California-based marijuana grow op supplier Growlife (OBB:PHOT, Stock Forum) is slumping from one problem to the next right now, as two partner companies have rescinded an earlier supply agreement for a large scale Canadian medical marijuana facility in the wake of yesterday’s announcement the SEC had suspended trading in the company.
Creative Edge Nutrition (OTO:FITX, Stock Forum) CEO Bill Chaaban stated, “We act in the best interests of our shareholders. During our due diligence process we arranged suitable alternative private financing to fund our project at 20 North Rear Rd in Lakeshore, Ontario. The terms of this deal were a 25% equity stake in the CEN Biotech project located at 20 North Rear Rd in exchange for $20 million USD. The project has been funded $5.0 million USD to date and will be fully funded per the agreement in 90 days from the agreement date.”
He continued, “Our project continues on schedule and we intend to call for our pre-license inspection before month`s end. We have already sourced equipment from alternative sources which meet or exceed the quality required at a more competitive price.”
Several law firms are investigating the company for potential shareholder lawsuits.
For more on this story see my earlier article about the situation here.
With one hour until the market close, Growlife’s troubles had put an ass-kicking on the sector in general, with only Green Swan Capital (TSX:V.GSW, Stock Forum) up among the dozens of companies we’re covering, and only up half a cent. (UPDATE: In the hour following, a few others climbed into the green – see table below)
At the other end, the hardest hit has been the Dev Randhawa-helmed Papuan Precious Metals (TSX:V.PAU, Stock Forum), dropping 22% on 600k+ volume. Recent entrant Arrowhead Gold (TSX:V.AWH, Stock Forum) was down 21%, and Abattis Bioceuticals (CSE:C.ATT, Stock Forum) was 17.8% off yesterday’s close.
Bayhorse Silver (TSX:V.BHS, Stock Forum) – which, full disclosure, is a Stockhouse Publishing client along with Calyx Bio-Ventures and sometimes Next Gen Metals – has a connection to the medical marijuana world that might not have been apparent when the company diversified from silver mining into MMJ: CEO Graeme O’Neill was in the business in the roaring ‘90’s.
He tells ResourcesWire.com in a piece this week, “I was actually a municipal inspector in North Vancouver in the 90′s. I saw a lot of grow ops and the associated problems. For growing, marijuana is finicky. What a grower wants to do is turn a crop around every six weeks. We hope to provide the expertise and support to make that happen.”
O’Neill gave more insight into the company’s plans in the same interview, saying, “We don’t want to get into the grow business […] We want to explore the business opportunities which surround the business. We think there is the opportunity to be to the marijuana industry what the sutlers were to the Gold Rushes. […] The marijuana business is heavily regulated. In Washington every five pounds of marijuana has to be tested. As a mineral exploration company we are used to operating in a highly regulated environment. We deal with labs and permits.”
NEW PLAYERS:
Noram Ventures (TSX:V.NRM, Stock Forum) has looked up from its pre-early stage graphite claims and decided it wants to diversify into medical marijuana. And looking at how their share price has petered out in recent months, that’s probably a good move – good for a 60% stock jump today anyway.
Noram has four graphite properties in B.C. at various stages of exploration and acquisition, but the allure of marijuana profits has them looking to engage “in discussions with parties that have applied to Health Canada to become licensed producers under the new Marihuana for Medical Purposes Regulations (MMPR) that went into effect April 1, 2014.”
Noram management says they’re also in discussions south of the border, specifically with Washington State-based companies that have applied to become licensed to provide medical marijuana there. The company has a market cap of $2m with a tight float of 16.3 million shares outstanding.
Lexaria Energy (CSE:C.LXX, Stock Forum) announced yesterday that it had teamed with Enertopia (CSE:C.TOP, Stock Forum) on a 30,000 sq. ft. grow facility, with the first right of refusal to expand the facility by 45,000 sq. ft for future growth.
Lexaria will own 49% of the project though it will pay 55% of all ongoing expenses for it and will send 500k shares to Enertopia as part of the deal.
“The facility will be co-managed by Enertopia and by Lexaria, and initial interior architectural design will begin immediately, with a respected architectural firm having already been selected,” according to a press release. “A construction firm has also been selected to perform the build-out. A highly experienced design and operating team directly employed by the Enertopia/Lexaria Joint Venture is being assembled and members of this team will be announced soon.”
Both parties can back out if they do not receive an MMRP license, but they expect that license to be granted sometime in June.
INSIDE DIRT:
Deals continue to be done at a pace, with many of them being done outside the purview of the exchanges so as to keep deals uncomplicated. Chlormet Technologies (TSX:V.CMT, Stock Forum) has learned what happens when a company is too open with information, as it continues to be trade halted by the TSX for not having completed a change of business process after it discussed an LOI it had entered into.
Other companies, clearly as far into that process as Chlormet (or further), trade freely, but looking at the newsflow today as compared to every day of the last few weeks, it would seem perhaps issuers are shifting into more of a don’t ask/don’t tell mindset to avoid the regulatory eye.
This doesn’t apply to CSE companies, by the way, just Venture companies. The CSE is actively promoting the “phenomenal month” they had in March, which was clearly a result of the weed rampage. Though the CSE isn’t promoting their marijuana listings as being the reason for the lift, you can bet they have no incentive to tie their star companies up in trade halts while the going’s good.
I met with the backers of one private company yesterday that is looking to put together an artisanal grow operation with smart players that have been in the business under the old regulations for some time, but they held off on listing – and on applying for their license – as they were very trepidatious about the existing Health Canada guidelines being inadequate and likely to change on the fly, and don’t feel comfortable joining the daytrader meat market that is the sector right now.
I’ll let you know about that company when they’re ready to launch, likely after they receive their licensing, but they’re not alone – the market right now is like a Vegas all-you-can-eat buffet at 5pm, when the starving Appalachian fatties who have been waiting in line for the dinner rush to start are finally let past the velvet rope. Everything is on the menu, nobody is really considering quality, just lots of full plates and a lot of it will feel terrible in the morning.
To be clear, most of the 600+ license applications sent to Health Canada will be rejected upon reading. Maybe 10% will be considered as serious, with half of them likely fading when the financial realities of putting together a pharmaceutical grade grow operation become clear. That leaves maybe thirty licenses, some of them for growing, some for research, some for side industries (transport, testing, cannabis-based products).
My prediction is there will be five or six big players emerging in the next month, as licenses begin to be confirmed, and 10 or 15 niche players behind them, and then the market will be at capacity.
That’ll leave another twenty companies twisting in the wind, looking for an elegant out, with mergers and acquisition activity picking up quickly and a lot of bag-holders watching easy profits turn to losses.
Who is likely to emerge as a contender?
My picks to watch right now are:
- Affinor. Setting up a dream team. Whatever this crowd want to do in weed, they have the brainpower to make it happen.
- Tweed. First mover advantage and cashed up. I think they’ll face some dips along the way, and keeping tabs on 80+ strains is a big job. But that’s like saying Coke might have trouble with getting out its new Crystal Coke Cherry flavour.. it’s still Coke.
- Enertopia. Look at that chart and tell me there isn’t value to be had. They have products, but the ganja stock pop wave is missing them entirely.
- Papuan Precious. When you share a CEO with Fission Uranium, I don’t think raising cash – or profile – will be an issue. They might not be first movers, but they’ll be looking for value buy-ins.
- Southbridge Resources. Something’s going on with this one. You can’t get a share without hitting a heavy ask. Everyone’s holding. It’s like a trade halt without the trade halt.
I hear rumors and news about several other companies that could explode – or implode – FITX is building medical marijuana Valhalla, but I worry they might flood the market when their mega-facility starts producing. Supreme Pharmaceuticals has investor momentum. Abattis has US exposure. I like Noram’s entry into the market today, with a defined plan and, I’m told, lots of behind the scenes work having been completed pre-announcement. I really liked how Chlormet was doing business but who knows how long that company will be tied in regulatory silliness. And in the US, AvWorks Aviation was victim of a mighty shorting war but has a line of inhaler products and incoming revenue that makes their current share price look like great value, if it would only stop falling for a few days.
But Growlife has shown just how easily a bubble can burst, even if just for a few days. Just as the end of MtGox put the wind up Bitcoin, so too has Growlife got the profiteers stepping back for a moment.
Bottom line, those starving fatties are chewing through the first servings of fried chicken and pizza bagels. Soon as they’re stuffed, it’ll be all clear for wise investors to see where they can find the Alaskan king crab and sockeye salmon.
Powder dry, soldiers.
LATE NEWS:
If you’re going to the GreenRush marijuana investor conference in Vancouver on May 7, yours truly will be speaking about the dotbong world and, if we can arrange it in time, fighting to the death in a cage with the directors of Satori Resources. JUST KIDDING, JENNIFER.
I will be talking to exhibitors, brokers, CEOs, growers, stoners, spokesmodels, 911 conspiracy theorists, the janitorial staff – basically anyone who stops by the Stockhouse booth and doesn’t pelt me with rotten fruit.
I’ll also be doing a little video work to help you guys get more info on who’s doing what, so if you want to chat at the event, drop me an email (details at bottom of this article).
THE MOVERS:
Check back daily for the latest news in this sector.
For more stories on this sector, see our Medical Marijuana section.
Follow me on Twitter at @ChrisParry
Send tips, news, suggestions to chris(dot)parry(at)stockhouse(dot)com
Medical marijuana update: Growlife (PHOT) ills compound, Creative Edge (FITX) cuts cord
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