Pubdate: Wed, 14 Dec 2016
Source: Globe and Mail (Canada)
Copyright: 2016 The Globe and Mail Company
Contact:  http://www.theglobeandmail.com/
Details: http://www.mapinc.org/media/168
Author: Brenda Bouw
Page: B1
Referenced: http://mapinc.org/url/spC7LQBu

TASK FORCE LIGHTS UP MARIJUANA SHARES

Players in nascent market see stocks rise as report recommends Ottawa
move quickly to boost increase in production capacity

Canadian marijuana stocks surged on Tuesday after a federal task force
released its long-awaited recommendations on the legalization of the
drug for recreational use.

The report, ordered by Justin Trudeau's Liberal government, proposed
that people over the age of 18 be allowed to carry up to 30 grams of
marijuana for recreational purposes. It also recommends restrictions
on advertising and how and where the product can be sold, and suggests
the government move quickly to "increase or create capacity in many
areas relating to the production and sale of cannabis."

Some investors viewed the recommendations as a major win for the
handful of publicly traded licensed producers in Canada. Stocks such
as Aphria Inc., Canopy Growth Corp., Emerald Health Therapeutics Inc.
and Organi-Gram Holdings closed the day up between 3 per cent and 12
per cent, on heavy trading volume.

The recommendations are the next step toward legalization, which
analysts expect to happen in the spring, with recreational pot sales
potentially starting in 2018.

While the recommendations give investors a better understanding of
what a legal pot market could look like, there's still a lot of
speculation and uncertainty, said Ryan Modesto, managing partner at
independent research company 5i Research, and valuations of many
marijuana companies are high. Canopy, the country's largest marijuana
player, trades at a multiple of 46 times revenue.

"We still think it's a bubbly looking industry right now," Mr. Modesto
said. "It's tough to justify the multiples these shares are trading
at."

He also cautioned that the recommendations may not be approved. "While
I am sure the government will take them very seriously, it doesn't
necessarily mean they have to listen to anything that's there," Mr.
Modesto said.

The task force recommended that people be allowed to grow up to four
plants of their own, which could put a dent in the marijuana market,
as well as calls for increased capacity if the government decides to
open the door to more licensed producers. On the other hand, if no or
few new producers are licensed by Health Canada, current producers
could see a major boost in their business.

Canada currently has 36 producers licensed to grow and distribute
marijuana for medical purposes. Canopy, the country's largest
marijuana player, owns four of those licences and will have six with
its recently proposed acquisition of Mettrum Health Corp.

Canopy shares closed up 8 per cent on Tuesday to $10.79, which is
still below its record high of $17.86 reached on Nov. 16. Pot stocks
soared in mid-November, and then retreated, amid market speculation
and after a handful of U.S. states voted to legalize marijuana. On
Tuesday, Aphria shares jumped 5 per cent to $5.34, which was below its
high of $7.79 in mid-November. Emerald Health shares closed up 12 per
cent to $1.40 and Organi-Gram shares ended the day up 3 per cent at
$2.05.

Mettrum shares rose nearly 8 per cent to $7.16, which is below its
high of $8.25 on Dec. 1. That's when Canopy announced its all-stock
deal valuing Mettrum at $8.42 a share, a 42-per-cent premium to its
price the day before the announcement.

Bruce Campbell, portfolio manager at Stone-Castle Investment
Management, a long-time holder of a number of pot stocks, including
Canopy and Mettrum, was relieved by the wide-ranging recommendations
and market reaction.

"We came into today a little bit nervous," Mr. Campbell said. "You
never know how something like this is perceived by the market."

Mr. Campbell didn't make any trades on Tuesday, but said his firm
trimmed its position on some marijuana stocks when they hit their
highs last month. They also bought back in when the stocks dropped.

Beacon Securities analyst Vahan Ajamian, who just initiated coverage
of Canopy with a "buy" rating and $14.50 target and covers Supreme
Pharmaceuticals Inc., said proposals from the federal task force
"solidify that this is really happening."

Still, he cautions investors that there will be volatility in the
sector in the months ahead.

"This is going to play out over years," Mr. Ajamian said. "There is
potential for a lot of these companies to do really well here, but
investors have to realize that it's not going to be a straight line -
as we've seen in the last two or three months - it's going to be
volatile and they should be investing funds that they're able to
stomach over the long term."

Norman Levine, managing director of Portfolio Management Corp., said
investors "should be exceedingly wary" about buying into the sector,
especially at current prices.

"To me, this is dot-com all over again, but it's marijuana instead,"
Mr. Levine said.
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MAP posted-by: Matt