While Donald Trump indicated last Friday that his administration may prosecute recreational marijuana businesses in the US, the Canadian government tabled the Cannabis Act last month on April 13 and targets July 2018 for the end of prohibition and legalization of marijuana nation-wide.
A week after Canada’s landmark decision, True Leaf Medicine International Ltd. announced that it has now entered the “Review Stage” of its application with Health Canada for a licence to produce cannabis. With a population of more than 35 million, there are currently just 43 licenced producers in Canada. Deloitte forecasted the market size at $5-7 billion annually.
“With legalization just over a year away, [...] the question of whether companies will be able to produce enough marijuana to meet demand obviously comes to light. If current producers cannot generate the supply to feed the expected demand, people will inevitably turn to the black market for their needs”, said David Bar, who conservatively forcasted the participation rate to be 23% by 2020 (which is just 3% higher than the current black users according to Deloitte), generating a substantial demand of about 1.2 million kg marijuana annually. “Even within the first year of legalization demand is expected to be 896,984 kg at an 18% participation rate. This demonstrates a large supply gap”, Bar noted. According to his numbers, public companies only have approximately 574,350 kg of capacity in the pipeline to come online by 2020.
“That is still a large deficit, and although there are currently 43 licensed producers in Canada, the publicly-traded companies account for more than half of those licenses. As the private companies do not have access to the kind of funding that public companies do, you can almost bet that they do not have the funds to build the needed capacity”, he said and explained why this poses a serious problem for Health Canada, the government and all licenced producers.
“If prices rise as a result of a shortage, people will just go right back to the black market where they can get similar product at a much lower price, effectively creating the exact situation the government is trying to eleminate... [T]here is a substantial opportunity for current producers to increase their capacity, but also a space for new entrants once they receive their licenses”, Bar concluded.
Canada En Route To Legalization
• December 2015: Canadians elected a new Liberal federal government committed to legalizing cannabis.
• April 20, 2016: The Government of Canada announced it would introduce legislation on the legalization and strict regulation of marijuana in the spring of 2017.
• June 30, 2016: The government announced the creation of “The Task Force on Cannabis Legalization and Regulation“ and invited public consultation until August 29, 2016.
• December 2016: The federal government announced the findings from “The Task Force on Cannabis Legalization and Regulation“.
• April 13, 2017: The federal government tabled the Cannabis Act and targets July, 2018 for the end of prohibition and legalization of cannabis nation-wide.
”The Cannabis Act regulations appear to closely follow the recommendations of the Task Force on Cannabis Legalization and Regulation and also align with our own recommendations that we released last year. We feel the regulations will ultimately provide a foundation for the safe and secure production of cannabis within a legal framework that focuses on responsible use.” (Michael Harcourt, Chairman of True Leaf on April 20, 2017)
Application Process: Becoming A Licenced Producer
As of March 31, 2017:
• 1,630 applications received
• 265 have been refused
• 414 applications are in progress
• 69 have been withdrawn
• 841 were incomplete and have been returned
“As such, current licence holders under the ACMPR and those with applications currently in Health Canada’s queue may have an appreciable timing advantage with respect to becoming licensed under the Cannabis Act.“ (Osler; May 2, 2017)
According to Health Canada, there are various stages to the application process for becoming a licensed producer under Canada’s Access to Cannabis for Medical Purposes Regulations (“ACMPR“):
1. Applications received
2. Preliminary screening
3. Enhanced screening
4. Initiation of security clearance process
6. Pre-licence inspection
True Leaf’s Timeline To Become a Licenced Producer
Stage 1-4 (07/2013-05/2017)
True Leaf applied to become a licensed producer under the “MMPR“ (Marihuana for Medical Purposes Regulations) in July 2013 and at that time was designated as the 48th applicant in Canada. Almost 4 years have gone by since then and the company has submitted a considerable amount of documentation and answered over 10 requests for more information.
Review Stage (since 05/2017)
This is step 5 of 7 in the complete licencing process. The review process requires that the company submits its business plan, operational plan, procedures, building design, security measures and reporting systems to Health Canada for an overall operations and procedures review. True Leaf is now close to submitting all of the documents for the “Review” process. When the documents have been reviewed by Health Canada, the company can expect questions and requests for more information. The company will be required to answer these questions and possibly go through second, third or fourth rounds. Over the past few months, the company has spent considerable time researching and securing professional firms who have successfully guided other companies to license approval.
Pre-License Inspection Stage
The time frame between the “Review” and “Pre-License Inspection” stage involves the review of all relevant documents that have been submitted and the potential construction and completion of the production facility. Based on indications from Health Canada and the extent of its review, the company will make a calculated decision as to when to finish the construction of the facility. Once the facility has been built to expected specifications and the review process has been completed, the company will then notify Health Canada that it is ready for “Pre-License Inspection”.
After the facility has been inspected and meets all requirements, there are multiple parts of the “Licensing” stage. It‘s possible that Health Canada initially grants a “license to grow”, then tests to verify that the facilities, activities and products are in compliance with the good production practices and record keeping requirements. After this has been satisfied and the company meets all the standards under the ACMPR, the cannabis is licenced for sale and the final license is issued.
Projected Timeline & Potential Output
Subject to the company moving through the review stage, securing financing and meeting all of the requirements of the pre-licensing and licensing stages, True leaf is aiming to be ready to sell and distribute product by the summer of 2018. Upon True Leaf‘s medical marijuana license approval, the company will commence construction of a state-of-the-art medical marijuana production facility featuring high level security located in in Lumby, B.C., Canada. This 48,000 square foot facility (9.5 acre site) could produce an estimated 6.25 million gram of dried marijuana flower. At $8.80/gram, this would represent a $55 million annual revenue potential, ready as early as summer of 2018.
Disclaimer: All of the above events and sales prices are subject to meeting Health Canada‘s conditions and are based on True Leaf’s application being approved by Health Canada under its ACMPR program. All decisions in the above statements will be based on an assessment of the business case at the appropriate time.
Picture from Ample Organics, the most widely adopted seed-to-sale solution among Canada‘s licensed marijuana producers, designed specially for compliance with Health Canada’s ACMPR.
Cannabis Experts Join True Leaf
On April 23, True Leaf announced the engagement of a number of cannabis experts to guide the company through the final stages in Health Canada‘s review of its application for a licence to produce marijuana in Canada. These experts will advise on production facility design and build, security and product testing before pre-license inspection. Experts from industry-leading PipeDreemz Inc., Protect-IP Global Solutions Inc., Eurofins Scientific and Ample Organics will be working with True Leaf over the next few weeks to prepare a review package for submission to Health Canada under the ACMPR application process. Health Canada recently upgraded the MMPR application process to the ACMPR licensing program, so the experts will be working with True Leaf to update its original MMPR application to ensure True Leaf meets or exceeds the new compliance measures.
“True Leaf is excited to have PipeDreemz, Protect-IP, Eurofins, and Ample Organics provide their expertise at this critical stage in the ACMPR review process,” said True Leaf CEO Darcy Bomford. “We sought out experts from these companies because several of their clients have already been successful in the ACMPR process.”
True Leaf has engaged PipeDreemz CEO Georges Routhier, a premier consultant to companies going through Health Canada’s Marihuana for Medical Purposes Regulations (MMPR) or ACMPR process since 2012. Mr. Routhier helps his clients navigate the complexities of the licensing process, specifically the design, construction, and operating procedures of marijuana production facilities.
PipeDreemz is currently advising clients with over $150 million in production facilities under construction in Canada.
Protect-IP will advise True Leaf on the Physical Safety Integration of its planned production facility. Protect-IP’s engineering team has worked with companies in all phases of the licensing process, and will work with True Leaf on developing procedures for control systems, alarm systems, and CCTV using IP technology to ensure True Leaf builds and operates a safe and secure production facility.
Eurofins, a leading international group of laboratories with more than 22,000 employees across 225 sites in 39 countries, will help True Leaf test its marijuana products to ensure it complies with Health Canada regulations. Eurofins works with the pharmaceutical, food, environmental, and consumer products industries on a wide-range of scientific testing and support services.
True Leaf has also engaged Ample Organics, the most widely adopted seed-to-sale reporting system among Canada‘s licensed marijuana producers.
“We are pleased to be working with True Leaf, a late stage ACMPR applicant,” said PipeDreemz CEO Georges Routhier. “Darcy and his team have chosen to accelerate their final push to the finish line, and together we expect to receive their pre-license inspection in the very near future.”
On May 3, True Leaf announced a non-brokered private placement of “units“ of the company at a price of $0.30 per unit, with each unit being comprised of one common share of the company and one warrant exercisable into one common share at an exercise price of $0.45 per common share for a period of 24 months for aggregate gross proceeds of up to $3 million CAD. The company intends to use these proceeds as follows:
True Leaf Medicine Inc. (federal medicinal cannabis license applicant under ACMPR):
Property Expansion: $650,000
Expert Consulting: $250,000
Capital Asset: $250,000
Legal Fees: $175,000
True Leaf Pet:
Inventory Expansion: $350,000
General Admin: $250,000
Legal fees: $75,000
True Leaf Pet Europe:
Inventory Expansion: $125,000
General Admin: $50,000
True Leaf Medicine International Ltd.
100 Kalamalka Lake Road, Unit 32
Vernon, BC V1T 9G1, Canada
Phone: +1 778-389-9933
Shares Issued & Outstanding: 60,427,383
Canadian Symbol (CSE): MJ
Current Price: $0.335 CAD (05/08/2017)
Market Capitalization: $20 Million CAD
German Symbol / WKN (XETRA): TLA / A14NM1
Current Price: €0.206 EUR (05/08/2017)
Market Capitalization: €13 Million EUR
Report #20 “True Hemp available soon in Germany and Austria“
Report #19 “True Leaf acquires OregaPet, a revenue generating company with award-winning medicinal products“
Report #18 “True Leaf starts production, sales and marketing in Europe, backed by first major purchase order“
Report #17 “True Leaf just started to take root (to grow big thereafter)“
Report #16 “New sales channel for the market buzz: True Leaf products now also sell online“
Report #15 “Hemp for Dogs: True Leaf from Canada brings a special treat to the worlds leading trade-show Interzoo“
Report #14 “True Leaf pushes the gas pedal and brings True Hemp to Europe“
Report #13 “True Leaf conquers the US Pet Food Market”
Report #12 “True Leaf To Sell Hemp-Based Products in 3500 Stores in the US” (March 29, 2016)
Report #11 “True Leaf‘s Product Line Now Available in 47 Canadian Retail Stores” (February 9, 2016)
Report #10 “True Leaf‘s Selling Fast” (December 10, 2015)
Report #9 “True Leaf Expands to Europe” (November 2, 2015)
Report #8 “True Leaf Unveils New Product Line” (September 17, 2015)
Report #7 “Another Key Piece for the True Leaf Puzzle” (September 8, 2015)
Report #6 “True Leaf Pet’s Hemp Chew Product Line to be Distributed Across Canada” (August 12, 2015)
Report #5 “Interview with True Leaf‘s CEO Darcy Bomford“ (August 6, 2015)
Report #4 “One Step Closer Becoming A Licenced Medical Marijuana Producer“ (July 21, 2015)
Report #3 “True Leaf on its way to production“ (June 5,2015)
Report #2 “True Leaf To Enter The Pet Food Market With Hemp Products In Fall of 2015“ (April 9, 2015)
Report #1 “True Leaf Medicine International Ltd. Goes Public“ (February 9, 2015)
Disclaimer: Please read the full disclaimer within the full research report as a PDF (here) as fundamental risks and conflicts of interest exist.