If you’ve been reading Money Morning New Zealand for a while, you’ll know where we stand on marijuana.
But if you haven’t, we believe that marijuana as an industry represents a humongous opportunity for investors, particularly Kiwi investors.
Why? Because we have the benefit of seeing how these stocks skyrocketed in the Canadian and US landscapes…
And the results have been stunning:
Tilray, Inc. [NASDAQ:TLRY] up from US$20.40 in July to $122.50 at the time of writing.
Canopy Growth Corporation [NYSE:CGC] up around 100% since it launched in January.
AbbVie Inc. [NYSE:ABBV] has grown steadily over five years from $34 per share to $84.
That being said, cannabis stocks are taking a hammering right now in North America…
There’s a variety of reasons why this is happening — market-wide volatility…low share float…controversial partnerships…
But we believe most of the downward activity is because of the mass exodus of speculators who were in it for the short-term gains…and are now moving onto the next newfangled sector.
Despite the sell-off, early investors are still sitting on hefty returns. For reference, the numbers for Tilray, Canopy and Abbvie above all include the recent downturn.
And that leads us back to New Zealand…
We believe that we’re following a similar stratospheric path as cannabis stocks in Canada and the States…but five years earlier on the timeline.
Some of the companies we’ve been tracking — like Hikurangi Cannabis Company in Gisborne — have shown promise, but haven’t made it past crowdfunding and venture capital.
What we’ve been eagerly waiting for is one of these trailblazers to make it onto an exchange. That way, investors like you and I can buy our tickets for what promises to be an exciting ride.
And, finally, it’s happened.
Introducing your first investing opportunity in the cannabis world…
Waikato-based Cannasouth has announced plans to list on the NZX during the second quarter of 2019.
Cannasouth is a unique company. It’s staffed not by dreadlocked hippies or red-eyed stoners, but rather pharmacists and businessmen.
It’s heavily focused on the research side of things…having a close partnership with the University of Waikato. That’s how they were able to get New Zealand’s first Ministry of Health Controlled Drugs licence to extract and refine CBD and THC for research purposes.
And, at the moment, they’ve stated that they’re fully focused on therapeutic applications and are not interested in pursuing recreational production.
In other words, this is a serious research firm manned by serious people…and when they go public, their stocks could lead to some serious gains.
Cannasouth is using funds from the CMP Growth Capital Fund to build new production and cultivation facilities in the Waikato region.
For now, those facilities will be used for research purposes only, but if legalisation occurs in the next couple of years, they’ll begin producing larger quantities to meet New Zealand’s demand for medicinal marijuana.
Co-founder and director of operations, Mark Lucas, believes that the stereotypical image of a teenager smoking a joint is completely wrong. Today, medicinal applications of cannabis are ‘a lot more complex than people think.’
It’s evidence of a changing face for this sector.
And, for investors, it’s a sign of a rising sun — a new industry with new opportunities.
The pieces are falling into place — are you ready?
Best,
Taylor Kee
Editor, Money Morning New Zealand
Cannasouth has plans to become New Zealand’s first listed medicinal cannabis company.
Medicinal cannabis, the latest craze to hit North American stock markets, may soon be a feature of the NZX if Waikato-based Cannasouth’s listing plans come to pass.
Cannasouth said it will make an application to list its shares on the NZX main board through an initial public offering (IPO) during the second quarter of 2019.
The company, founded by businessmen “with a scientific bent” – Mark Lucas and Nicholas Foreman – has received a licence from the Ministry of Health to carry out medicinal cannabis research in New Zealand. The licence also enables the company to apply to import cannabis products for research.
The licence represents a milestone for Cannasouth, whose management team has been involved in the cultivation and research of industrial hemp, and now medicinal cannabis, since 2002.
Lucas, who is the company’s director of operations, says the company’s IPO will open doors for future research into the development of advanced cannabinoid medicines and health-related products.
Details of the structure of the IPO, and how much money it aims to raise, have yet to be finalised, but it is expected to culminate in a full retail offer some time towards the end of the first quarter or the beginning of the second, next year.
Lucas said the public would be familiar with images of people smoking cannabis to offset the side effects of chemotherapy, but he said the medicinal cannabis was “a lot more complex than people think”.
“Because cannabis has been illegal, very little research has been done on it over the last 30, 40 or 50 years, so it’s created a vacuum,” Lucas told the Herald.
“All of a sudden, these properties have been discovered – certainly in relation to treating epilepsy,” he said.
Research around the world was quickly advancing as to other properties in cannabis that might be useful.
“It’s a complex plant and it has suffered from dogma and stigma for a long time,” Lucas said. “We have seen society look at it in a different way. It’s obviously very political and we are aware of that.”
Cannasouth is planning the construction cultivation and production facilities in Waikato, in anticipation of legislation changes that will allow the manufacture and sale of medicinal cannabis in New Zealand.
The company secured a first round of capital investment from the CMP Growth Capital Fund, a fund aimed at provides growth capital to emerging New Zealand businesses.
Another modest pre-IPO round of capital raising will be undertaken before the end of this year.
Sean Joyce, principal of CM Partners, which manages the CMP Growth Capital Fund, said Cannasouth had all of the intellectual capital and attributes needed to be a leader in the medicinal cannabis industry.
It’s a complex plant and it has suffered from dogma and stigma for a long time.
Cannasouth is chaired by Australia-based director Tony Ho. He will be joined by former Federated Farmers chief and experienced director Conor English – brother of former Prime Minister Bill English.
The board will be supported by a scientific and medical advisory board which includes Emeritus Professor Alistair Wilkins from the University of Waikato.
Lucas, alongside director of research, Foreman, received funding in 2016 from the Agricultural and Marketing Research and Development Trust and Callaghan Innovation to undertake research projects with the University of Waikato.
Cannasouth’s focus is on furthering medicinal cannabinoid research, specifically the extraction and refining of cannabidiols (CBD) – a non-psychoactive compound in cannabis that has been associated with managing a range of medical conditions, including cancer-related symptoms and neurological disorders such as epilepsy and multiple sclerosis.
Medical cannabis companies have captured investor attention in North America to the extent that it’s been compared to the bitcoin phenomenon.
In July Canada-based marijuana production and processor Tilray became the first company of its kind to debut on Nasdaq Inc.’s Global Select Market exchange.
The shares were issued at US$17 ($25.77), then rallied to US$214 a share, before settling back to US$152 a share.
Another cannabis research company is lining up for investor money ahead of anticipated liberalisation of the law over the next two years.
Cannasouth is likely to benefit from the enthusiasm surrounding fundraising for such ventures, and the backing of former Federated Farmers chief executive, Conor English, who will soon join the board.
Cannasouth’s director of operations Mark Lucas said the company intends to list its shares on the New Zealand Stock Exchange (NZX) in mid-2019 after one more round of capital raising.
The granting of the license represents a major milestone for Cannasouth, whose management team has been involved in the cultivation and research of industrial hemp, and now medicinal cannabis, since 2002.
Cannasouth’s director of operations Mark Lucas says the company’s IPO will open more doors for future research into the development of advanced cannabinoid medicines and health-related products.
Cannasouth is currently planning construction of cultivation and production facilities in Waikato, in anticipation of legislation changes that will allow the manufacture and sale of medicinal cannabis in New Zealand.
The announcement of Cannasouth’s IPO comes after securing first round capital investment from the CMP Growth Capital Fund, a fund that provides growth capital to emerging New Zealand businesses.
It is anticipated that a further, modest pre-IPO round of capital raising will be undertaken before the end of this year.
Lucas said the potential legalisation of cannabis for recreational purposes wouldn’t affect the business case of Cannasouth because of the specific compounds that could be developed for different medical conditions.
“Some people who aren’t used to the effects of psychoactive compound THC don’t necessarily want a big dose of it. There are about 100 other compounds that can be combined for different effects to be either low THC or without THC.
“It can be used to treat seizures that come with some medical conditions, or anxiety disorders. It’s also considered by some people with terminal illnesses to be a much better palliative than drugs like morphine which have major side effects,” Lucas said.
Cannasouth is chaired by Australia-based director Tony Ho, who has listed company experience, and the board will include Conor English and Professor Alistair Wilkins from the University of Waikato.
Lucas, and Cannasouth’s director of research, Nicholas Foreman, hold 40 per cent each of the shares, with CMP Growth Fund holding 20 per cent.
Lucas and Foreman received funding in 2016 from the Agricultural and Marketing Research and Development Trust and Callaghan Innovation to undertake research projects with the University of Waikato.
Cannasouth’s focus is on furthering medicinal cannabinoid research, specifically the extraction and refining of cannabidiol (CBD).
CBD is a non-psychoactive compound in cannabis and has been associated with managing a range of medical conditions, including cancer-related symptoms and neurological disorders such as epilepsy and multiple sclerosis.
Lucas said CBD, alongside THC, were two of the more well-known compounds in medicinal cannabis that have been shown to relieve patients’ suffering from a wide range of conditions, but there was significant potential to learn more about the properties of other rarer compounds and how they can assist in treating medical conditions.
Drones float, humming, over the lush green field.
The attached cameras capture images of thousands of bushy cannabis plants.
They’re not police cameras gathering evidence for a bust – they belong to Waikato business Cannasouth, which is inspecting its crop.
Cannasouth is the business arm of the University of Waikato’s research into medicinal cannabis.
The university is the only organisation in New Zealand that has been licensed to cultivate cannabis for research into the development of medicinal cannabis products.
Two other licences exist in New Zealand to cultivate cannabis, but they are only for law enforcement purposes.
Cannasouth’s laboratory is located in inner-city Hamilton, right next door to the Chiefs training grounds.
It grows cannabis from seed to harvest-ready in three months, in a half-acre field in the Waikato.
It’s then dried and milled, but it’s back at the lab where the magic happens.
And it’s no tinny house science; it’s sophisticated stuff.
CLANLAB TO FACTORY
Cannasouth is a biopharmaceutical company.
In partnership with the University of Waikato, Cannasouth has extracted and refined cannibadiol (CBD) from New Zealand-grown cannabis.
The University of Waikato, Cannasouth’s research partner, holds New Zealand’s first Ministry of Health Controlled Drugs licence to extract and refine CBD and tetrahydrocannabinol (THC) for research into the development of medicinal cannabis products.
If legislation goes ahead, Cannasouth will transition into a commercial company.
Medicinal cannabis is a multibillion-dollar global industry, but here in New Zealand the laws are much more restrictive.
Medicinal cannabis is big business in some states in the US: pills, creams and sprays are freely available on prescription.
Here, doctors can now import and prescribe CBD, which was previously a controlled drug under the Misuse of Drugs Act.
That brought New Zealand into line with other countries, including Australia – a move intended to prevent people from purchasing cannabis from the black market.
Although it can be prescribed in New Zealand, it’s expensive. As the Ministry of Health is tasked with looking into medicinal cannabis, one of the priorities of Minister David Clark is that those that need it can access it.
He does not necessarily want to see if it can be made cheaper so more people can get it, he just wants those that need it to be fully funded for it.
That’s all being explored as part of the legislation that allows the commercial use of medicinal cannabis, currently before the Health Select Committee.
After that, the Misuse of Drugs (Medicinal Cannabis) Amendment Bill has to pass two more readings in Parliament, gaining a majority of votes from MPs, before it becomes legislation.
Clark refused to comment on the subject while legislation was at the select committee stage.
Waikato has the perfect climate for growing some types of cannabis – as more experienced growers might testify. It’s also home to top-grade facilities and experts, such as researchers and scientists.
IT’S CURTAINS FOR HEMP
For Lucas, it began in 1995, with a basketball cap he found in a store in San Francisco.
It was a green, gritty weave of Hungarian hemp, with a warning attached.
“Made from cannabis sativa.”
The cap is faded now, but it’s what triggered a 23-year running fascination of cannabis plants.
The two met after Foreman bowled up to a market stall Lucas was selling hemp products at and promptly became partners. That was 20 years ago.
Foreman and Lucas didn’t set out to build a company in the medicinal cannabis industry. They dreamt of creating a fibre industry out of hemp, to use in soft furnishings such as curtains and couch covers.
Their office is neutral and polished, with marked files lining the shelves and research papers strewn along their desks.
A few years ago, people might have been surprised at the decor and these two clean-cut men’s work with the devil’s lettuce.
But things are changing.
These days everyone has a story about a friend or family member who has used cannabis medicinally.
In decades to come, Lucas believes their research will be strong enough to have CBD supplement lining pharmacy shelves.
At 18, Foreman remembers visiting a museum in Calcutta with a massive section on Indian hemp used for cloth, oil, medicine.
“I just couldn’t believe this was the back story of the much-maligned cannabis.
“Right back then I realised there was a back story to this plant.”
Four years ago, when the pair learnt of the medicinal properties of medicinal cannabis, they were hooked.
Four research papers deep, there was no going back.
No one knew exactly how it worked, the pair says. But it was clear that it was working where other medicines weren’t.
Foreman is the sort of person who pulls toasters apart and puts them back together again for fun, to see how they work.
Knowing how things work drives the world, he says.
“It goes back to the first people to make a flint and working out how to make a better flint.” Ex-pat Kiwi John Lord, a Te Awamutu dairy farmer, has established a $100m business as an integrated marijuana grower and seller in the United States.
Lord believes legalisation is the way forward for New Zealand.
His company LivWell has 14 retail stores throughout Colorado. He also has a 200,000-square-foot cultivation centre, a 22,000-square-foot R&D site, and employs over 600 people.
He moved to the United States back in 1998 to manufacture and sell baby products, but he sold that business in 2008. Cannabis was much more lucrative.
LivWell sells 35 strains of marijuana, topical cannabis creams (typically used for aches and pains) and oils.
Though Foreman and Lucas aren’t interested in supplying recreational cannabis, they are invested in the medicinal benefits of a drug that could compete with big pharma. Like part of Lord’s business does.
“There’s a lot of interest in the subject and a lot of misinformation and a lot of people that know a little bit about it,” Lucas says.
“It’s quite a complex conversation but it started at the earliest phase of people smoking it to get relief when they’re maybe going through chemotherapy, or a bunch of other ailments.
“We’re focused now on the cannabinoid and medical side of this particular plant, so the more advanced side part of the science. People will still smoke it, but there are a lot more avenues of delivering it, more healthier ways, rather than smoking it to consume it.”
New Zealander John Lord, founder of LivWell, Colorado, has numerous stores and staff supplying the recreational and medical drugs he legally grows and processes.
SHOWING THE WAY
Lucas believes New Zealand society was at a turning point with the plant. People have forced politicians to look into medicinal marijuana, which is an important debate, he says.
“What we want to do is make sure the medicines that are available are really high quality and are safe, and effective ultimately.
“Science will show the way – that’s what we’re here to explore.”