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Medical marijuana update: Enertopia, Lexaria jump after city approval, but..

Chris Parry Chris Parry, Stockhouse.com
14 Comments| July 14, 2014


Have spent the last few weeks focusing on deep dive stories of emerging companies in the medical marijuana gig, which put a bit of a pause on the daily updates, but much has been going on in the Cananja sector in the meanwhile.
 
Mark today as a historic day as Enertopia (CSE:C.TOP, Stock Forum) finally put out a news release that didn’t make investors want to hurl themselves into traffic.
 
In fact, quite the opposite: The company and its Lexaria (CSE:C.LXX, Stock Forum) partner got city approval for their Burlington, Ontario grow space. The company required a bylaw to be approved that allows for MMJ zoning and the city duly delivered, which means the two companies can move forward on their 30,000 sq. ft phase I facility.
 
Enertopia climbed 51% on the news, which sounds great at first but your enthusiasm is dampened when you note they’ve lost 80% of their value since March of this year, when they started pumping out news releases for anything and everything.
 
The news release announcing their hiring of a human resources manager was a highlight.
 
I’ve heard from one company partnered with Enertopia that they’re not necessarily in love with the deals they did with the company, which will happen when you do a stock deal and the stock drops 80%. And certainly management of the company has struggled to present a ‘must invest’ cohesive vision of their opportunity.
 
Enertopia’s deals to date have been pretty small time. The World of Marihuana Facility in Mission, B.C. is only 2500 sq. ft., which is basically the size of your average Hell’s Angels condo grow. The Green Canvas facility is bigger, at 14,000 sq. ft, but is having to be upgraded to comply with MMPR guidelines and they’re late in the application queue.
 
The Lexaria facility, which Enertopia owns 51% of, is admittedly bigger at 30,000 sq. ft. and much more important. But the company has been waiting for city movement on their facility before they started really building out (delivered today), and is thus also back in the MMPR application queue.
 
I haven’t written, well, anything about Lexaria since I’ve been covering the ganjasphere (I’m not using the dot.bong descriptor anymore since Bloomberg started copying it last week which kills my street cred).
 
And the reason why is because, frankly, of the association with Enertopia, which I just don’t see adding the sort of value these small plays need if they’re going to benefit as a collective.
 
Also, because grow plays are crap.
 
Let’s be honest, they’re farming projects with an incredibly bottlenecked distribution network and, for mine, having to wait for a government department to tell you that you’re allowed to do business is a horrible way to live. Granted, mining companies are used to that kind of thing, but mining’s also pretty crap right now so that’s a wash.
 
If you think Lexaria is properly valued at its current market cap of $10.2m, and as far as comparables go, I wouldn’t disagree with that valuation, then Enertopia’s $17.9m market cap does have demonstrable value.
 
But while the company was one of the market’s first movers back in the beginning of the year and experienced a massive wave of popularity before it all went wrong, the company’s ability to cover the $250k per quarter that it’s burning through at present is still a long way off.
 
World of Marihuana may well get its MMPR for its garage-sized facility soon, but what will Enertopia do with the proceeds? Who will it sell to? How long will it take to get production up to speed and can The Tope keep the furnace burning as it waits for revenue?
 
And what of the other two parts of the C.TOP play? They’re not even in thick of the MMPR process yet, which means, assuming they will one day get approved, they’re likely six months to a year away from full production, let alone sales.
 
Green Canvas is growing right now, under the old rules which are still in place pending a court decision. But should the courts end that grey market scenario, Green Canvas has to shut it all down until they get an MMPR, and that could be a long stretch.
 
Lexaria have their facility on track, but they’re also burning through cash. Most recent financials show Lexaria mowing through half a million in Q1, with $1.3m in from financing leaving them with $1m cash in hand.
 
Enertopia isn’t in a position to help them out, with roughly a million of their own in hand and their own cash burn scenario to consider.
 
So what happens next?
 
Certainly I’m not inspired by confidence by Enertopia’s archaic website, which features the awkward slogan, “In Canada you can grow and sell” and says its mission focus is on “low risk high reward projects that will generate shareholder value through the timely acquisition and full development across diverse industries thus mitigating any adverse cycle downturns.”
 
Their medical marijuana projects section is a page that features the corporate PDF presentation, some Health Canada PDFs, and some frequently asked questions, but that’s it. There’s more information on their energy projects, which contain such promising quotes as “Let Enertopia Corporation work with you to design a practical solar energy system that can reduce your energy consumption and help you do your part as we march towards a clean energy utopia.”
 
Enertopia daytraders are looking at where the stock was recently and thinking, hot damn, there’s some oversold stock right there, which is driving today’s share jump.
 
But I’m taking the longer view; my thinking is today’s activity was overbuying. It’s a decent step forward for Lexaria to get their city okay in place, but there’s so many steps needed to come that I can’t see the value proposition on today’s price.
 
At least not when compared to Supreme Pharmaceuticals (CSE:C.SL, Stock Forum).
 
Supreme today broke through resistance to jump to $0.10, up 17.6%, giving them a $14.5m market cap. Supreme has a lot of shares out (144.8m) which has hemmed them down despite some good buzz, but they’re got facilities in the works that are late stage MMPR applications and are 300,000 sq. ft plus, which slam dunks all up in Enertopia’s face.
 
Again, grow plays are no plays in my personal opinion, but if you’re going to own a grow op company, do you want the 300k sq. ft option with two more facilities to come, or the 2500 sq. ft facility with maybe 14k more coming and, some day, 30k, at roughly the same valuation?
 
Compare all of those companies, if you will, with Green and Hill Enterprises (OTO:GHIL, Stock Forum), the Ross Rebagliati-led vehicle for the Ross’ Gold brand. That little outlet, which appears more focused on producing reality TV shows and ‘webmercials’, has a market cap of $37.4m, which appears crazily over-valued until you note that, on April 1, it had a whopping $330m market cap.
 
No, scratch that, it’s still crazily over-priced.
 
The cult known as Creative Edge Nutrition (OTO:FITX, Stock Forum) has a market cap of $177.8m, which is also crazy for what it actually has, which is approval to build a 60k sq. ft space, if it meets Health Canada security standards down the road. The company has long bragged it will build the biggest grow op in the world (one day), but features a market cap 50% larger than Tweed (TSX:V.TWD, Stock Forum), which has a 150k sq. ft. facility that is ACTUALLY licensed and ACTUALLY producing.. if not actually selling very much.

Tweed isn't without issue. Much has been said of their crop problems, and they recently bought a second (much different) facility as a hail mary on that front. And a look today on their website at what product they have available out of the much vaunted 80 strains they collected pre-launch reveals a sad slate: Just one strain available.

tweed.jpg

Recent financials show that the reason for the limited supply isn't that business has been brisk. They just don't have much to sell.

That said, Tweed has a giant war chest that will enable them to figure things out in time, while Creative Edge has a CEO making threats to people who post mean things about the company online, and who has apparently been selling off some 31m shares of the company in the last few months while telling investors to buy more.

(ADDENDUM: After this article was posted, Creative Edge CEO Bill Chabaan posted to his Facebook account that he would cease posting to Facebook. Result!)

fitx.jpg
 
Christ on a bike, no wonder the exchange has been warning people to think twice before buying weed stocks. In fact, Rebagliati has too, telling Bloomberg last week investors should “make sure that they’re comfortable with losing all of their money.”
 
“Only the strongest will survive,” Rebagliati said. “We feel we’re one of them.”
 
GHIL has shed 10% of its value since that story was published.
 
Satori Resources (TSX:V.BUD, Stock Forum) and Jourdan Resources (TSX:V.JOR, Stock Forum) had a little pop today, which reflected a big jump in value, mostly because the two stocks are so low that any half a cent upward gives Satori a 10% bump and Jordan a 25% nudge.
 
Satori invited me out to look over a project they’re considering in B.C. a few weeks back and, though I can’t discuss specifics due to NDA requirements, the company is most definitely not sitting still.
 
Full disclosure: I bought a little V.BUD. Emphasis on ‘a little’. And because I don’t write about companies I own, you won’t hear from me about them in anything but the most basic references going forward, at least until I flip it.
 
Have also talked to the guys at Papuan Precious Metals (TSX:V.PAU, Stock Forum) a few times in the last few weeks. Looks like they’re going to spin-off the marijuana play into another listing shortly, pending exchange okays. That’ll free the company up to do some real business in its dispensary roll-up strategy. Right now, because the TSX has limited the company to a $350k spend on anything non-core, CEO Dev Ranhawa is paying out of his own pocket to complete the one deal they’ve done so far.
 
Enjoyed some tasty food and drink last Friday at the Affinor Growers (CSE:C.AFI, Stock Forum) cocktail party to announce their new deal taking over the Vancouver Urban Garden rooftop grow facility. Affinor is snapping up partnerships all over, having just taken on the Washington State-based Fab-All metals fabrication company, and Chairman Nick Brusatore’s own Vertical Designs firm.
 
The market isn’t as effusive about all of those opportunities, it appears, as Brusatore is. Affinor has been fast-tracking stock profits since March but the last month has seen a notable leveling off.
 
I like Affinor’s crew a lot; there are some really smart guys there. And they share some bodies with the MMJ biomed play, Cannabis Technologies (CSE:C.CAN, Stock Forum) (which is, full disclosure, a Stockhouse Publishing client) and Abattis Bioceuticals (CSE:C.ATT, Stock Forum). No dummies there at all.
 
And the ‘to hell with Health Canada, we’re growing strawberries’ tactic has merit. Unlike many in this space, Affinor may well be pulling in revenue quickly.
 
But there’s a fine line between vertical integration and distraction, and that may be what’s giving some investors the heebies with Affinor right now.
 
I’ve been working on one of my ‘holy crap, will this ever end’ deep dives on Affinor for the past week or so, and I’m expecting to put that out tomorrow morning. Hopefully it will explain to the market all that’s going on behind the scenes at the company and lay out a strategy that folks can get behind going forward.
 
My suggestion: Save power at the grow facility by having Affinor COO Tegan Adams light up the room.
 
(Damn, I’m smooth.)
 
Prescient Mining (CSE:C.PMC, Stock Forum) is going nuts. To answer the many people on Twitter who have asked me, no, I don’t know why. 38% up today. Quadrupled since July 1.
 
Four companies not listed yet, but which you should watch when that changes, and all for different reasons: Vodis, Bedrocan, Organigram, MedCanAccess.
 
Vodis is a small grower with an abundantly experienced team under the old Health Canada rules looking at grow potential in the US. The team behind it are the same folks behind Bitcoin play Newnote Financial (CSE:C.NEU, Stock Forum), which has had a nice rollout (and is, full disclosure, a Stockhouse Publishing client), and the US strategy could allow them to move quickly and turn cash flow into more acquisitions.
 
Bedrocan is Europe’s medical marijuana distributor of choice. They’re already producing, have their MMPR, and are selling to patients, but they’re not yet public. They only sell a few strains, but they know how to keep the mistakes to a minimum.
 
Organigram are growing out a 26k sq. ft or so facility with straight up organic weed, also holding their MMPR but not yet out of the private world. A premium product will draw a premium price.
 
And MedCanAccess, which I was introed to at the Greenrush conference by a respected industry insider, is looking to roll out a patient network that, they say, is already 400 doctors large. When they go public, I expect that stock to move because customer acquisition in this sector is like a mining company finding a high grade gold vein close enough to the surface that you can pull it out with a backhoe.
 
And finally, the last few weeks have seen a wave of companies come to Stockhouse looking for marketing packages, to the point where I’ve even had several companies inquiring with me about consultancy/advisory roles going forward (something I’m giving serious consideration to).
 
It’s a testimony to the connection that Stockhouse has with its investor base that such a thing is even possible, but what I really enjoy about the success our team is having in the weed space is that companies increasingly understand we don’t just mindlessly pump sponsor companies here.
 
Increasingly, the companies dealing with Stockhouse are happily looking for ‘run the gauntlet’ coverage, where their opportunity is peeled back, warts and all, so investors can make good buying decisions on full and frank appraisals.
 
Infomercials and advertorials just don’t work. Investors are too smart for that kind of thing. They can smell a pump a mile away and so we’ve been taking the stance at Stockhouse that we should only work with companies confident that their story, told fully, with the good and the bad on full display, will present well.
 
Telling their story properly is something I figure maybe 2% of public companies do, but if you believe that process involves being honest and open with the investor, you can probably count the companies that engage in that way on one hand.
 
With our piece on Supreme Pharma a few weeks back, and Papuan Precious before that, we’ve been showing just how well it can work for a company if they let us really dig in on them and make honesty a differentiator, and I’m ecstatic that the results have been so strong.
 
Tomorrow we give Affinor the treatment. It’s going to be good.
 
THE MOVERS:
 
Enertopia Corp.   0.205 +0.070 +51.85% 0.200 2.31m
Prescient Mining Corp   0.690 +0.190 +38.00% 0.680 1.5m
Jourdan Resources Inc.   0.025 +0.005 +25.00% 0.020 142k
Lexaria Corp.   0.320 +0.060 +23.08% 0.270 15k
Supreme Pharmaceuticals Inc   0.100 +0.015 +17.65% 0.095 7.73m
Verde Science   0.043 +0.005 +11.75% N/A 245k
Papuan Precious Metals Corp.   0.075 +0.005 +7.14% 0.070 85.39k
Maple Leaf Green World Inc.   0.085 +0.005 +6.25% 0.075 167.31k
Next Gen Metals Inc.   0.110 +0.005 +4.76% 0.100 10k
Anexco Resources Ltd.   0.185 +0.005 +2.78% 0.180 37.5k
CREATIVE EDGE NTRTN INC   0.053 +0.001 +2.70% N/A 12.55m
Abattis Bioceuticals Corp.   0.760 +0.010 +1.33% 0.740 961.79k
88 Capital Corp.   0.110 0.000 0.00% 0.110 0
Alchemist Mining Inc.   0.065 0.000 0.00% 0.055 0
Ansell Capital Corp.   0.050 0.000 0.00% 0.040 0
Pan American Fertilizer Corp.   0.070 0.000 0.00% N/A 0
Satori Resources Inc.   0.050 0.000 0.00% 0.050 251.3k
Seaway Energy Services Inc.   0.340 0.000 0.00% N/A 0
Thelon Capital Ltd.   0.045 0.000 0.00% 0.055 0
Terra Firma Resources Inc.   0.010 0.000 0.00% 0.005 0
Senator Minerals Inc.   0.085 0.000 0.00% 0.085 0
Windfire Capital Corp.   0.165 0.000 0.00% 0.180 0
ROSTOCK VENTURES CORP   0.030 0.000 0.00% N/A 0
Prominex Resource Corp.   0.025 0.000 0.00% 0.025 0
Cavan Ventures Inc.   0.040 0.000 0.00% 0.040 161.4k
Weststar Resources Corp.   0.050 0.000 0.00% 0.045 0
Chlormet Technologies Inc   0.145 0.000 0.00% 0.140 708.5k
PMX COMMUNITIES INC   0.016 0.000 0.00% N/A 5k
Calyx Bio-Ventures Inc.   0.050 0.000 0.00% 0.045 280.1k
GeoNovus Minerals Corp.   0.050 0.000 0.00% 0.045 100k
Majescor Resources Inc.   0.050 0.000 0.00% 0.045 0
Pacific North West Capital...   0.075 0.000 0.00% 0.070 777
Green Swan Capital Corp.   0.080 0.000 0.00% 0.085 0
Totally Hip Technologies Inc.   0.125 0.000 0.00% 0.125 0
AXE Exploration Inc.   0.025 0.000 0.00% 0.020 0
GreenBank Capital Inc   0.060 0.000 0.00% 0.040 280
MODERN MOBILITY AIDS INC   0.110 -0.001 -0.45% N/A 504.93k
Crailar Technologies Inc.   0.950 -0.010 -1.04% 0.910 9.7k
Tweed Marijuana Inc.   2.800 -0.050 -1.75% 2.780 144.49k
GREEN AND HILL INDUS INC   0.370 -0.010 -2.63% N/A 9.39k
Growlife Inc   0.100 -0.004 -3.85% N/A 3.67m
West Point Resources Inc.   0.250 -0.010 -3.85% 0.240 374.15k
Naturally Splendid Enterpr...   0.325 -0.015 -4.41% 0.330 79.63k
EASTON PHARMS INC   0.018 -0.001 -4.86% N/A 3.58m
Cannabis Technologies Inc   0.490 -0.030 -5.77% 0.465 615.39k
Southbridge Resources Corp.   0.410 -0.040 -8.89% 0.300 9k
Arrowhead Gold Corp.   0.045 -0.005 -10.00% 0.045 5k
Affinor Growers Inc.   0.620 -0.080 -11.43% 0.600 616.6k
Global Hemp Group Inc   0.070 -0.010 -12.50% 0.070 47k
Next Generation Management...   0.024 -0.004 -13.36% N/A 7.39m
Spearmint Resources Inc.   0.025 -0.005 -16.67% 0.025 150k
Victory Ventures Inc.   0.015 -0.005 -25.00% 0.015 79k
 
--Chris Parry

http://www.twitter.com/ChrisParry
Chris(dot)Parry(at)Stockhouse(dot)com


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Comments

stockchief
Wow, not even a mention on GRF MATICA ENTERPRISES while you got a bunch of dead money stocks in your list
2.5 stars
July 14, 2014
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Acelove
Supreme is a grow play are no play, thats funny, I made 120% on it already! Chris wize up man! :)
2 stars
July 14, 2014
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biloshi
Chris, In your article tonight you used the word "cr*p with all 4 letters. When i tried posting the same word in my post, I had to leave out the "a' ?
3 stars
July 14, 2014
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ajyinvests
Seems the only ppl that have a problem with Cris' articles are the ones who have a vested interest. Guess while some of you are hating him for calling out your plays, most real investors are loving the straight shooting. In the end, you believe what you believe based on the confidence of your DD ability. Personally, every knowledgeable opinion is only a PART of mine. Keep rockin it CP
1.5 stars
July 15, 2014
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George141
cprysux....don't underestimate a dog's intelligence....he adopted you....did he not?....maintain
2.5 stars
July 14, 2014
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cparry
Biloshi: I'm not on a mission to discredit FITX's CEO or shareholders. I think they do a fine job of that without my help.
2 stars
July 14, 2014
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Boug1234
All in all nice to see you back giving us the play by play SL 300.000sq feet an still no permit from MMPR if tweed is having hard time with 150.000sq feet an respecting the rules of the MMPR it will be a long time before all these big sq feet companies see a profit tweed has the upper hand on these other companies an cash to buy out a few of these tic tac companies !!! Great work today Chris
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July 15, 2014
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cparry
Tweedlede: Grow plays are dependent on licenses they dont know they'll get, must sell to patients who grow their own, and can't advertise their product. Massive bottlenecks = to me, a bad bet. Need distro.
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July 15, 2014
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biloshi
Chris, What is your problem? Seems you can't write one article without bringing FITX into it. Are you on a mission to discredit this company,its shareholders and the CEO. Its time to end this madness!!!
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July 14, 2014
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George141
I think Chris does a good job....you can't please all the people all the time....and some wouldn't know a compliment from a damning....stay the course Chris.....george141
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July 14, 2014
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