There has been much speculation from the financial world in the market potential of the MMPR (Canada’s Marijuana for Medical Purposes Regulation), with investors encouraged by Health Canada’s estimates of some 450,000 potential patients by 2024. But what are these projections based on? It appears Health Canada has derived their numbers based on the growth of the previous MMAR program, but is this a realistic measure of ‘customer’ growth in this new system?
For example, it’s been over a year now that Tweed (CVE:TWD) has been publicly listed. In June 2014 Tweed broke a $100 million dollar market cap, putting it in the same valuation ballpark as Shopify and Sidney Crosby’s contract with the Pittsburgh Penguins. This has slowly been trickling down to its current market cap at $80 million. Still, $80 million is an excellent valuation for any business. This carries weight across Canadian and American financial markets in support of the legitimization of cannabis as a valuable commodity; a future staple of the Canadian economy that even Health Canada has mentioned could one day contain over 400,000 registered patients.
The $80 million valuation for Tweed isn’t supernatural for Canadian cannabis companies. In fact, publicly traded Licensed Producers under Health Canada’s MMPR program are experiencing strong market valuations all around.
Company
Market Cap (www.ycharts.com)
2014 Sales
Tweed
$80.47 million
$1.15 million
Bedrocan
$49.11 million
$1.08 million *q4 absent
Organigram
$26.51 million
$0.02 million
Mettrum
$59.00 million
$2.21 million *q1 absent
Aphria
$55.10 million
$0.00 million
Does Tweed Inc. have sales to match this valuation?
No. Tweed’s 2014 sales were $1.15 million with over half coming in the last three months. Even with some creative valuation metrics (and I can be very creative) it is difficult to get close to half the $100 million market cap. Furthermore, the stock price of Tweed has been hovering slightly above $2 long enough for them to issue millions of shares to raise more money because of their negative cash flow. In fact, pretty much every LP seems to be bleeding.
What can investors see that make Tweed worth so much?
It’s all about the potential of the MMPR market. Investors are banking on the idea that everyone from MMAR (Health Canada’s old system that exists in limbo) will flock over to MMPR. Part of the hunger is for MMAR buyers, which has a current agricultural potential to manufacture $1.77 billion in dried product. Sorry to be the bearer of bad news but this is an unrealistic dream.
Health Canada forecasts that by 2025 the MMPR market will maintain 400,000 patients. If this holds true my metrics put the market around $1.73 billion (figure 1) with Health Canada claiming the market to be $1.3 billion. Ironically the current market for MMAR is roughly $1.77 billion (figure 2 at bottom) and the future market for MMPR is $1.73 billion – that can’t be a coincidence. Comparing these numbers lead me to believe that MMAR markets are likely already servicing 400,000 Canadians looking for product.
Figure 1
Historical
Forecasted
10 Years
MMPR Data
6/30/14
9/30/14
3/30/15
6/30/15
9/30/15
12/30/15
25-01-01
# of clients
7914
12409
16600
20800
25900
31900
400000
Average amount authorized (g/day)
2
2
2
2
2
2
2
Per day usage (Kg)
16
25
33
42
52
64
800
Monthly usage (Kg)
475
745
996
1248
1554
1914
24000
Average retail price/g
$10
$10
$10
$10
$10
$8
$6
Montly Market value
$4,748,400
$7,445,400
$9,960,000
$12,480,000
$15,540,000
$15,312,000
$144,000,000
12 Month Value
$56,980,800
$89,344,800
$119,520,000
$149,760,000
$186,480,000
$183,744,000
$1,728,000,000
Even in 10 years, if and when the market reaches a $1.7 billion valuation, Tweed would have to control a significant chunk of the market for investors to see any return worth the original risk.
Furthermore there is an entire extracts market that isn’t even close to being understood. Cannabis creams, oils, and extracts have the potential to hit many more markets beyond the reach of dried cannabis. LP’s are hungry to tap these markets with ready branded products targeting folks who are averse to smoking.
MMAR vs. MMPR
MMPR still has a long way to go before catching up to Health Canada’s previous MMAR program in terms of patient acquisition. As the old program continues to operate, the following numbers suggest that as long as MMAR continues to exist, the MMPR Licensed Producers can only continue to dream about absorbing MMAR production and clients. Furthermore, even with a dissolution of the MMAR entirely, it is not necessarily true that many registered under the old MMAR system would migrate to the new system.
So Where’s Big Pharma?
Big pharmaceutical companies are just that, too big to be interested. A market that is seen as $2 billion with dozens of existing players, a messy legal system, and 1000 more applicants this is not an area of interest for the likes of Pfizer and J&J. The American pharmaceutical industry is valued around $300 – $400 billion. With the light of cannabis extracts however, there is no doubt that some of the minor players will begin testing the effects of THC for markets such as branded medical pain relief for arthritis.
How Big is the Market for Extracts?
The market for extracts is difficult to determine because the potential extent of medical cannabis. However, we can observe a few of the basic markets (Figure 3) of which Health Canada mentions cannabis offers “potential therapeutic benefits.”
Figure 3
Potential Market for Cannabis Extracts
Market in Billions
Sample Medication
Type of Extract
Source
Pain treatment
$35.4
Tylenol, Advil, etc.
Mix
goo.gl/4nyr1V
PTSD, Stress, Antidepressant
$22.5
Prozac, SSRIs
Mix
goo.gl/OnB69U
Arthritis
$14
Aleve, Motrin
Creams
goo.gl/Of0zsC
Sleeping Pills
$9
Ambien, Lunesta
Mix
goo.gl/dYxlfe
Epilepsy
$4
AEDs, Carbatrol
Oil
goo.gl/SNjmtj
ADHD
$3.8
Adderal
Oil
goo.gl/9qLuIW
Migraine Relief
$3.3
Asprin, Ibuprofen
Mix
goo.gl/F2LNkn
Understanding that years’ worth of research is require before entering these ‘potential markets’ under the disguise of pharmaceuticals, cannabis Licensed Producers are a long way from tapping these markets from a Health Canada perspective.
Millions Lost Since the Inception of MMPR
Those who have invested millions in MMPR LP’s and applications are quick to blame Health Canada, MMAR and the black market. But what did they expect?! This grassroots industry has worked underground for decades and has fought hard to arrive where it is today only to be overrun by stock brokers selling what many consider harsh product at harsh prices – This attitude will only drive the market back underground and away from regulation.
Many Licensed Producers under the MMPR system continue to bleed cash as they sit on oversized facilities for today’s current market requirements. Fundraising efforts will continue to dilute stock prices as long as the system is left with more questions than answers and numerous legal battles in a rusty legal system.
Long Term Strategy
It’s evident that Licensed Producers are banking on the potential for markets beyond $1.7 billion in dried cannabis however any assumption of when Health Canada might move in that direction continue to be largely speculative. For the time being, MMPR LP’s are bound to the manufacturing of limited amounts of dried product and as an investment they remain speculative as a long term (5+ years) strategy. They can, however, utilize this time for R&D that will put them ahead of any future attempts to regulate an extract market.
Figure 2
(MMAR Data 03/31/14)
Avrg Daily amount (g)
Number
Daily grams
1.5
3837
5756
4.5
2899
13046
6.5
1999
12994
9.5
2384
22648
13.5
2026
27351
17.5
3426
59955
22.5
689
15503
27.5
3113
85608
32.5
1310
42575
37.5
2020
75750
42.5
222
9435
47.5
473
22468
55
506
27830
65
101
6565
75
174
13050
85
88
7480
95
157
14915
110
38
4180
135
46
6210
175
95
16625
225
8
1800
275
2
550
TOTAL DAILY USE (Kg)
492
Monthly Use under MMAR (Kg)
14769
Average Retail Price (g)
$10
Monthly Market Value MMAR
$147,687,300
2014 Retail Value of MMAR
$1,772,247,600
Source: Health Canada Freedom of Information Act
Featured image: Anti-MMPR protesters outside the Allard case in Vancouver earlier this year.
About Lift
Lift makes exploring, purchasing, and consuming medical cannabis easier for Canadians. Click here to learn more and read reviews about Canadian strains and the companies that produce them.
Sign up Now!
The post MMPR’s success can’t rely on repeal of MMAR appeared first on Lift - Blog.