only specific conditions were covered under MMAR, MMPR has no such limitations.
Analyzing the Market Opportunity
Health Canada predicts that the MMPRs will generate roughly $1.3 billion in annual sales by 2024. While the organization has received over 600 applications, there were only 12 listed on the organization’s website on April 10th, 2014. Only five of those listed currently have product for sale, including Bedrocan, CanniMed, GreenLeaf Medicinals Ltd., Mettrum and Peace Naturals Project.
Medican’s 50% acquisition of IHMML would provide U.S. investors with potential exposure to Canada’s medical marijuana market. If approved as a Licensed Producer, IHMML would be one of just a handful of companies with exclusive rights to produce medical cannabis for potentially hundreds of thousands of patients, which means that Medican could be well positioned in the market.
Medican’s in-house team of leading horticulture Ph.D.’s are focused on cultivating five strains of cannabis with standardized potencies and verified purities. These strains include varying levels of THC and CBD depending on the conditions being treated. Management plans to bring these to market through joint venture partnerships with existing medical marijuana providers in the U.S. and Canada.
Potentially High Margin Opportunity
Public companies with high profit margins tend to realize those margins by operating monopolies or in highly regulated markets. For instance, medical device makers like Medtronic Inc. (NYSE: MDT) have high margins given the difficult FDA approval process, long-term patent protection, and high premiums that consumers are willing to pay to ensure they remain in good health.
Similarly, Licensed Producers under Canada’s MMPR will be the only legal suppliers of medical marijuana, which enables them to charge market prices of between $5 and $12 per gram. The lengthy and capital-intensive process of becoming a Licensed Producer also limits the competition, while many experts believe the government will eventually close the market to new entrants.
Even if the market isn’t immediately closed to new entrants, tobacco companies like Reynolds American Inc. (NYSE: RAI) show that regulation produces high barriers to entry. Despite the fact that the tobacco industry is very old, Reynolds American maintains 52% gross margins and has generated enough cash to pay a healthy 5% dividend yield to investors over the long term.
Do Your Homework
Please remember that companies traded on the OTC markets are highly speculative and it is important that you do your own research. For your benefit, we have included the following links for more information on Medican:
-Medican’s Website - http://www.medicaninc.com/
Click here to receive email updates on Medican Enterprises, Inc. - http://www.tdmfinancial.com/emailassets/mdcn/mdcn_landing.php
Disclaimer:
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