Abbatis, Grow Life, Cannabis Science: Which Are the Best Marijuana Investments?
The United States and Canada have both been on the forefront of cannabis policy changes over the past couple years. In the U.S., 17 states have legalized medical marijuana, two states have legalized adult use of marijuana, and many more states have ballot measures in place for the November 2014 elections. In Canada, the newly established Marihuana for Medical Purposes (MMPR) regulations have opened up the market to cannabis producers and make it much safer, easier, and more convenient for Canadian citizens to fill medical declarations.
Despite these dramatic new changes, investors have relatively few options for capitalizing on the industry’s growth. Cannabis remains illegal on a federal level in the U.S., which has kept many public companies out of the production side of the business. At the same time, Canada’s reforms have been relatively strict with only a handful of the 400-plus applicants receiving approval to become legal and regulated cannabis producers.
In this article, we’ll take a look at some of the best ways for investors to gain exposure to the burgeoning cannabis industry and which country might yield the best opportunities. In particular, we’ll look at Abattis Bioceuticals Inc. (OTC:ATTBF) (CSE:ATT) — a multi-faceted cannabis company involved in numerous areas of the industry that we recently profiled in a video interview with CEO Michael Withrow below — and other popular companies in the space like GrowLife Inc. (OTCBB:PHOT) and Cannabis Science Inc. (OTCBB:CBIS).
U.S. — Products, Services, & Research
Publicly traded cannabis companies in the U.S. tend to focus on completely legal ancillary businesses. For example, GrowLife Inc. (OTCBB:PHOT) provides both consumer and commercial growing equipment specifically geared towards the cannabis industry, and VaporBrands International Inc. (OTC:VAPR) manufactures electronic vaporizers in partnership with HEMP Inc. (OTC:HEMP). Businesses like these are well-positioned to benefit from the growth in the cannabis industry since private producers and sellers often have difficulty acquiring these types of products and services from traditional venues.
In addition to ancillary products and services, some publicly traded companies are involved in cannabis research. For example, Cannabis Science Inc. (OTCQB:CBIS) is developing novel cannabinoid-based therapies to improve patient lives; its CS-S/BCC1 topical cannabinoid is preparing to enter Phase I clinical studies for the treatment of skin cancer. Early studies in four patients showed that they experienced shrinking and apparent eradication of their skin cancer legions following topical exposure of CS-S/BCC1 to basal and squamous cell carcinomas.
These dynamics could change with revised banking laws proposed earlier this year by U.S. Attorney General Eric Holder and subsequent memos by the U.S. Department of Justice and Treasury Department. The new guidelines help cannabis producers and retailers cope with the challenges of running their businesses in cash by addressing some key concerns for commercial banks. The move could also enable publicly traded companies to become more involved in cannabis production and sale if the U.S. Securities & Exchange Commission follows suit with more leniency for states where it’s legal.
For now, U.S. companies are limited primarily to ancillary products and services as well as medical research when it comes to exposure to the cannabis industry.
Canada: Upcoming Surge in Demand
Canada’s new Marijuana for Medical Purposes (MMRP) regulations will replace an existing out-of-date system and potentially open the door to publicly traded cannabis producers. The new law will let doctors, nurses, dentists, and other medical professionals write medical declarations for patients to use marijuana for many types of ailments without the lengthy questionnaires and red tape associated with the prior system. Under the new law, medicinal cannabis users will not be able to produce their own marijuana but instead must buy through a limited network of production and distribution companies.
Canada’s banking and regulatory frameworks are also better equipped than the U.S. in many ways that could boost long-term profits in the space.
- Completely Legal. Cannabis is legalized at the federal level in Canada in contrast to state-level in the U.S., meaning there’s no risk of seizure of forfeiture as in the U.S.
- Access to Banking. The banking system permits all transactions to take place within the cannabis industry, removing a key hurdle that faces many U.S. companies.
- Tax Credits Available. Scientific tax credits permit 42 percent of every dollar spent on research and development to be credited directly back to the company in the form of a check from the Canada Revenue Agency.
- Import Abilities. Licensed producers can import marijuana from other legal jurisdictions throughout the world, which will help stabilize prices and supply/demand economics.
- Pharmaceutical Opportunities. Health Canada has approved the use of cannabis medical declarations for a number of medical conditions, ranging from anxiety and depression to osteoarthritis to chronic pain management for cancer patients.
These factors both encouraged cannabis research and supported the development of a fully legal cannabis industry in Canada.
For investors, Canada stands at a critical juncture in terms of its cannabis industry. Producers that are able to secure permits to begin legal production and sale are well positioned to profit handsomely over the coming years. Several publicly traded companies could thrive as permitted producers and benefit from the country’s favorable banking and legal framework. As a result, investors should be taking a close look at companies like Abattis pursuing these permits from Health Canada in the near-term to generate significant long-term revenues.
Diversified Cannabis Opportunities
The best way to capitalize on the emerging opportunities in the cannabis industry is to create a diversified portfolio. By holding both U.S. and Canadian companies operating different types of businesses, investors can minimize the risks associated with any individual stock. Cannabis stocks should also be built into a larger diversified portfolio, accounting for no more than 5 percent of the total value in order to minimize systemic risk. That way, a setback for the entire cannabis industry wouldn’t damage a portfolio as badly as it would have otherwise.
Some individual companies also offer significant diversification on a standalone basis. For example, Abattis Bioceuticals Inc. (OTC:ATTBF) (CSE:ATT) operates several different subsidiaries involved in many parts of the cannabis industry. Management’s “Grow, Dry, Extract, Refine, and Sell” (GDERS) strategy involves growing cannabis with its proprietary indoor vertical farming systems, drying it with unique low temperature drying systems to enhance quality, extracting the active ingredients using highly efficient technology, refining the product using quality methods, and selling it around the world.
Abattis Bioceuticals’ vertically integrated corporate structure is well-positioned in both U.S. and Canadian markets. In the U.S., the company’s Biocube Systems provide growers with an energy- and space-efficient cultivation system that generates high yields, enabling them to produce low-cost pharmaceutical-grade product. In Canada, the company’s outstanding MMRP applications provide near-term potential to become one of the few publicly traded and licensed producers of cannabis. Investors can access both of these markets and a broad array of technologies in a single publicly traded company.
In fact, Abattis Bioceuticals’ cGMP Natural Health Product facilities on the West Coast and $13 million botanical drug facility on the East Coast, both using its proprietary Flash Freeze Extraction technology, make it a combination of GrowLife Inc. (OTCQB:PHOT), Plandai Biotechnology Inc. (OTCQB:PLPL), Cannabis Science Inc. (OTCQB:CBIS), and a cultivator/dispensary in terms of the scope of its offerings. The company’s stock also trades at a reasonable $3.75 million market capitalization that’s lower than many other cannabis companies such as MedBox Inc.’s (OTC:MDBX) $400 million valuation.
There’s no doubt that the cannabis industry is growing in both the U.S. and Canada, but for investors, the opportunities have been somewhat limited. In the U.S., investors are largely limited to ancillary or research-focused companies and risky cultivation and dispensary companies. In Canada, new federal health regulations have created a near-term opportunity forparticipants in this newly legitimized industry. Investors looking to capitalize on these trends should consider creating a diversified portfolio that includes elements from both the U.S. and Canada and/or look into diversified companies like Abattis Bioceuticals that have a hand in several different areas of both markets.
Originally written for SECFilings.com, a leading provider of SEC filings, real-time alerts, and in-depth analysis, with a team of experienced financial writers that cover quarterly/annual reports, insider trading/hedge fund activity, and IPOs, spin-offs, and other disclosures of interest identified from time to time within documents filed with U.S. regulatory agencies. SECFilings.com may be compensated for its services in the form of cashed-based compensation or equity securities in the companies they write about, or a combination of the two. For a full disclaimer, click here SECFilings.com/disclaimer.aspx.