EDITOR: | February 23rd, 2015 | 12 Comments

Marijuana Investing Update – Here Comes the Judge!

| February 23, 2015 | 12 Comments
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Investing in Marijuana Market Tips.To be a good investor you have to know about the company, the industry, the macro-economics, and the legal context in which the investees operate.

If you’ve been following the MMPR (Marihuana for Medical Purposes Regulations) licencing story, you know it’s been a confounding morass of stumbling fits and starts. No jurisdiction in the world has gotten it right from the beginning, and we can add Canada to that list. Investments in public MMPR applicants or licence holders have been frustrating at best, a shocking loss of capital at worse.

A large part of the blame falls on over-enthusiastic investors, smoke-blowing promoters, and investment banking firms interested in inflated valuations and their next commission. That’s the same as with every bubble. What made it different this time was The Federal Court.

Most of you reading this don’t know that Canada has an institution called The Federal Court. Over the next few weeks, for your investing dollar, its appeals division is the most important court in Canada.

This link shows the docket for the Federal Court of Appeal’s next sitting. Allard vs. Her Majesty the Queen is scheduled to be heard in Vancouver, starting Feb 23 at 9:30 am, with fifteen days set aside for the appeal.

The quick facts: Mr. Allard had a licence to grow his own medical marijuana – he was what was called a MMAR. Under the new MMPR system, his MMAR licence would have been cancelled, and he would have had to buy his medical marijuana from a MMPR. The problem was, he argued, it was much cheaper to grow his own and he would not be able to afford medical marijuana from those licensed producers. This was, he argued, a government-sponsored attack on his health. It became a constitutional fight, under the Charter of Rights and Freedoms.

Justice Manson issued a last-minute injunction against the government, pending a full trial of the issues. That meant the former MMAR system of “grow your own” was still in place, AND the MMPR system was still being implemented. (From a legal perspective, I have no problem with Justice Manson’s decision. It was the right decision at the right time, preserving everyone’s rights until a full hearing on the merits could be held.)

The federal government appealed. It’s that appeal on the FCA’s docket.

The FCA won’t issue a decision immediately. I’d estimate at least two and up to eight months will follow the appeal before the FCA releases its decision.

The MMAR holders can’t be too happy about their prospects. They’re looking at paying more through a more complicated transaction process, and possibly not getting from the MMPR’s the strain of marijuana needed for their particular ailment. Health Canada’s simple mandate is, “to help Canadians maintain and improve their health”, but until the FCA releases its decision, Health Canada can’t do anything to help the MMPR’s or MMAR’s. The feds are in a most uncomfortable spot.

So are the MMPR applicants and their investors. Most of the applicants have sunk significant amounts of money into the application process. Some have already spent capital on renovating the real estate where they want to grow their marijuana. If the feds don’t issue new licences until the Allard appeal is released, then those applicants have no choice but sit around thumb-twiddling, while the cash drains out of the treasury for working capital. Can’t go forward, can’t retreat, can’t go sideways. That’s a hard way to run a business, and some of them won’t be able to carry on.

And what makes it even more painful is, no matter how Allard turns out, there is no guarantee that Health Canada will issue any of those applicants a licence! That would mean a total loss of your investment.

Management of the MMPR’s have tough decisions ahead. As the applicants run out of money, a grey market in MMPR applicants will evolve, and other MMPR’s will not last to licencing.

On Friday, the last business day before Allard ‘s court date, The Peace Naturals Project Inc. announced that it was acquiring MedCannAccess, an MMPR applicant. The press release has all the expected wording about “building a strong platform for future growth, comprising strong business fundamentals, a differentiated client acquisition strategy, a national branding strategy, scalable production, and best in class R&D”.

While all that may be true, the real reason behind the acquisition was that MedCanAccess couldn’t take the financial uncertainty any longer. Management made a decision to sell now while selling was possible, before the company’s financial position deteriorated and before a dilutive “treading water” financing was needed.

This will be a tough market for the next several months as the legal issues get sorted out. Watch for other takeover announcements.


Peter Clausi

Editor:

Mr. Clausi is an experienced investment banker, executive and director. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, Mr. Clausi ... <Read more about Peter Clausi>


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Comments

  • Scientist

    For Cancer patients, for kids suffering from Seizures, and for so many others, safe, legal, access to Medical Marijuana is a matter of life and death. Its critical that Marijuana be removed from Schedule 1 immediately. Please call the whitehouse comment line at (202) 456-1111 and ask that the President get Marijuana removed from Schedule 1 immediately to protect the health and safety of Americans that need Medical Marijuana. Have everyone else you know call them too.

    I’m a Scientist with a strong interest in Cancer research. The clinical evidence of the value of Marijuana as a life saving medicine is now so strong that the need to remove Marijuana from Schedule 1 has become a moral imperative. Google Medical Marijuana testimonials. Google Medical Marijuana Cancer Patient Testimonials.

    Note from the Publisher: Scientist had an extensive commentary here that was shortened due to the length. I am happy to have you call or email me about writing an op-ed, but this was way too long…. Email: info@investorintel.com — we care about cancer too, but this story is about legal action on MMPR licensing.

    February 23, 2015 - 8:59 AM

  • Tracy Weslosky

    Dear Scientist. I will let you post your Op-Ed once, but only once. We prefer that people comment on the topic at hand, and in this case the hearing that is happening today in Canada on MMPR licensing. Great coverage Peter — as always, you can slice and dice anything for us investors: and make it make sense. We will ALL be watching….

    February 23, 2015 - 11:29 AM

  • hackenzac

    I don’t think there’s that much of a disconnect between the right to grow your own in the ostensibly free nation of Canada and it being a highly punitive schedule I drug in the US. Growing your own in your home state of Tennessee in your greatest moon shining tradition with the attendant risk that would entail is highly germane as a matter of freedom in our ostensibly free nation especially in light of science giving cannabis greater therapeutic value on a practically daily basis. With massive due respect Ms Weslosky, the topic is freedom with the ancillary issues of licensing, supply chains, margins and miscalculation. Who on these pages has consistently said that medical marijuana investing was a pump and dump in the face of a continuing black and grey markets? That would be me. The margins on the up and up licensed government oversighted businesses can’t compare to home grown and black market. It’s just that simple. You’re better off in heirloom produce and coffee.

    February 23, 2015 - 12:11 PM

  • Jean Bonnez

    Yes, great coverage indeed by Peter Clausi!

    He did not spin it like others do…;=)

    I’ve been a MMAR licence producer for many years and i can tell you that the biggest hurdle for MMAR or MMPR is Health Canada itself.

    Health Canada loves to drag it’s feet, change the game plan on a whim etc.

    They are dead set against medical cannabis, as their boss M. Harper.

    Jean Bonnez

    I

    February 23, 2015 - 1:30 PM

  • Peter Clausi

    I feel for Health Canada. The department wasn’t given the resources to deal with the applications. The backlog will take a while to work through.

    February 23, 2015 - 3:30 PM

  • Mister Weed

    It’s a war on the sick people of this nation… Tyranny 101 will tell you that you start by getting rid of the weakest group of individuals, since their will to fight will be reduced down to nothing, will no longer pose a threat once they move up classes. However, harper forgot the cannabis industry in Canada is stronger than any government; the people are getting sick of hearing all the negative press and are wondering, where’s all the positive one? I have faith in our good judges who repeatedly overrule harper’s dirty backstabbing laws.

    harper’s money a whore who wants to replace GOD, just like every other politician on their way to hell.

    February 23, 2015 - 4:34 PM

  • Clausi follow-ups on Rumours, News and Guesses | InvestorIntel

    […] Medical Marijuana. A longer article updating this topic is coming. Right now, we’re all waiting for the outcome of the Allard decision in the Federal Court of Appeal, which won’t be out until next fall or so. My guess is the new MMPR laws will be found constitutional but their implementation will be delayed by court order until the MMAR (patients under the current system of “grow-your-own”) are able to transition over. In concept it will be similar to how the Supreme Court dealt with Canada’s prostitution laws, giving both sides a leg-up. […]

    March 24, 2015 - 4:54 PM

  • Dot.com, Pot.com: We've Seen This Movie Before | InvestorIntel

    […] Canada, since the highs were hit in March and April of 2014, the Allard injunction in the Federal Court, coupled with the federal government’s structural inability to process the […]

    August 19, 2015 - 3:49 PM

  • Marijuana and the Canadian Election | InvestorIntel

    […] first event is the Allard decision from the Federal Court of Appeal. Click here and here for a review of why that decision is so important to the industry. The decision is due to be […]

    September 14, 2015 - 10:41 AM

  • Cori Trip C

    Just thought I’d point out that the court in it’s infinite wisdom proceeded to wait until April 30th to have closing arguments and then even longer to have meetings in the middle of May to re-examine anyone necessary (not open to the public) and it wasn’t until that was over that the patients wait truly began.

    While being an informed investor is fabulous and articles are well written on this site, I just wonder if in light of the letters sent out recently from Health Canada… that some of the logos of Licensed Producers of Cannabis and other content might be considered advertising?

    It is appreciated that large organization are becoming interested in Cannabis and I applaud the legitimacy finally falling on this fertile soil. It’s just concerning that those who are and have been trail blazing the field may end up as entry level employees in Corporate Cannabis, if not left to rot in prison altogether.

    Anyone with the ability to affect the treatment, support or outreach to a community that is currently educating the public, doctors, investors and educators than please… please allow room for those already involved. To have made a stand on Cannabis loud and proud makes an individual resolved to see the issue through as well as deserving of accommodation.

    IF not out of respect or kindness than perhaps out of necessity to appeal to your customer base. Including one another, building upon the experience of others, their knowledge and intelligence a group or organization can expand beyond the some of the parts.

    Alas I hope the divide between the “grass-roots” management and the new installment of the Cannabis Industry, has not grown too wide to bridge.

    September 16, 2015 - 1:58 AM

  • The Impact of the Liberal Majority on Canada's Marijuana Industry | InvestorIntel

    […] industry will be the Allard decision from the Federal Court of Appeal (our historic analysis is here, and remains accurate) and the exact terms of the legislation to be introduced by the Liberals when […]

    October 20, 2015 - 9:24 AM

  • Marijuana Update: Allard and the MMAR's | InvestorIntel

    […] The Federal Court of Canada today released its long-awaited Allard decision. Making a complicated story simple, the question was, will the 45,000 medical marijuana users who had been licenced to grow and consume their own marijuana be allowed to continue, or will they be forced into the new MMPR system. (More detailed background articles here and here.) […]

    February 24, 2016 - 12:46 PM

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