Lexaria Announces Second Production Facility in Ontario
VANCOUVER, BC / May 28, 2014 / On May 24, 2014 the New York Times published a 2,900 word expose on the Canadian medical marijuana industry, centering on a chocolate factory in Smith Falls, Ontario converted to a climate-controlled marijuana plant now operated by Tweed Marijuana (TWD-TSX.V), a publically traded company worth $121 million.
"The Canadian government decided to create an extensive, heavily regulated system for growing and selling marijuana," explained the New York Times article, "The new rules allow users with prescriptions to buy only from one of the approved, large-scale, profit-seeking producers."
The Canadian government estimates that within the next decade the marijuana business will generate more than $3.1 billion a year in taxable sales.
On May 27, 2014 Lexaria Corporation (LXX-CS) (LXRP-OTCQB) announced that it had entered a detailed Letter of Intent for its second marijuana production facility in Eastern Ontario, Canada.
The agricultural growing facility has total potential area of over 80,000 square foot to be completed in a multi-phase development program. Lexaria will be the operator of this facility and owns 100% rights, with no overrides or royalties due to any party.
Other recent successes in the Canadian medical marijuana space are Windfire Capital (WIF-TSX.V) whose stock price has tripled in the last 12 months and Affinor (AFI-CNX) which has experienced 1000% share price increase after diversifying into medical marijuana and industrial hemp.
Like many of the new marijuana captains, Lexaria President and CEO Chris Bunka is slightly bemused to find himself in the industry.
“I'm 52 years old and I never smoked a joint in my life,” stated Bunka in an exclusive interview with Financial Press, “But I know that I can deploy capital in the medical licensed marijuana business and earn a greater return per dollar than I can in the oil and gas business.”
In 2006 Lexaria discovered an oil field in the state of Mississippi. Over the last three fiscal years, that field has produced about $100,000 a month in revenue.
"The oil field is not large enough to capture the love of the investing public," admitted Bunka, "but it enabled us to function without doing any harm to existing shareholders."
Bunka’s plan is to divest Lexaria’s oil assets to fund and focus on the medical marijuana industry – using the same philosophy of first protecting and then growing shareholder value.
"Our first marijuana project is a joint venture which we have a 49% stake in, with Enertopia (TOP-CNX)," stated Bunka, "Our facility is potentially as large as 75,000 feet – and municipal approval is expected soon."
Intent that Lexaria control its own destiny, the company acquired 100% interest in a facility in Eastern Ontario.
"The building owner is contributing up to $1 million toward the renovations of the building," stated Bunka, "In addition they are intending to invest up to $2 million in our recently announced financing, so they will become part-owners of Lexaria."
Lexaria has not had to issue any shares in order to acquire this newest marijuana facility.
"If Lexaria has difficulties obtaining municipal approval for this building, the property owner will make another facility available in another municipality," stated Bunka, "Let’s face it, crops are vulnerable to disease, licences occasionally get revoked. To protect shareholder value, it is important not to put all your eggs in one basket. Our intention is to spread the risk over multiple facilities."
Over the last six years, Bunka has personally invested over $1.5 million in Lexaria. Documents posted on sedar.com confirm that the majority of the shares have been purchased on the open market. There is no record of any shares being sold by Bunka.
The medical marijuana space is heating up but Lexaria’s track record indicates that management is not looking for a quick exit. The company is adapting its business model to a new opportunity, with an eye to rapid growth and risk mitigation.
We anticipate getting approvals from the municipal government in Eastern Ontario as well as the fire department and police," stated Bunka, "We will hire a consulting group to ensure that the licensing application meets all criteria. Shortly after this we hope to get a "comfort letter" from Health Canada confirming that there are no serious deficiencies in the application - adding another layer of shareholder security.
Lexaria is now involved in two potential marijuana production facilities, both located in Ontario, and each capable of expansion and large enough to offer significant cost efficiencies compared to smaller facilities.
"It’s just so rare that you have an industry that’s growing but which has a huge established market," stated Tweed CEO Chuck Rifici in the New York Times article.
Most medical users consume 1-3 grams per day. Consuming 1 gram a day at $7.80 per gram is an annual expenditure of $2,847 per customer.
Lexaria is trading at .25 with a market cap of under $8 million.
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SOURCE: Financial Press