Canada’s ‘Fantastic Five’ Race to Future Profits

There is an arms race going on in Canada right now. A cannabis arms race.

Select Canadian marijuana growers are building out their capacity like nothing you’ve ever seen. It’s reminiscent of the pedal-to-the-metal acceleration we saw when the internet boom was first lifting off.

Why? Because Canada legalizes recreational marijuana at the end of June in 2018. And there is going to be a shortage of available weed.

That means those who have weed to sell will have pricing power. And profit power.

Currently, Canada’s marijuana growers produce about 80,000 kilograms per year. When that country legalizes recreational marijuana next summer, demand could jump to about 400,000 to 500,000 kilograms per year.

Wow!

You might ask, how is it possible to have a weed shortage? After all, Canadians know far in advance that legalization is coming. Why don’t they just grow more?

The problem is they don’t just hand out licenses to every bear, beaver and moose who wants one. It’s a long and arduous process.

One report said that, by the end of March, Health Canada had received 1,630 applications for licenses to grow or sell medical cannabis. That’s the only kind of marijuana permitted in Canada now.

Do you know how many licenses they’ve issued?

Just 52. That’s all. In the entire country.

And the seven-stage application process to obtain a license is “not for the faint of heart,” Eileen McMahon said in press reports. She should know. She chairs the food and drug regulatory practice at the Canadian law firm, Torys LLP.

“The entire application process can take more than a year to complete,” advises a Health Canada webpage that outlines the process.

And the government checks out every person who applies very, very carefully.

Once issued, the license is bound to the address, not the person. So a person with a license can’t just run around planting willy-nilly.

But they can grow a lot more where they are licensed to grow it.

Hence the arms race. There is an enormous build-out of greenhouses and grow-buildings by current growers. And by companies that don’t even have licenses yet.

Here’s a chart I made using commonly available data of what I call Canada’s “Fantastic Five.” That is, the five Canadian marijuana growers with the most growth potential.


You can see the build-out is going to be enormous. And demand is only expected to keep … well … growing.

The good news is I’ve already recommended two of the fantastic five to my Marijuana Millionaire subscribers. And I’m looking for more entry opportunities.

A grower isn’t the only way to profit off this trend. For example, there is the marijuana streamer Cannabis Wheaton Income (TSX-V: CBW).

The company is so-named to draw similarity between its business model and that of Wheaton Precious Metals (NYSE: WPM). That’s one of the world’s most-successful gold and silver streamers.

Cannabis Wheaton has signed 15 streaming agreements with marijuana growers across Canada. The way streaming works is that a streaming company takes production and/or equity stakes in companies in return for financing. The streamer also provides expertise and business guidance. After all, it’s in its best interests for the producer to succeed.

For example, Cannabis Wheaton made a C$15 million equity investment in Canadian medical marijuana grower ABcann Global (OTCMkts: ABCCF). In return for C$41 million over the next two years, Cannabis Wheaton gets 50% of the production from a new cultivation space that ABcann is building. This works out to an estimated 8,000 kilograms per year of marijuana.

Still, Cannabis Wheaton isn’t projected to make any money from streaming this year, or in 2018, either. A big reason why is that its partners’ facilities are in the construction phase, and will be going into next year.

Last week, I had a chance to talk to Jeff Tung. He’s the Chief Financial Officer and Chief Operating Officer of Cannabis Wheaton.

He agreed that the looming shortage in supply was a real thing. “That gap in supply will be met by the black market,” Mr. Tung said.

Interestingly, Mr. Tung told me that Cannabis Wheaton doesn’t need marijuana use in Canada to grow for the company to do well. Instead, their forecast is for more and more of black market customers to become legal customers.

And the company is thinking beyond Canada. “We are talking to potential partners in Australia, Germany and other countries with a more-progressive attitude toward Cannabis,” Mr. Tung said.

To be clear, this article is not a recommendation of Cannabis Wheaton. (Sorry, Mr. Tung).

The company has experienced financial bumps. Cannabis Wheaton currently has 174 million shares outstanding on a float of 140 million shares. It has a market cap of US$108 million. For a number of reasons, it had to cancel an C$80 million financing in June. This was replaced with a successful C$50.25 million financing.

But the new deal results in an additional 35 million shares over the next two years. The market sees this financing as dilutive. And you can tell that from the chart …

I may decide to buy Cannabis Wheaton in the future. For now, I think those Fantastic Five growers I told you about earlier are more interesting. I’m keeping the names on that list close to my vest because I’m waiting for buy signals on some of them.

Some have a lot of cash flow now. They’re plowing every cent into building more capacity. Their profit potential could be HUGE!

Pot stocks are volatile. Please, do your due diligence before buying anything. But this is one trend you want to ride.

All the best,

Sean Brodrick

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Comments 22

  1. rich August 2, 2017

    WHERE ARE THE 5 STOCKS ????????????

    Reply

    • Michael Riley August 7, 2017

      I don’t know what the secret marijuana stocks are but I like Aurora Cannabis Inc (ACBFF) and now hold some 44,000 shares. I started buying ACBFF at $1.64 and it is $1.94 today. The company has it all from my review and chat with the President. I would not be surprised to see $2.50/share by Holloween ???
      I will hold at this level because I have other stocks to buy also.

      Reply

  2. Barry Gruver August 2, 2017

    It will be interesting to see how this issue plays out long term. I, for one, say this will be a disaster for society in the long run and it saddens me that Sean and others are such huge proponents of legalizing cannabis which I believe will do great harm to society’s future.

    Barry Gruver

    Reply

    • Sean Brodrick August 3, 2017

      Hi, Barry.
      Marijuana is less harmful than alcohol and tobacco. That’s a fact. Read this: http://www.nbcnews.com/storyline/legal-pot/no-high-risk-marijuana-may-be-less-harmful-alcohol-tobacco-n312876
      All the best,
      Sean

      Reply

      • David R(Canada) August 3, 2017

        As a Registered Respiratory Therapist (retired) I know this is NOT true. Recreational marijuana has over 200 different compounds in it, and because of the way it is smoked it ends up doing far more damage to the lungs that tobacco.
        As far as taking it in a pill form, the THC is activated at 200 deg.C. so smoking it is the only real way to get any effect.
        Don’t believe me? Then you will only believe what you want to believe. We’ll see the results in a few years when thousands of people have terminal emphysema at only 30 yrs of age, and bus drivers, truck drivers and airline pilots are causing all kinds of accidents causing multiple deaths.

        Reply

        • Sean Brodrick August 4, 2017

          Well, I can tell you from personal experience in Denver that edibles are very effective. So, recheck your facts on that. What you stated, “the THC is activated at 200 deg.C. so smoking it is the only real way to get any effect”, is simply wrong. And that makes me doubt a lot of what you say.
          I will add that consumption doesn’t have to be smoking. Vaping is also supposed to be healthier than smoking, though I’m not a scientist, so I wouldn’t know. Here’s something on that: https://www.thekindland.com/wellness/why-vaping-weed-is-healthier-than-smoking-it-according-to-2753 Ask the young people who vape, maybe. I do agree that the best studies are done over time.

          Reply

          • Jim August 7, 2017

            Don’t go around confusing amateur experts. It raises their blood pressure and makes them angry. They think Reefer Madness is a documentary….

    • David R(Canada) August 3, 2017

      Barry, I agree. At the moment there is no way to police the potential DUI problems. There is a roadside breathalyzer test for alcohol but at present there is no roadside test for THC or any other drugs. A blood test is all there is. I cannot see the police dragging everyone they suspect is under-the-influence into hospitals; the emergency departments have enough to do.
      They’ll have to do roadside blood tests. Imagine how expensive that’ll be, but they’ll have no choice.
      .
      Human rights laws in Canada forbid employers from doing random drug tests. A test can only be enforced if the employee actually gets into an accident. A fat lot of good that’ll do if a bus driver has already killed 40-50 people.

      Reply

      • Sean Brodrick August 4, 2017

        Or, they could just invent a breathalyzer for marijuana. Multiple companies are working on that right now.

        Reply

      • Jim August 7, 2017

        Wrong. Another amateur expert. A THC breathalyzer is in the pike. As soon as the states legalize, you can bet they are sold by the thousands…Anyway, there is no roadside test for glue and paint thinner…I guess they kill more than pot.

        Reply

    • mkj90620 August 8, 2017

      Agree with Barry,Do you know that cigarette companies actually used doctors in ads to promote the health benefits of their products?Cigarettes were trendy and all the cool people wanted to be seen using them.Like today,with marijuana.Just more evidence of a country in decline,

      Reply

  3. lgary August 2, 2017

    will we be getting some buy recommendations on Canada weed stocks

    Reply

  4. cachoull August 2, 2017

    I’ll be ready when you release those names

    Reply

  5. LOUIS PICHE August 3, 2017

    Sir, Madam,
    You did not mention the FANTACTIC 5 GROWING CANADIAN PRODUCERS of marijuana in the article. Can you provide them? Thanks.

    Reply

  6. David R(Canada) August 3, 2017

    As a Canadian I should mention that there no certainty that recreational marijuana will be legalized, ever.
    Many people think that Trudeau just said he would legalize it in order to get votes from the “useful idiots”. He learned these kinds of tricks from his father and other liberal/progressives.
    Medical marijuana IS legal, but don’t bet the farm just yet on full legalization.

    Reply

    • Sean Brodrick August 4, 2017

      You are right, David. There are risks. We are taking risks by investing in marijuana at this point. But the higher the risk, the higher the potential reward. To your point, everyone has to be comfortable with the investments they make. People who prefer less risk might want to wait.

      Reply

  7. edwarddryden August 4, 2017

    Will you ever recommend a pot stock? If so when?

    Reply

  8. Clayton A Hillman August 5, 2017

    Yes, where are the “fab Five”?

    Reply

  9. BERGER Josef August 5, 2017

    Dear Mr. Brodrick!
    I am living in Europe, Austria, Vienna, far away from the action. I subscribed to your Service and I would like to know what do you think about the following companies:
    – Altria
    – Marapharm Ventures
    – Veritas Pharma
    – Isodiol
    – Friday Night and
    – Leo Resources changing into Green Life Clinics.
    Is one of them under your 5 top picks? Are you considering to analyse these companies?

    Best regards,
    Joe Berger from Vienna, Austria

    Reply

  10. mkj90620 August 7, 2017

    This marijuana mania reminds me of the 2000 tech mania.Wonder if in 5 years,we read about this being one of the crazy events that should have given you a clue that the stock market is ready to fall.

    Reply

  11. Linda (Canada) August 23, 2017

    Interesting – I prefer to buy the stock. I have bought a few of them. They are volatile go up and down and you have to hang in there for a while. I own what is considered the top 2. WEED and ACB have been the best so far these are listed on the TSE. Living in Canada I bought these at a low price, will be buying more ACB/ACBFF/

    Reply