Johannesburg: High Hopes As Miners Turn To Marijuana

Robert Celt

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A number of junior mining companies, hard-pressed by the commodities rout, appear to be cutting back on exploration in favour of a more promising business: marijuana.

That these resource companies are turning to marijuana is hardly surprising. Data from US Global Investors shows that in 2014, the returns on gold fell by 1.72%, while those on silver, copper and platinum fell by 19.34%, 14% and 11.79% respectively. An ArcView Market Research report (sponsored by cannabis industry stakeholders) shows that over the same period, the legal marijuana market in the United States grew by 74% to $2.7bn in retail and wholesale sales, making it the fastest growing industry in the country. As more US states decriminalise marijuana, ArcView estimates that legal marijuana sales in the country will hit $10.8bn in 2019.

Add to that, Canada legalising the purchase of medical marijuana as well as calls to ease restrictions on medical marijuana usage in other parts of the world and the growing industrial hemp market, and it's easy to understand why the industry is considered too hot to ignore. A May 2014 presentation by Green Swan Capital Investments likens the potential effects of the decriminalisation of marijuana across the world to the 1933 end of Prohibition in the US, stating "vast legal fortunes will be generated".

It seems investors are also buying into the hype. According to Reuters, David Tasker, a director of Australia-listed International Goldfields, said trading in the company's stock increased as it moved from mining into medical marijuana.

Since Toronto-listed Supreme Resources became Supreme Pharmaceuticals last year, the firm has embarked on multiple successful private placements including the financing of debentures to the value of CAD$1.46m. When announcing the company's name change and intention to pursue opportunities within the medical marijuana industry, its former president David Stadnyk called the junior mining sector "moribund".

Similarly, Australia-listed gold miner Erin Resources, which acquired 100% of medical and cosmetic cannabis company MGC Pharmaceuticals during the financial year to June 2015, reported that it had successfully raised AUD$500,000 and secured an additional AUD$2.7m in working capital over the same period. The company has since changed its name to MGC Pharmaceuticals.

According to various reports, a few dozen mining companies, mostly Canada-listed juniors, are already active in the marijuana space with others looking to follow.

Convergex's 2015 fourth quarter survey of recreational marijuana dispensaries in Colorado reveals that greater competition from new entrants, an abundance of supply, and changes to the the tax structure, have contributed to a decrease in prices. "Our contacts said a gram of retail marijuana sold for upwards of $30 dollars at the onset and can now sell for lower than $10...Currently, an eighth [of an ounce] costs about $25 to $50 (depending on quality), and an ounce sells for $150 at the lower end and $400 at the higher end", chief market strategist Nicholas Colas said.

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News Moderator: Robert Celt 420 MAGAZINE ®
Full Article: Johannesburg: High Hopes As Miners Turn To Marijuana
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