Let s Toke Business. By Ted Ohashi

Transcription

1 Let s Toke Business By Ted Ohashi Week Ended April 21, 2017 LTB Marijuana Composite turns down following Cannabis Act bill... p1 What patents mean to the marijuana industry p2 Maricann and MedReleaf joining the public Licensed Producer group.....p4 Vancouver 420 celebration biggest yet p4 Aurora Cannabis introduces Aurora Drops ingestibles.,...p4 True Leaf Medicine reaches second to last stage of LP approval process p5 Green Organic Dutchman raises $28.4 million.....p5 U.S. federal and state marijuana laws conflict again p5 Updated study confirms medical marijuana lowers government health care costs p5 Brochstein provides sound advice Avoid Agora Financial Scheme p6 No new Licensed Producers approved this week.p6 See our recent articles on Seeking Alpha What the Cannabis Act says and Means for Your Marijuana Stocks) April 20, 2017 Canadian Cannabis Companies Set to Advance on Legalization legislation April 3, 2017 Before You Can Sell LXRP High, You Must First Buy it Low March 17, 2017 Why Organigram Merits a 'Must Buy" Rating March 8, 2017 How Attorney General Sessions can Derail the Marijuana Gravy Train February 27, 2017 High Growth Cannabis Company Trading Less Than One Times Sales February 20, 2017 Reassessing the Ever Changing Outlook for Canadian Cannabis Stocks January 30, 2017 Update: My Confidence in Buying Organigram is Affirmed January 20, 2017 Marijuana Stock Market Review & Outlook LTB MJ INDEX: 1wk -1.3% 1 mo +0.0% 3 mo -7.6% 6 mo -1.2% 1 yr +45.1% The LTB Marijuana Composite turned down following the tabling the marijuana legalization legislation in Canada. The market action and investor psychology did not point toward a sell on history reaction. It more likely represented disappointment in the lack of detail provided. For example there was a 79 page document to amend other bills that would have the effect of toughening legal penalties related to marijuana but focused more on drinking and driving. This

2 had little to do with legalization but wasn t entirely surprising as the committee was headed by Bill Blair, now a Member of Parliament and formerly chief of police for Toronto. In addition, there was an overweighting of representatives of law enforcement. The bill did not say anything about the taxation of recreational marijuana which is necessary if investors are to estimate the profit potential of the businesses they invest in. Also, there was no guidance regarding legal dispensaries. Finally, the officials made it clear that full legalization would not happen until 2018 although they did commit to completing the process by Canada Day, July 1, These were three major omissions disappointments, in our view. Looking at the subsectors in the group, the Licensed Producers underperformed but still look healthy from a medium term point of view. The Low-Priced stocks outperformed and also appear to be establishing a positive base for the months ahead. We believe both groups offer upside potential at this time. Although the lack of urgency in getting legalization operational is frustrating, it means existing Licensed Producers (LPs) have another year to widen their lead over the rest of the pack. These companies are flush with cash and we expect to see additional mergers and acquisitions, expansion into international markets and growing profitability from medical marijuana sales. Most of the public LPs have uniquely attractive characteristics but we continue to favor Organigram, Tweed and Aphria. The smaller cannabis companies are also demonstrating resiliency and have been outperforming the overall group since last fall. We have seen smaller companies raise capital and note their shares are generally responding positively to good news. We continue to favor Lexaria (OTC: LXRP), Namaste (NXTTF) and Radient Technologies (RDDTF). Marijuana Matters The theory of patents is simple. Patents provide a financial incentive for parties to spend the large sums of money needed to develop a new product by protecting potential returns from copycat competitors. The first U.S. patent was issued on July 31, 1790 and signed by then President George Washington. Since that time over six million patents have been issued. In 1930, the first U.S patent was issued for a crop plant. In 1980, the U.S. Supreme Court ruled that microorganisms can be patented and in 1986 it was decided that new forms of animal life could also be patented by the United States Patent and Trademark Office (USPTO). On April 12, 1988, the USPTO issued patent No. 4,736,866 for transgenic nonhuman mammals. The subject was known as Oncomouse or Harvard Mouse, a mouse that was genetically modified to increase susceptibility to cancer making it useful in research of ways to treat cancer. Since then, Genetically Modified Organisms and Genetically Modified Food have become a part of everyday language and life for persons in the developed world. (Besides the United States and the European Union, only three countries presently patent animals).

3 These developments have raised many ethical questions ranging from whether we should encourage or even allow the creation of non-natural animals to whether forms of life including plants should be patentable at all. There are also legal and practical questions. The reason for raising this matter is cannabis is already subject to extensive patents. After being used by humans for as long as 10,000 years, it was first subjected to legal walls starting in the 1920 s in the U.S. and Canada that are just starting to be taken down today to patents issued more recently. GW Pharmaceuticals (NASDAQ: GWPH) illustrates a couple of issues. First, they have a leading intellectual property portfolio related to plants, plant extracts, extraction technology, pharmaceutical formulations, drug delivery and the therapeutic uses of cannabinoids including dozens of issued patents and hundreds of worldwide patents pending. In addition they own plant variety rights, knowhow and trade secrets. Second, GWPH is a British company. This has been important because U.S. federal law has made cannabis research in the United States extremely difficult. Also, the first American patent for a plant containing large amounts of THC was not issued until August 4, Now the USPTO confirms it is accepting applications for patents on cannabis but U.S. companies remain at a disadvantage. While fewer than a dozen Canadian cannabis companies have grown into substantial entities in corporate terms, they are still tiny in comparison to the Fortune 500 type companies that are going to enter the industry in the next few years. In recent months we have reported Arrow Electronics (NYSE: ARW), Microsoft (NASDAQ: MFST), Phillip Morris (NYSE: PM) and Scotts Miracle-Gro (NYSE: SMG) are all major U.S. corporations that have taken baby steps into the industry. As soon as one major company makes its move, others will follow immediately and the patent lawyer business will explode. When that happens, it will also be confusing as different companies fight over what is essentially the same medical product. When they start to battle over recreational strains, it s going to get crazy. As Reg Gaudino, Ph.D. and director of intellectual property for Steep Hill Labs, says, A well-written patent is like a declaration of war you write a patent in a way that covers those who can sue you, and those you can sue. (more on Steep Hill and Gaudino) To patent marijuana, there must be something new and unique about the product. That is both good news and bad news for owners of existing strains. The good news is no one else has patented your product yet. The bad news is if the product has been out there for a while, it may be legally in the public domain and you may not be able to claim and protect your own invention/creation. Finally, patenting is an industry in its own right with companies called patent trolls operating with business plans that have nothing to do with growing or developing products. Patent trolls use patents and the law to sue unsuspecting operators for infringement or to collect royalties. It also paves the way for companies that have developed patenting methods for use in their unrelated or somewhat related industry to run ruthlessly over a new and somewhat naïve marijuana industry. Monsanto is a company with a history of suing farmers to protect its patented plants and seeds. Recent rumors have forced them to issue a statement denying they are working on genetically engineering marijuana. Companies that develop new strains for the non-medical market may be forced to take out defensive patents. If marijuana attains the potential that is being touted, billions of dollars in Canada and tens of billions in the U.S., they will have no choice. If you look far enough down the road, probably decades, the small cannabis grower will disappear like the family farm. As investors, we may have to find a publicly traded patent law firm.

4 Breaking & Corporate News Maricann Group and MedReleaf are expected to join the list of publicly traded Licensed Producers (LP). Maricann Group has completed its reverse takeover transaction with Danbel Ventures and will begin trading on the Canadian Stock Exchange as MARI immediately. Ontario based MedReleaf will likely become only the second LP to go public by Initial Public Offering (IPO) as it has filed a preliminary prospectus. (see MedReleaf preliminary prospectus on SEDAR) CanniMed Therapeutics (TSX: CMED) was the first. MedReleaf is interesting because it appears to have the second largest revenue base behind Canopy Growth (TSX: WEED). MedReleaf had sales of $10.4 million for the quarter ended December 31, 2016WEED had sales of $9.75 million for the same quarter but subsequently acquired Mettrum that had reported sales of $5.3 million. This will put MedReleaf in a high profile position within the Licensed Producer group. The Vancouver 420 protest/celebration at Sunset Beach on the south side of Stanley Park exceeded last year s event. It is estimated that 2017 attendance was 40,000 compared with the police estimate of 25,000 the year before. There were 525 vendors compared with the over 200 reported last year. A smaller group of around 150 traditionalists rallied at the former Art Gallery site. The original Vancouver 420 protest rally was held in 1995 at Victory Square Park across the street from the Emery s well-known dispensary. Some 200 people gathered that first year. The picture to the right by Rafferty Baker of the CBC taken shortly after 4:20 p.m. on 4/20/17 on a clear, sunny break in the weather and illustrates the popularity of the event. There was some incidental damage related to the event. As residents of the Vancouver region know, rainfall has been at or near record levels this year. As a result the area surrounding Sunset Beach was wet and dotted with puddles. The high level of foot traffic caused damage to the grass fields. As far as the behavior of those in attendance goes, we can be no clearer than the following information included in the CBC report: Officials reported that the event went very smoothly from a safety perspective. Police said there were no major incidents, and paramedics were busy with a handful of minor medical issues related to ingesting too much marijuana. "Everything's been really good... We've only had two medical issues at this time," said Walter Pereira, acting battalion chief with Vancouver Fire and Rescue Services. "I can't say anything bad." Each year we wonder what would have happened if this many people gathered spontaneously to celebrate alcoholic beverages and were drinking the whole time. Aurora Cannabis (TSXV: ACB) reports it has started sales of ingestible cannabis oils branded Aurora Drops including: THC Drops (Sativa), a high potency THC oil extracted from Cannabis Sativa flowers, THC Drops (Indica), a high potency THC oil extracted from Cannabis Indica flowers and CBD Drops, a high potency oil extracted from Aurora s CBD strain Temple. All are priced at $115 per bottle and are produced using a Current Good Manufacturing Practice (CGMP) compliant supercritical CO2 extraction and a Medium-chain Triglyceride (MCT) carrier oil sourced from coconut oil.

5 True Leaf Medicine Inc., a division of True Leaf Medicine International Ltd. (CSE: MJ) reports it is two steps away from completing the process to become a Licensed Producer in Canada. True Leaf is one out of over 100 companies with applications in the fifth Review stage of the process. MJ reports Health Canada has received 1,630 applications to date. The next step will be the pre-license inspection stage. There are 43 licensed producers in Canada. The Green Organic Dutchman Holdings Ltd., a private Licensed Producer has closed two financings raising gross proceeds of $28.4 million. Of the total, $21,957,984 was raised in a non-brokered private placement that was increased from the announced placement of $10,000,000. In addition, a syndicate co-led by Canaccord Genuity and GMP Securities raised an additional $6,392,583. (read full release) Here is an excellent example of what can go wrong with the conflicting marijuana laws in the U.S. In the American capitol, seven marijuana activists were arrested recently while handing out free joints. Two women and one man were charged with possession with intent to distribute marijuana and four women were arrested for possession. The problem is recreational marijuana has been legal in Washington for two years so the individuals who were arrested were not breaking D.C. law. The Capitol Police issued a statement saying they were invoking federal law in making the arrests. The statement said police officers observed them distributing marijuana in public view to passers-by. In our July 8, 2016 edition, we reported a study by W. David Bradford and Ashley Bradford, a father and daughter team at the University of Georgia that showed medical marijuana reduces the use of opioids and prescription drugs. Researchers examined data for people 65 and older and those with disabilities and covered at nine conditions in which medical marijuana could be an alternative to prescription drugs: anxiety, depression, glaucoma, nausea, pain, psychosis, seizures, sleep disorders and spasticity. The study used data for 2013 and estimated the savings for Medicare for the study group in the 17 states and the District of Columbia that had legalized medical marijuana would be $165.2 million over a full year. If marijuana was legal in every state, the study estimated the savings would be $468 million. A shortcoming of the study was that it only tested older people. Recently the Bradfords published an update to the study that covers low-income people of all ages. The new test results substantially validate their original study showing anti-nausea drug prescriptions fell 17%, anti-depressant prescriptions fell 13%, and prescriptions for seizure and psychosis drugs fell 12%. Perhaps most significantly from a public health standpoint, prescriptions for painkillers fell by 11%. The Bradfords estimate a U.S.- wide medical marijuana program would save approximately $1.1 billion a year on Medicaid prescriptions in addition to the $468 million savings they estimated last year. There are very important conclusions this study and others that can help policy makers: 1. How does the U.S. Drug Enforcement Agency continue to use the excuse that marijuana has no currently accepted medical uses. to maintain cannabis as a Schedule I drug? 2. There is over a billion dollars in savings for government funded medical expenditures at a time when healthcare costs are among the most significant budgetary problems governments face. 3. There are thousands of lives to be saved, many of which are lost because people are being prescribed opiates to treat their health problems. Sometimes the best investment is the one you don t make. We know this and so does Alan Brochstein of New Cannabis Ventures who published a report warning followers to avoid Agora Financial. (read Avoid This Agora Financial Get Rich Quick Cannabis Penny Stock Scheme ) Unfortunately, it is often the less experienced, individual investor who gets caught up in these deceptions.

6 More experienced investors know better probably having learned their lesson the hard way. The old stock market truism is When someone with experience meets someone with money, the one with experience ends up with the money and the one with money ends up with experience. We suggest you follow the link above, read the warning and heed Brochstein s advice. Applications Watch No new Licensed Producers approved last week. There are 43 Licensed Producers: 27 Cultivation & Sale, 14 Cultivation and 2 Sale Only. Eight producers were licensed in 2016 and six so far in The pace of approvals is running ahead of last year s pace. No changes to the list of Fresh Marijuana & Oil producers. There are 21 LPs approved: 18 as, 2 approved for Production and 1 approved as Sale Only. A new category Sale of Starting Materials has been added. Seven LPs are approved to sell starting materials: 5 approved to sell plants and 2 approved to sell seeds. Producer Prov Dried Marijuana Fresh Mari & Oil Sale Start Mat 1. 7 Acres Cultivation 2. ABcann Medicinals 3. A.B. Laboratories Cultivation 4. Acreage Pharms AB Cultivation 5. Agripharm Corp. 6. Aphria 7. Aurora Cannabis Enter AB 8. Bedrocan Canada 9. Bedrocan Canada 2 nd site Sale 10. Bonify MB Cultivation 11. Broken Coast Cannabis BC 12. Canada s Island Garden PEI 13. Canna Farms Ltd BC Plants 14. CanniMed Ltd SK Sale Sale 15. CannTrust Seeds 16. DelShen Therapeutics Cultivation 17. Delta 9 Bio-Tech MB 18. Emblem Cannabis Corp Production 19. Emerald Health Bot BC 20. Evergreen Medicinal BC Cultivation 21. Green Relief Cultivation 22. Hemisphere Pharma Cultivation 23. Hydropothicair/Hydro QC Production 24. In the Zone BC 25. James E Wagner Cult Cultivation 26. Maricann, Inc. Plants 27. MedReleaf Corp 28. MedReleaf 2 nd site Cultivation 29. Mettrum Ltd. 30. Mettrum Bennett 31. Natural Med Cultivation 32. Organigram Inc. NB 33. Peace Naturals Project

7 34. Prairie Plant Systems 35. RedeCan Pharm 36. THC Biomed SK BC Cultivation Cultivation $ Sale Production Plants 37. Green Organic Dutchman 38. Tilray BC 39. Tweed Inc. 40. Tweed Farms 41. United Greeneries BC 42. WeedMD 43. Whistler Medical Mari BC Cultivation Cultivation Seeds Plants Sign Up for Cannabis Stock Picks Cannabis Stock Picks Full Disclaimer To have your name removed from our distribution list, please reply to info@cannabisstockpicks.com with your name, location (Province or State) and address. Your name will be removed immediately. This report is a news report for informational purposes only. It is not a solicitation to buy or sell any products, services or securities mentioned herein. Although the information contained herein was gathered from usually reliable sources, the editors are not responsible for the veracity of any statements or to correct any information that proves to be inaccurate. Certain statements contained herein regarding a Company and its operations may constitute forward-looking statements. All statements that are not historical facts, including without limitation statements regarding estimates, plans, objectives, assumptions or expectations of future performance, are forward-looking statements. Such forward looking statements involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Please do your own due diligence and consult your professional advisor be- fore making investment decisions. E&OE