Canada Seen as Safe Haven for Cannabis Investors as U.S. AG Launches Strike Against Industry

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Jan 11, 2018, 08:30 ET

NEW YORK, January 11, 2018 /PRNewswire/ --

For the North American cannabis industry, U.S. Attorney General Jeff Sessions' decision (http://nnw.fm/7hbPL) to remove the protections to cannabis operations provided by the Cole Memo has created an environment of frustrating challenges, albeit one coupled with immense opportunity for neighbors in the north. While the AG's broadside has increased uncertainty in the U.S. cannabis sector, federal authorities in Canada have taken a completely different tack. With legalized medicinal cannabis use already in the books, Canada's impending Cannabis Act will allow adults to possess and access regulated, quality-controlled, legal cannabis, effective July 1, 2018. These shifting tides continue to increase interest in Canadian cannabis companies like DOJA Cannabis Company Ltd. (CSE: DOJA) (OTC: DJACF) (DOJA Profile), Aurora Cannabis, Inc. (OTC: ACBFF) (TSX: ACB), Hydropothecary Corp. (OTC: HYYDF) (TSX-V: THCX), OrganiGram Holding, Inc. (OTC: OGRMF) (TSX-V: OGI) and WeedMD Rx, Inc. (OTC: WDDMF) (TSX-V: WMD).

The decision by Sessions will remove the safe harbor provided to the industry since 2013 by the Cole Memo, which promised to avoid federal interference with state laws if compliance with certain conditions were in place. Among other stipulations, these included safeguarding public health, particularly from the risk of impaired driving, and preventing the distribution of marijuana to minors and to states where it remains illegal.

Now under his indictment that the Cole Memo 'undermines the rule of law,' the AG has left a controversial wake that frustrates the laws of the 30 U.S. jurisdictions that currently permit the use of cannabis for either medical or recreational purposes.

Despite the disheartening developments in the U.S., the cannabis industry in Canada appears headed for comprehensive liberalization and regulation of cannabis. The Canadian government has committed to bringing the proposed Cannabis Act into force this summer, allowing adults to legally possess, grow and purchase cannabis with restrictions (http://nnw.fm/FSz7L). The Act would also allow individuals 18 years of age or older to have up to 30 grams of dried cannabis or its equivalent in their possession when in public. Unlike in the U.S., federal and local legislation are framed to work in harmony, with provincial governments being able to set an additional layer of regulation over federal law if they so desire.

In Canada's rapidly growing cannabis industry, DOJA Cannabis Company Ltd. (CSE: DOJA) (OTC: DJACF) is poised to become the preeminent craft cannabis brand house in the Canadian adult-use cannabis market.

On December 21, 2017, DOJA disclosed it had signed a binding Letter of Intent to acquire Tokyo Smoke (http://nnw.fm/UoY1c), an award-winning Canadian café company dubbed 'the Starbucks of Cannabis' (http://nnw.fm/0UOla). Under the terms of the agreement, DOJA will acquire all of the issued and outstanding shares of Tokyo Smoke, creating an emerging company with the proposed name, Hiku Brands Company Ltd.

Tokyo Smoke, recently named Brand of the Year at the Canadian Cannabis Awards, is a lifestyle label that blends elements of cannabis culture with Japanese influences. The company has six brick-and-mortar cafes in Toronto and Calgary, which offer coffee, tea, juice and snacks along with a variety of cannabis accessories.

The DOJA merger with Tokyo Smoke is bolstered by funding from Aphria, Inc., which will inject C$10 million in equity into the combined company and Aphria will also enter into a supply agreement for cannabis concentrates with Hiku. Aphria, recognized as one of Canada's lowest cost producers, is the first medical cannabis producer licensed under Access to Cannabis for Medical Purposes Regulations (ACMPR) to report positive cash flow and positive earnings from operations in consecutive quarters. Aphria recently announced (http://nnw.fm/j3OJn) receipt of a Dealer's License pursuant to the Controlled Drugs and Substances Act under Health Canada, which authorizes it to possess, sell and transport medical cannabis oil and resin to international markets. The news has pushed Aphria's stock up over C$22 per share with a market cap of nearly C$3.5 billion.

Aphria's investment in Hiku gives them a stake in British Columbia's premium cannabis market, though Aphria's financial interest will go beyond being a passive investment. In what is expected to be a supply-constrained market at the onset of legalization, Hiku's agreement with Aphria will increase Hiku's accessibility to product (http://www.newswire.ca/news-releases/doja-cannabis-closes-125-million-private-placement-led-by-aphria-668425993. html).

The DOJA-Tokyo Smoke deal has the potential create a highly differentiated Canadian craft cannabis label that has significant national retail presence and a growing portfolio of premium cannabis lifestyle brands including DOJA, Tokyo Smoke, and Van der Pop. The combined entity, Hiku, will have seven operational, legal cannabis accessory stores in Alberta, British Columbia, and Ontario, representing an unrivalled platform to build brand awareness and reach consumers and will prioritize retail expansion in provinces allowing private cannabis retail. Post-merger, Hiku is expected to have a cash balance of approximately C$31 million, which the company plans to invest in scaling up production capacity, expanding its retail and global footprints, and further build-out of its portfolio of cannabis brands.

DOJA also operates a cannabis production facility in British Columbia's Okanagan Valley. The company is now building a new production facility, FUTURE LAB, to be located in Kelowna, British Columbia, which will support production capacity in excess of 5,000 kg per year. DOJA also operates the Culture Café, located on Kelowna's busiest street, which serves as a cannabis information center that generates brand awareness. Late last year, DOJA announced that its wholly owned subsidiary, Northern Lights Marijuana Company, a licensed cannabis producer under the Access to Cannabis for Medical Purposes Regulations (ACMPR), had successfully completed its initial cannabis harvests and had requested a Pre-Sales License Inspection from Health Canada (http://nnw.fm/6KF4o). The Pre-Sales License Inspection is the last step prior to the issuance of a Sales License under the ACMPR.

DOJA (the name is slang for cannabis) has emerged as a producer of high-quality product, supported by grow rooms equipped with equipment from Surna Inc., cultivation experts and agricultural engineers, and fitted with ductless air handlers, commercial-grade dehumidifiers, in addition to bio-security products using photo-catalytic reaction that sanitizes the air and minimizes breakouts of pests, pathogens and mold.

Trading at C$3.50 on the Canadian Securities Exchange with a market cap of C$214 million, DOJA is pacing its potential alongside some of the industry's leading players.

Aurora Cannabis (OTC: ACBFF) (TSX: ACB), the only licensed producer (LP) located in Alberta, is also taking steps to capture its share of Canada's increasingly ripe cannabis industry. Aurora kicked-off 2018 with news it plans to buy a 17.6 percent stake in privately held marijuana grower Green Organic Dutchman Holdings for C$55 million (USD 44 million) (http://nnw.fm/4Wc1N). The deal gives Aurora the rights to buy up to 20 percent, or more than 20,000 kilograms of Ontario-based Green Organic Dutchman's annual production of cannabis at full capacity. And it allows Aurora to purchase up to 33 percent if Aurora increases its ownership to 31 percent. Aurora has also announced a deal with Danish tomato and pepper producer Alfred Pedersen & Son to produce and sell cannabis in Europe (http://nnw.fm/G2Fm6).

Eastward in Quebec, Hydropothecary (OTC: HYYDF) (TSX-V: THCX) is planning to expand production 30-fold from 3,600 kg to 108,000 kg per annum, according to the company's website (http://nnw.fm/5tPbM). Economies of scale and Quebec's low utility rates have made Hydropothecary possibly one of the lowest cost producers in Canada.

In New Brunswick, OrganiGram Holding (OTCQB: OGRMF) (TSX-V: OGI) announced the closing of its C$57.5 Bought Deal financing during December 2017 (http://nnw.fm/TaMh8). Around the same time, the company provided an update on how the construction of its facilities is proceeding (http://nnw.fm/3HEsN). About 80 percent of the net proceeds of the financing will fund the construction of an additional 255,000 square feet of production space at the Moncton campus. The company has also signed an MOU with New Brunswick provincial authorities to provide a minimum of 5 million grams yearly to the adult recreational market, a deal valued at between C$40 million and C$60 million.

Ontario-based WeedMD Rx (OTC: WDDMF) (TSX-V: WMD) is also raising funds. In December 2017, the company entered into a letter of engagement for bought deal equity financing of $15 million. WeedMD intends to use the net proceeds of the funding for working capital, general corporate purposes and to position itself to expand production capacity within its recently announced existing 14-acre greenhouse. WeedMD is the publicly traded parent company of WeedMD Rx Inc., a federally licensed producer and distributor of medical cannabis. The company operates a 26,000-square-foot indoor facility in Aylmer, Ontario, and is awaiting its second-site cultivation license for a greenhouse in Strathroy, Ontario, representing 610,000 square feet, or 14 acres under glass.

While cannabis companies in the U.S. mull through Sessions' recent decision regarding the Cole Memo and what it means for their operations, Canadian cannabis companies are stretching their legs to prepare for a significant boost in product demand and subsequent opportunity in market share.

For more information on DOJA Cannabis Company, visit DOJA Cannabis Company Ltd. (CSE: DOJA) (OTC: DJACF)

For a more in-depth look into DOJA Cannabis (CSE: DOJA) (OTC: DJACF), view the full report on Microsmallcap.com.

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