10 New Canadian Marijuana Stocks Added to HMMJ
We never cease to be amazed by the number of people who suddenly want to dabble in the stock market now that “marijuana stocks” have become a thing. Many of these well-intentioned folks will have never invested until now, so we always like to use this as an opportunity to educate. You do not get rich by trying to pick “the next Microsoft“, but instead by investing in boring old investment products that will very slowly make you rich over long periods of time. Or you can opt to become an emotional wreck while watching the price of your new marijuana stock investment whipsaw back and forth over time, with many cannabis stocks eventually going to zero. That’s why if you must invest in marijuana stocks, take a look at the Horizons Marijuana Life Sciences Index ETF (“HMMJ”).
We first showed you how to buy HMMJ back on 4/20 of 2017, a fitting day to discuss the merits of the world’s largest marijuana ETF that has now amassed around $700 million in assets. If you’re not familiar with how an ETF works, it’s simply a basket of stocks that trades just like a single stock. The people who manage the basket collect a fee, in this case about .85% (frankly, that’s a bit on the high side). For that fee, they are responsible for determining which stocks go into the basket initially, and which stocks get added or removed over time (a process called “rebalancing”). Just a few days ago, HMMJ saw a rebalance where 10 new Canadian marijuana stocks were added to the ETF as follows:
|Company||Ticker||Market Cap (USD millions)||Current Bidness Focus||6-Month Return|
|Abattis Bioceuticals Corp.||(CNSX:ATT)||60||Intellectual property||+47%|
|Beleave Inc.||(CNSX:BE)||74||Licensed producer||+61%|
|HIKU Brands Co. Ltd.||(CNSX:HIKU)||265||Licensed producer and brand holding company||+293%|
|Isodiol International Inc.||(CNSX:ISOL)||272||Develops pharmaceutical and wellness products||+296%|
|National Access Cannabis Corp.||(CVE:NAC)||59||Offers medical prescriptions||+482%|
|Neptune Technologies and Bioressources Inc.||(TSE:NEPT)||238||Nutraceutical company pivoting into cannabis||+295%|
|Nuuvera Inc.||(CVE:NUU)||370||Being acquired by Aphria with lots of drama||-10%|
|Tetra Bio-Pharma Inc.||(CVE:TBP)||91||“Smokable cannabis” for pain||+29%|
|Terrascend Corp.||(CNSX:TER)||365||3 subsidiaries and a building||+534%|
|THC Biomed International Ltd.||(CNSX:THC)||141||Licensed producer||+137%|
Notice how volatile the 6-month returns are for most these small stocks. Should an ETF include a $59 million stock that is up nearly 500% in the past 6 months? We have no idea, but let’s take a brief look at the latest financial filings for each stock (all numbers in USD).
This $60 million company had just $930,000 in assets on their books according to their last annual filing dated September 2017. The assets consist of some formulas, trademarks, and other intellectual property, none of which generated any revenues last year for the company. That same year the company burned through $5.87 million, of which $1.24 million was paid out to company directors and management as bonuses for achieving certain milestones. We couldn’t find specifics on what these milestones were, but we did find that the $525,569 in cash they had on their books probably won’t be enough to get through 2018. Expect to see more shares issued like this pattern we’ve seen so far:
- Outstanding shares as of September 30, 2016 – 76,802,135
- Outstanding shares as of September 30, 2016 – 111,760,004
- Outstanding shares as of September 30, 2017 – 167,580,301
They’ve managed to double the amount of shares outstanding in just two years which should be a grave concern for any investor who understands “the dangers of share dilution“.
Our next $74 million company is similar to ATT in a number of ways. They have no revenues, are increasing outstanding shares at a rapid pace, and are already paying bonuses. As a result of successful fundraising, this “licensed producer” now has $10.3 million on the books to start producing weed and competing against the likes of Canopy Growth, a large Canadian marijuana grower which is currently licensed to produce 31,000 kilograms of marijuana with plans to triple that number by July 2018 as they build out millions of square feet in grow warehouses. One way Beleave may be trying to compete with well-established growers like Canopy is by using clever financial financing schemes, like this one taken from their filings:
Cannabis Wheaton will provide Beleave with up to $10,000,000 in non-dilutive debt financing by way of an instrument evidencing a Debt Obligation Repayable in Product Equivalents (the “DOPE Note”)
The best part about the DOPE note is the 1% interest rate.
With an extremely slick looking web presence, HIKU looks like the type of company that might come with a $265 million market cap. They’re a holding company with cannabis brands that include DOJA (cannabis lifestyle brand and licensed producer), Tokyo Smoke (lifestyle brand with a bunch of coffee shops), and Van der Pop (the cannabis digest for assertive women). As of their latest financial filing on November of 2017, none of the revenues from these brands have been recorded in HIKU’s financials. As a licensed producer, HIKU took in a strategic investment of $9.6 million from large grower Aphria (TSE:APH) late last year to grow out their warehouses for an expected annual production capacity of around 5,000 kilos per year. Those target production volumes will need to compete alongside other well-established brands owned by companies like Canopy Growth, which sold 2,330 kilos of ganja last quarter and now claims a one-third market share for Canadian cannabis smokers.
It’s nanotechnology meets hemp for this next $272 million company, Isodiol (CNSX:ISOL), which has been “the industry leader in the manufacturing and development of raw ingredients and consumer products derived from hemp” since 2011. Surprisingly we actually see that they’re selling stuff, about $13 million worth of stuff for the nine months ended December 2017. Their products page shows various body products for sale all containing some form of the magical herb:
Their rapidly growing share count shows that they must be doing some mad restructuring. In the space of 8 months (March 2017 and December 2017) they managed to move their outstanding shares from 57 million to more than 287 million. That increase included a private placement (91 million shares), acquisitions (60 million shares), services (45 million shares), and finders fees (10 million shares). Doesn’t anyone use cash to pay for things anymore?
You have to admit there’s always this big “wink-wink, nudge-nudge” when people talk about medical marijuana. That’s because we all know just how easy it is to get a
license to buy weed medical cannabis prescription. One way is to contact National Access Cannabis (CVE:NAC), a $59 million company that works with Health Canada (Canada’s national healthcare system) to offer a service that “quickly connects members to a network of physicians for a medical assessment and if it’s determined that medical cannabis is a good treatment option“. If you’re Canadian, go ahead and get started eh. Be prepared for lots of forms like this one:
It’s great to see that physicians now recognize weed for “improving the quality of life”, something we’ve known about for years. NAC makes their money mainly off commissions, and those amounted to $289,453 for 2017 which represented about 86% of total revenues. Seems like more of a lifestyle business than say a $59 million company, especially when you consider that you won’t need a medical license to smoke marijuana in Canada soon.
Also known as Neptune Technologies & Bioresource, this $238 million company has been largely involved in selling nutraceuticals like premium krill oil which they sell under the Oceano3 brand name. However sales have been falling off a cliff over the past year, so they decided to pivot into the cannabis space the same way that everyone else does – by adding a marijuana leaf to their home page:
Just kidding. The pivot actually involved a bit more than that, as they plan to co-develop and commercialize purified cannabinoid oil-based products along with Tetra Bio-Pharma, a company that we’ll talk more about next.
At the beginning of this year, large grower Aphria announced that they wanted to acquire Nuuvera (a company with almost no revenues) for a whopping $670 million or about $8.50 CAD per share. Fast forward to today and the deal hasn’t gone through, and Nuuvera shares are hovering around the $5.36 CAD mark. That’s because of articles like this one on Seeking Alpha written by activist short-seller Hindenburg Investment Research (get it?) who while admittedly short the transaction, believes that this was a monumental failure for Aphria shareholders. In other words, the value that this acquisition will bring to Aphria shareholders is fcuk all, and just maybe Aphria is getting a little bit complacent with their recent acquisition spree. Here’s the latest on this saga.
With a market cap of $91 million, Tetra Bio-Pharma was founded in 2015 to develop a pipeline of cannabinoid products for addressing the chronic pain market (which also consists of that massive opioid problem that the States has right now). Again we see Aphria involved here, as they have taken an almost 10% ownership position in Tetra Bio-Pharma and are listed as “development partner” for two of the drugs in the pipeline.
The lead product PPP001 is actually marijuana that cancer patients will smoke for pain – in other words, medical marijuana. The difference here is in the delivery method which looks something like this:
Seems like it would be better to have a proper biotech company as a partner for a pain drug instead of a large Canadian weed grower. That’s because Tetra Bio-Pharma will be going up against Dronabinol (marketed under names like Marinol and Syndros). It’s a synthetic form of (THC) that’s been approved by the FDA and is now a $160 million market according to an article by Forbes which goes on to say that Marinol chewing gum will take the market to over $300 million. The company behind Marinol is Insys Therapeutics (INSY) which last came across our radar in an article we published on How to Make Money off America’s Opioid Epidemic.
With a stock price that has soared more than +530% in the past six months, the $365 million company consists of three subsidiaries. Solace Health is a producer of cannabis, Terra Health Network is a network of support programs for patients, and Solace Rx will produce specialized pharmaceutical products. Looking at the financials we see that in January of 2017 they purchased a building they were previously leasing from a corporation controlled by a director of the Company, for $5.34 million. That building now makes up a majority of their $10.9 million in total assets. Their last financial filing shows no revenues except for some small rental income – presumably from the building they bought.
Another licensed producer, this $141 million company out of British Columbia actually has “biological assets” on their books which is always a good sign. It means they’re growing weed, which for some of the large Canadian growers has been a very lucrative business. They also offer genetic strains for licensed commercial and retail growers along with the Clone Shipper which is a portable grow room which they use to send live plants to growers:
They don’t appear to be selling much weed though. The total revenue earned by the company for the three months ended October 31, 2017, was sales revenue of $133,380 and consulting fees of $142,857.
Since our first article on HMMJ just about 11 months ago, the ETF has performed quite well returning +66% vs. an S&P 500 return of +12%.
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