Legalization of edibles could increase the value of licensed marijuana producers, says M Partners

The landmark Supreme Court ruling that says Canadians have the right to consume medical-marijuana in ways other than smoking, such as edibles, could soon increase the value of currently licensed producers, says M Partners analyst Daniel Pearlstein.

In 2009, Owen Smith, the head baker for Victoria-based Cannabis Buyers Club of Canada, was arrested when police found items such as dried marijuana and cannabis cookies on site. He was charged under sections 4(1) and 5(2) under the Controlled Drugs and Substances Act (CDSA).

Yesterday, in a 7-0 ruling, the Supreme Court acquitted Smith of trafficking charges, setting a precedent that Pearlstein thinks makes the introduction of edibles increasingly inevitable.

“The acceptance of edibles seems more of a “when, not if” and it is possible that LPs have already started lobbying Health Canada,” says Pearlstein. “We believe it is likely that a patient- or medical-focused group also pushes the concentrates argument given that doctors want to dose better and how children and the elderly should not be forced to smoke. We believe that eventually Canadian physicians will come around to prescribing cannabis to patients but as mentioned earlier part of the issue right now is that physicians may not know exactly how to prescribe, dose, or monitor this drug. We believe that Canadian physicians will prefer to prescribe an oil or concentrate (in a pill for example) with a specific milligram dosages of THC and CBD which is much easier to prescribe and monitor, and certainly less harmful, compared to smoked cannabis.”

Pearlstein says the decision could be a serious boost to the businesses of already licesensed producers, who currently have to dispose and incinerate of 70% of their product. The analyst says these materials could be used to generate an oil concentrate that would yield 60% THC or more. By his estimates, he says licensed producers could potentially double their EBITDA without adding any production capacity, and little capital and operational expenses.

Pearlstein currently has “Buy” ratings on such as Bedrocan Cannabis Corp (Bedrocan Cannabis Corp Stock Quote, Chart, News: TSXV:BED) and Tweed Marijuana (Tweed Marijuana Stock Quote, Chart, News: TSXV:TWD). Other Canadian medical marijuana stocks include Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News: CVE:ACB), Nutritional High International (Nutritional High International Stock Quote, Chart, News: TSXV:NHL), OrganiGram Holdings (OrganiGram Holdings Stock Quote, Chart, News: TSXV:OGI), Wildflower Marijuana (Wildflower Marijuana Stock Quote, Chart, News: CSX:SUN), and Cannabix Technologies (Cannabix Technologies Stock Quote, Chart, News: CSX:BLO).