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Medical marijuana industry competes for scarce investment dollars

Marijuana plants grow as Julia Ratcliffe, a technical consultant with The Bug Factory, a company that supplies insects for natural pest control, works at the MediJean medical marijuana facility in Richmond, B.C., on Friday March 21, 2014.
Image Credit: THE CANADIAN PRESS/Darryl Dyck
March 02, 2015 - 5:02 AM

VANCOUVER - The free-for-all era of Canada's commercial medical marijuana industry is over as a new crop of growers try to woo scarce investment dollars in an increasingly competitive business, observers say.

Boris Ziger, CEO of Matica Enterprises Inc., said the short-lived days of unbridled growth ended soon after last year's change in federal regulations that shifted medical-marijuana production to commercial enterprises from patients growing their own pot.

He said the stock market went "absolutely crazy" in the spring of 2014 as various companies began branding themselves as pot producers in hopes of cashing in on what was really "irrational exuberance you hear about in business school."

"It's become much less Wild West-y," said Ziger, of the Toronto-based investment firm that has sunk millions of dollars into aspiring medical marijuana producer THC Dispensaries Canada Ltd., in Nova Scotia.

All the exuberance at the beginning of the rush had Canada's security regulators warning investors about buying into medical marijuana companies over lack of disclosure and the general frenzy in the market.

"It was a very hyped-up market, people were very speculative, a lot of loosey-goosey talk," said Nick Brusatore, who owns a controlling share of vertical-farm innovator and marijuana-producing hopeful Affinor Growers.

"People have had enough of the hype," he said. "The market's wise to it now."

But new businesses trying to get into medical marijuana production are having a tough time financing their ventures.

"Even we're finding it a little difficult to raise some cash," Ziger said, adding the newest players have to work a lot harder for what could be a big payoff.

"There hasn't been a new industry opening up like this since the prohibition of alcohol was lifted. That's really the only comparison you can make."

Ziger said Matica is in the final stages of obtaining a licence from Health Canada and plans are in the works for a $10-million expansion of a 14-hectare lot in Nova Scotia for THC to eventually produce 11,000 kilograms of medical marijuana annually.

Despite the stiff competition for investors' cash, companies continue to apply to Health Canada for licences to produce medical marijuana.

As of Jan. 26, Health Canada had received more than 1,200 applications for Marijuana for Medical Purposes Regulations licences.

The agency said that about half of them were returned as incomplete, while 223 were refused and 35 were withdrawn.

Health Canada said 23 licences have been issued — 15 for fully authorized production of medical marijuana and eight for probationary, cultivation-only permits.

The agency is currently processing 320 applications.

An estimated 40,000 patients use medical marijuana in Canada.

The exact number of people whose doctors prescribe marijuana is unknown because of a court injunction that allows producers under a now-dismantled licensing system to continue growing in the leadup to a constitutional court challenge.

In the early days of the new-generation industry, a disproportionate number of beleaguered mining companies was among the ranks of medical marijuana newcomers lured by the prospect of satisfying disgruntled shareholders.

An already established network of deep-pocketed investors was especially useful in a fledgling industry.

OrganiGram Holdings Inc. was once known as Inform Exploration Corp., and is now a fully licensed medical marijuana producer.

Other established mining companies also making the transition to diversity into the marijuana industry are Bayhorse Silver Inc., Satori Resources and Vodis Pharmaceuticals Ltd., formerly Southbridge Resources.

Many of the companies angling to get in on the medical marijuana game are eagerly eyeing the prospect of outright legalization in Canada and are positioning themselves to take advantage of any legislative change.

But some dissenters believe legalization would spell the end of the medical marijuana industry in Canada.

Brusatore said legalization would see pot sourcing shift outside of Canada to places like Argentina and Uruguay, where growing costs are a fraction of what they are domestically.

"The marijuana markets are not going to be what people think. They're going to get crushed. Period."

News from © The Canadian Press, 2015
The Canadian Press

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