Special Report: Investing in Marijuana Stocks: Investing Without Getting Burned

Marijuana stocks are gearing up to be huge this year and beyond. Some investors have already banked gains of over 2,000% on some budding marijuana stocks. And as more and more states legalize both medical and recreation weed, those profits are going to keep on growing.

Here's why grass is greener than practically anything else you can invest in right now...

I'm not going to bother with any ethical issues here. Whether you support pot smoking or not, this industry is going to be massive.

For better or worse, marijuana is immensely popular. And its popularity is increasing each and every day...

A recent survey revealed that 7.3% of Americans 12 or older regularly used marijuana in 2012, up from 7% in 2011. That's 7.6 million Americans that light up almost every single day of their lives. Countless millions of others use it occasionally...

And more people use marijuana than are actually estimated (in no small part because people don't like admitting incriminating things about themselves). The real number of smokers has been estimated as high as 50 million.

Most telling is that the new generation of teenagers is smoking more pot than ever. Today's teens are lighting up 80% more than they were in 2008. In fact, more teenagers smoke pot than cigarettes... and you know what a profitable business cigarettes have been — even after they were proven to give you cancer. Marijuana has no proven health effects anywhere near that serious.

It stands to reason that as more and more states open up to legal weed, this new crop of Americans will be buying it up in record numbers.

In fact, the legal marijuana industry in the U.S. already pulled in $5.4 billion last year. That's billion with a 'B'. Just think about that...

Of the 50 states, only four currently have legalized marijuana for recreational purposes and 24 have legalized it for medicinal purposes.

Once the others fall into place, we could be looking at a $200+ billion industry. Whatever your opinions on marijuana may be, there is one thing that cannot be argued: there aren't many chances to get in on the ground floor of an industry that size.

"The demand for marijuana is insatiable," according to Bruce Perlowin, CEO of Hemp Inc. (HEMP). "It's a feeding frenzy for the birth of a new industry."

The trend is clearly growing in favor of marijuana growers and distributors. You can choose to turn up your nose, or you can start cashing in on the feeding frenzy while it's still on the way up. In other words, the time has finally come for marijuana stocks...

After years of wild stock price swings, evolving legislation, and political posturing, the marijuana sector has finally found its first major backer and the big money has already started to stack up behind both recreational and medical marijuana.

PayPal founder and famed venture capitalist Peter Thiel sank $75 million into the space by investing in Privateer Holdings — a Seattle-based company that has large investments in several marijuana-related enterprises.

Thiel’s Founder’s Fund has been in on the ground floor of many other disruptive and wildly profitable sectors like Facebook, Spotify, and Airbnb. It’s safe to say that he knows an emerging industry when he sees it...

And the marijuana industry is going to be massive.

Here’s why the stars are aligning for marijuana right now... and why you should get on board before the next billionaire dumps a ton of money into the sector.

Privateer Holdings currently operates three large companies in the marijuana space.

It operates Canadian medical marijuana producer Tilray, which is a mail-order business for medical marijuana companies in Canada — where medical marijuana regulations are much more relaxed than here in the U.S. Last year alone, it unloaded 35,000 shipments of marijuana.

Privateer also holds Leafly, the world’s largest resource for information about both medical and recreational cannabis. Leafly allows you to explore different cannabis strains for their medical effectiveness, flavors, and overall quality — much like an Angie’s List or Yelp for marijuana.

Leafly is hugely popular in the space: It averages over 4 million monthly visitors to the website. It expects to be profitable by next year.

Now, while both of those companies operate in the medical marijuana space, Privateer is positioning itself for the widespread legalization of recreational use as well.

And right now — especially in the recreational markets — it’s the Wild West out there. If early investors place the right bets, they’ll be rewarded with one of the biggest growth markets in the recent history of investing.

“There are no standards, no leaders, no significant brands — we’re at the point where the industry is being ‘productized,’ where suddenly someone buying cannabis might begin seeing it packaged nicely, in a way that implies safety, consistency and quality. That’s a big leap from buying something in a Ziploc bag,” noted co-founder and CEO of Privateer Brendan Kennedy.

I’ll say...

Here's how Privateer Holdings co-founder and Chief Financial Officer Michael Blue explains the industry growth:

Since we announced that Founders Fund made the first institutional investment in the cannabis industry in January, we’ve seen the profile of our investor base change in ways that would have been unthinkable five years ago when we set out to transform this industry

We closed the Series B round with a group of sophisticated family offices and institutional investors who made seven- and eight-figure investments. That’s a vote of confidence for the entire industry and an important step forward in finally ending cannabis prohibition.

That round of financing has closed now, after raising $75 million in series B funding — the largest private capital fund raising the industry has ever seen. All told, the start-up has raised over $82 million and doesn't look to be slowing down anytime soon.

"This is the fastest-growing industry in America,'' according to Troy Dayton, CEO of ArcView Group. "Despite all the stigma, people are recognizing this could be the next great American industry.''

ArcView is a research and investment firm focused on "canna-business."

It just released a market study that found a 74% increase in marijuana sales in the U.S. from 2013 to 2014. That massive jump is due primarily to legalization in Colorado and Washington. This will continue. In fact, next year Oregon and Alaska will start selling legal pot — and many more will follow.

Another factor is more relaxed regulations regarding medical marijuana. While only a couple states have outright legalized it, 23 states have already approved medical marijuana. Medicinal marijuana sales in California alone could account for nearly half of a $2.7 billion market.

ArcView is predicting that market will swell to $10 billion in five years' time...

Now, that is an impressive number, but when marijuana is totally legalized and destigmatized, ArcView expects it to become a $100 billion to $200 billion-a-year business.

So, where do you put your money?

Medical Marijuana Companies

We have identified three companies that we think hold potential for success, but be warned: these are very small, speculative companies. They are the very definition of high-risk, high-reward type of investments. In other words, do not risk any more than you are willing to lose.

That being said, keep your eye on: OrganiGram and InMed Pharmaceuticals.

We've had extensive conversations with both companies and feel comfortable bringing you the details of each.

OrganiGram (TSX-V: OGI) (OTCQB: OGRMF)

OrganiGram is an upstart Canadian medical marijuana company located in Moncton, New Brunswick. OrganiGram is a commercial producer of medical marijuana, focusing on producing high-quality, condition-specific medical marijuana for patients in Canada.

It has a great setup going on, and the operation is coming together fast.

It has a market cap of ~$106 million, and its stock has a 52-week range of $.19 all the way to $1.85.

Here's the rundown of expected revenue and patient growth:

Right now, OrganiGram is offering a range of six strains and may eventually offer up to 16.

It'll most likely offer $6 to $7 per gram for “basic” medical marijuana, while the premium strains will sell for $12. Like I mentioned, that is a rarer strain that is used for serious medical conditions without the psychoactive “high” of others.

Its marijuana is:

  • Issued from Organic Cannabis plants as certified by Ecocert Canada

  • Dried and cured for optimal quality

  • Not treated with gamma irradiation or cold pasteurization

  • Not subjected to synthetic nutrients or pesticides

  • $6 to $12 per gram

OrganiGram just announced it has completed the first harvest from one of its three newly constructed grow rooms approved by Health Canada in December. This allowed OrganiGram to significantly increase production and add more marijuana strains to its product line. Furthermore, it has increased its registered patient list by 250%.

The new rooms have led to expectations that it will double its active patients.

One issue these medical marijuana providers have is producing the right amount of marijuana to fulfill their client base. They cannot onboard more customers than they have product to ship them. That's a big plus about OrganiGram — it has reached an agreement to unload its product.

It recently licensed a deal with Canada's Trauma Healing Centers to help treat PTSD. While the clinic itself does not touch the marijuana, it will prescribe it to patients, which is where OrganiGram comes in. It is developing a strain of marijuana that specifically treats these type of symptoms.

Here's the press release that explains the arrangement:

Under the terms of the LOI (letter of intent), OrganiGram will produce the specified strains of medical marijuana requested by Trauma Healing Centers to treat its patients suffering from Post-Traumatic Stress Disorder ("PTSD"). The LOI commits OrganiGram to provide up to 1,500 kilograms of medical marijuana specifically for Trauma Healing Centers' patients in 2015, increasing to 3,000 kilograms in 2016 and by 20% each year thereafter. The LOI covers a term of 10 years with an option to extend by 5 years at the end of the initial term.

In addition, OrganiGram has agreed to collaborate with Trauma Healing Centers to conduct research related to PTSD and the use of medical marijuana for treatment.

"We are extremely happy to finally be cementing this long-term relationship with Trauma Healing Centers. The services Trauma Healing Centers provides to Canadian Veterans and First Responders is extremely important and we are proud to be in a position to assist in their mission," said Denis Arsenault, Chairman & CEO of OrganiGram.

Trauma Healing Centers is in the process of opening 13 centers across Canada. The first 4 centers are scheduled to open in Edmonton, Ottawa, Quebec and Halifax Region in January 2015. An additional 9 centers are scheduled to open across Canada by June 2015.

"Securing a consistent supply of the highest quality medicine for our patients is a vital part to the services we provide at Trauma Healing Centers. We are pleased that OrganiGram has guaranteed an ongoing supply of medicine for our patients and we look forward to a long and successful partnership," said Kyle Atkinson, President of Trauma Healing Centers.

It's a huge opportunity to provide life-changing medication to consumers, and also a built in 15-16,000 marijuana customers to start unloading its product to. The deal guarantees 1,500 kilos of marijuana. The average prescription for these patients is 10 grams a day the largest we've ever seen.

Much of that has to do with the nature of PTSD. The symptoms are active all day, so they require a constant dose.

Here's the breakdown of the deal from Stockhouse:

The math on this is simple: OrganiGram, even if they sell at a conservative $5 per gram, could sell 3 million grams just in 2016 alone, for $15m in revenue.

In 2015? $7.5 million.

This on top of its ongoing business.

In short, it will be moving a good deal of product compared to other companies I've seen.

It already has a waiting list of over 1,000 patients, so on top of the Trauma Healing Centers, it is really set to break out.

Many of its competitors have raced to onboard patients before they could actually fill the orders — they could deliver the first order, but had to backorder after that came through. So what you have is a slew of angry patients who are not being fulfilled and will move their business elsewhere.

That's something OrganiGram wants to avoid.

For every patient it onboards, it has three months worth of supply to make sure it builds up happy patients who can have their orders fulfilled. It's always terrible to go on backorder, but when you have a medical condition, imagine having to wait an extra month for your medications.

I think OrganiGram is doing this the right way and has a ton of upside as it starts moving more and more product.

Again, this is another high-risk opportunity in the marijuana space. I wouldn't risk any money you cannot afford to lose. As you can see from this chart, this has been volatile. But if you had timed it right you could have doubled your money several times over.

organigram chart 1

InMed (CSE: IN) (OTC: IMLFF)

InMed Pharmaceuticals is a clinical-stage biopharmaceutical company that specializes in developing cannabis-based therapies through the Research and Development into the extensive pharmacology of cannabinoids coupled with innovative drug delivery systems.

This is a very, very interesting company. It is taking on the medial marijuana sector from a very unique angle: decoding Big Pharma drugs and replacing them with cannabis-based medicines.

You see, InMed has a proprietary “Platform Technology” that can actually identify and uncover certain compounds from pharmaceuticals and cannabis plants and match them up to create new medications for specific diseases.

Its platform is called the Intelligent Cannabinoid Drug Design Platform or IDP. InMed says it is a “bioinformatics tool/ algorithm that identifies individual chemical compounds from the cannabis and non-cannabis plants.”

Essentially, it acts as a decoder of very complex compounds and allows the InMed scientists to create new therapies and medicines based on these identifications.

Imagine running an arthritis drug like Humira through the IDP and identifying the active compounds that make that drug effective, then running similar tests with cannabis-based compounds and creating a sort of Venn diagram where there is common ground.

They can then take that information and create a new treatment or medication based on the results. And these aren't simply one-target drugs. InMed seeks to create “intelligent drugs” that could work for multiple targets instead of the “one drug for each ailment” type of treatment that we're so used to these days.

Imagine hypothetically taking one cannabis-based drug that fights inflammation, heart disease, and arthritis, for instance.

This company has shown the most scientific prowess of any I've covered in The Crow's Nest and takes the art of medical marijuana into the future. I spoke with its Chief Scientific Officer, Dr. Sazzad Hossain, and he impressed me with some of the techniques the company is using.

The IDP also boasts some serious, tangible benefits compared to current research.

It could shave off years of drug development. By targeting “disease linkage intervals with protein identification & interactions with known disease genes networks,” InMed suggests that it can take the average 10- to 15-year life cycle of bringing a drug to market and slash that to around three to five years.

If it is successful in harnessing this technology, that would amount to a serious change in the way companies develop any drug and especially those cannabis-based treatments.

It is currently focusing its technology on three main areas: glaucoma, arthritis, and a rare skin disorder called Epidermolysis bullosa simplex (EBS).

Let's unpack each of these projects:

Glaucoma

Glaucoma is a very frightening eye disease... when you get it, it can feel like your vision is closing in on you day after day. It is the second leading cause of blindness in the U.S. and currently affects over 3 million Americans and over 60 million worldwide.

Without breakthroughs like InMed is working on, that figure could jump to 80 million by 2020.

The treatment market for glaucoma is $4.5 billion.

Most of the treatments require users to place drops into their eyes several times a day. This is an annoying procedure and can be difficult for older sufferers since you need steady hands in order to apply the medications.

These factors have led to a whopping 50% of glaucoma sufferers abandoning their treatments.

InMed is developing a cannabinoid treatment for the disease, where instead of having to delicately apply drops several times a day, you'd simply wipe a dap of a gel into the corner of your eye. It refers to it as its Proprietary Nanoparticle Delivery System.

The compound, named CTI-085, is going through phase I trials now.

Arthritis

Arthritis is one of the most prevalent diseases in the world. It is the single leading cause of disability in the U.S.

  • By 2030, an estimated 73 million North Americans will have arthritis, unless the trend is reversed.

  • Arthritis drugs brought an estimated $35 billion in profits in 2013.

  • Analysts forecast the arthritis drugs market will grow at a CAGR of 4.09% over the period 2014-2018.

Humira, which I've covered above in the AbbVie update, is the single biggest drug in the world. But it also has a slew of side effects. If InMed can come up with a safer and side effect-free treatment for arthritis, it would be a game changer not only for marijuana-based medicine but for medicine as a whole.

Its mixture of both cannabinoids and non-cannabis-based ingredients are designed to relieve both joint pain and the swelling and inflammation that causes it.

The compound, named CTI-091, is going through phase I trials now.

InMed is also poised to add five to nine new assets to its pipeline this year.

The Team

InMed sports a pretty impressive team of experts:

Dr. Ado Mohammed, MD, DPM, MFPM Chief Medical Officer

Dr. Mohammed is a proven leader in the development of cannabinoid therapies, having played a strategic role in the clinical development, R&D, and commercialization of these specialty drugs. His previous position was Associate Medical Director at GW Pharmaceuticals, a UK-based Pharmaceutical Company specializing in the development of cannabinoid-based prescription medicines. In this role and others at GW Pharmaceuticals, Dr. Mohammed was involved in the advanced delivery of core clinical research and was involved in key decision-making regarding R&D and product commercialization.

Dr. Mohammed's received his MD at Ahmadu Bello University followed by an MSc in Orthopaedics at University College London. Dr. Mohammed achieved a DipPharMed in Pharmaceutical Medicine at University of Wales in Cardiff followed by an MBA in Business Administration at the University of Leicester. He is Member, Faculty of Pharmaceutical Medicine (Royal College of Physicians of England), the British Association of Pharmaceutical Physicians and the International Society for Pharmacovigilance.

Dr. Sazzad Hossain, Ph.D., M.Sc. Chief Scientific Officer

Dr. Hossain has more than 20 years of academic and industrial experience in new drug discovery, natural health product development. He was Group Leader and Senior Scientist at Biotechnology Research Institute of National Research Council Canada, Government of Canada's prime biotechnology research organization where he set up pharmacology laboratory to evaluate safety and efficacy of new drugs under development in the areas of cancer, cardiovascular and ocular diseases.

Prior to joining the National Research Council Canada, he was at Xenon Pharmaceuticals in Vancouver, B.C, where was Associate Director of Pharmacology and led pharmacology teams targeting pain, inflammation and cardiovascular diseases. Dr. Hossain received his PhD in Biology from Moscow State Academy of Veterinary Medicine & Biotechnology and received post-doctoral training in the Department of Nutritional Science and Department of Medical Genetics of University of British Columbia. He was associate professor of pharmacology at Federal University of Minas Gerais, Brazil between 1988 -1996. He is the author of more than 40 peer-reviewed papers, primarily in the pharmacology, genetics and nutritional sciences.

Dr. Tarek S. Mansour, Ph.D., M.Sc. Scientific Advisor

Dr. Tarek Mansour, Ph.D., is a veteran executive of the Life Science sector with over 26 years of experience in drug discovery and development. He has held senior leadership and management positions within both the biotechnology and pharmaceutical sector.

Dr. Mansour's industrial career started in 1989 with BioChem Pharma in Quebec; after which he joined Wyeth-Ayerst in 1997 as Assistant Vice-President to direct the medicinal chemistry efforts at the site in Pearl River, NY. In 2009, his responsibilities were expanded to head the Chemical Sciences Department at four discovery sites in the USA, as well as CRO support in India. After the Wyeth acquisition by Pfizer in 2009, Dr. Mansour was responsible for transition of staff and projects to the Pfizer pipeline. Subsequently, in 2010 he became the Executive Vice-President of R&D for Xenon Pharmaceuticals in British Columbia, Canada until early 2013. In mid-2013, Dr. Mansour became the Founder and Chief Executive Officer of Sabila Biosciences LLC, New York.

Dr. Mansour's expertise spans multiple therapeutic areas including anti-infectives, oncology, inflammatory, metabolic, cardiovascular and pain. Under his leadership, several compounds have progressed to various stages of clinical evaluation including FDA approvals and late stage development. Amongst these candidates are Epivir, Zeffix, Troxatyl, Bosulif, Neratinib and PFE384.

Paul C. Anderson, Ph.D.

Dr. Anderson is a pharma industry veteran who brings significant drug discovery and development expertise to InMed.

Dr. Anderson is a synthetic organic chemist by training with more than 30 years of experience in pharmaceutical research and development. Following postdoctoral studies in bioorganic chemistry at the University of Cambridge, Dr. Anderson began his career in the pharmaceutical industry at Merck Frosst Canada Inc. He subsequently joined Boehringer Ingelheim and in more than 20 years with the company, held positions of increasing responsibility in the research organization including more than 12 years as head of the Boehringer Ingelheim research centers in Canada and in the United States.

While in Canada, Dr. Anderson and his team introduced several anti-viral drugs into pre-clinical and clinical development, including the first HCV protease inhibitor to be tested in humans. As head of research for Boehringer Ingelheim in the United States, Dr. Anderson and his team carried out research on autoimmune and cardiovascular diseases, advancing several compounds into pre-clinical development. He received his Ph.D. in organic chemistry at the University of Alberta.

You can check out the entire management team here.

Dr. Mohammed's time at GW Pharmaceuticals is especially promising, considering the success it has had in pioneering the medical marijuana industry. We have more on GW below...

InMed has a market cap of $4.19 million and a 52-week range of $0.05 - $0.10.

It is currently trading at $0.08, so the same warnings apply here: This is a highly speculative play, so do not risk any more than you can afford to lose.

You can view its latest investor presentation here.

GW Pharmaceuticals (NASDAQ: GWPH)

GW Pharmaceuticals is a UK-based company that has the fundamentals to prosper as medical marijuana becomes more and more accepted. It specializes in the research, development, and commercialization of a range of cannabinoid prescription medicines.

Its main product is Sativex, a spray that helps treat Multiple Scleroses symptoms, cancer pain, and neuropathic pain. Upcoming products will target epilepsy, schizophrenia, and diabetes.

Its epilepsy drug Epidiolex could be a huge seller if approved. Epilepsy affects over 50 million people globally and current drug therapies are not effective in 30% of epilepsy patients.

Marijuana-derived medications for epilepsy got some media attention recently when Paula Joana confronted Governor Chris Christie at a town hall meeting. Sabina, her 15-month-old daughter, died from an epileptic seizure caused by her Dravet syndrome. She chided Christie for holding up medical marijuana in New Jersey, shouting that her daughter would still be alive if the marijuana-derived medicines had been legal.

Epidiolex targets Dravet syndrome...

The company itself got some high profile media coverage when CNN's Dr. Sanjay Gupta visited its labs for his popular broadcast Weed. Management gave him an exclusive look at their operations. You can watch the video here.

And, unlike some of the fly-by-night pot stocks, these guys actually make money...

This helps explain GW Pharmaceutical's $1.84 billion dollar market cap while the bulk of the other marijuana stocks are relegated to the OTC markets.

Most telling is that it has partnered with pharmaceutical giants Novartis and Bayer to help tap into the U.S. market as marijuana policies become more relaxed. When the U.S. market opens its doors for marijuana-derived medications, GW Pharmaceuticals will be primed for a healthy payday.

Now, this isn't to say that GW Pharmaceuticals is a low-risk play: it spots a 52 week range of $35.83 — $120.94, so we're not exactly talking about a solid blue chip here.

It currently has plans to gain FDA approval to sell its marijuana-derived medications in the U.S. and much of its success hinges on that approval.

Smoke and Mirrors?

There is no denying it: Marijuana will continue to get more popular, and there is little left to stop its progress. In the meantime, we'll be bringing you all of the upcoming marijuana stocks as we march towards full scale legalization.

-The Outsider Club Research Team


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