April 17, 2014, 2:28 p.m. EDT
By Will Connors
For eleven years, Brent Zettl and Prairie Plant Techniques Inc. cornered the market for authorities-permitted medical marijuana in Canada.
Now, after a change this month in Canada’s manufacturing and distribution laws made it authorized for any licensed firm to develop and ship medical marijuana to sufferers, and illegal for sufferers to develop their very own, Zettl finds himself competing with a dozen new entrants in an business that could possibly be value as a lot as $1.2 billion in a decade. Already, it’s drawing investments from hedge funds and personal-fairness companies within the U.S. and Canada.
In contrast to the U.S., the place a patchwork of laws range from state to state, Canada’s new pot laws are federally regulated and uniform, making it extra palatable to institutional buyers, who’ve already taken discover. Whereas Colorado and Washington have gone additional by legalizing leisure marijuana, the Canadian prime minister’s workplace has stated it will not search to decriminalize the drug.
The 12 corporations which were granted licenses by Well being Canada, the federal government physique overseeing this system, at the moment are turning away potential buyers, whereas only a yr in the past they have been struggling to get potential backers to return their calls.
“It’s a a lot totally different time now than it was a yr in the past,” says Mark Gobuty, the chief government of Peace Naturals Venture Inc., a medical marijuana firm based mostly in Clearview, Ontario. “Earlier than, it was a reputational danger. As we speak they’re lining up and telling me I’m very tall and good-looking.”
Peace Naturals, which is already delivery marijuana to sufferers throughout Canada, has to date raised $three.5 million to broaden its manufacturing amenities, and expects to boost one other $6 million quickly, in response to Gobuty.
The licensed corporations embrace a Canadian agency utilizing Israeli know-how; a household-owned operation on a rural British Columbia farm; and an organization that may develop its marijuana in a former Hershey’s chocolate manufacturing unit outdoors Ottawa, immediately throughout the road from the native police station.
That firm, Tweed Inc CA:TWD +12.06% , earlier this month listed its shares on the Toronto Inventory Change’s Enterprise Change, the primary marijuana firm to take action in Canada. Tweed, which has raised greater than $10 million up to now, makes use of the Royal Financial institution of Canada as its banker, and employed Deloitte LLP to be its auditor. Its inventory itemizing is sponsored by GMP Securities L.P., a well known funding financial institution based mostly in Toronto.
“There’s an entire lot of people that assume the framework in Canada is best aligned for an actual growth sector, versus south of the border,” says Bruce Linton, the chairman of Tweed, referring to the U.S.
Brendan Kennedy, a Yale enterprise faculty graduate and former enterprise capitalist from Silicon Valley, in 2010 co-based Seattle-based mostly Privateer Holdings, which invests solely in corporations within the marijuana business. A lot of the agency’s investments are within the U.S., and are corporations which have ancillary ties to the marijuana business however don’t truly develop pot. The exception is a Canadian firm referred to as Lafitte Ventures Ltd., based mostly on Vancouver Island, during which Privateer will quickly have invested $15 million.
“Canada is the one place the place we truly contact the product,” Kennedy says. “There’s no disparity between federal and provincial regulation in Canada. That was extraordinarily interesting to us. You’d by no means make investments that quantity of capital in a facility within the U.S.”
When Tweed’s Linton makes shows to potential buyers, he highlights the variations between the 2 nations’ approaches: he makes two columns, one for developments within the U.S. marijuana business, and the opposite for developments in Canada. “For every factor occurring in a single nation, it’s the other within the different,” he says.
That’s to not say the business in Canada hasn’t been with out its issues. A federal courtroom earlier this yr gave medical marijuana growers a short lived reprieve, permitting them to proceed rising small quantities of marijuana on their property pending the result of a trial set for later within the yr. And this month, two licensed marijuana corporations had a few of their provide seized by the Royal Canadian Mounted Police, thought it’s unclear why.
Within the U.S., the market for authorized marijuana–during which 20 states permit medical marijuana use and Washington and Colorado permit leisure marijuana use–might be value $2.5 billion by the top of this yr, in response to the marijuana business analysis agency ArcView Group. Colorado, which began permitting leisure marijuana use in January, earned greater than $7 million in tax income within the first two months of the yr. Washington state is predicted to start out permitting gross sales this summer time.
Zettl’s Prairie Plant Methods, which had income of $12 million final yr, raised $20 million two years in the past in debt and fairness, and is trying to increase one other $20 million this yr. Pharma Can Capital, a gaggle of former Toronto hedge-fund and tech buyers, has spent the previous yr and a half learning the medical marijuana business and final month closed a $9 million funding spherical with the aim of turning into the go-to supply of cash for medical marijuana startups.
Pharma Can’s CEO Paul Rosen says a big chunk of the current funding got here from a “giant, model-identify” U.S. fund, although he gained’t say which, and that they’ve needed to flip down different institutional buyers. Rosen says that a yr in the past throughout pitch conferences, individuals checked out his agency “like we had a 3rd eye or one thing,” however that potential buyers are not shy about getting concerned.Pharma Can has already invested greater than $1 million in three totally different marijuana manufacturing corporations, and expects to take a position extra quickly.
The medical marijuana market in Canada will probably be value roughly $one hundred twenty million in its first yr, based on analysts and executives within the business, however Well being Canada estimates that in 10 years the business might be value as a lot as $1.2 billion in gross sales.
Except for the 12 corporations that already obtained a license from Well being Canada, there are numerous extra making use of–greater than 500 up to now. These nonetheless making an attempt to acquire a license embrace a former nightclub proprietor from Quebec and an organization in Ontario trying to repurpose an indoor soccer stadium.
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