Industry Update

March 2, 2015
Agriculture Technology

INDUSTRY NOTE
JAMES McILREE, CFA , Senior Analyst, 646-465-9034
jmcilree@chardancm.com
Sales and trading 7 a.m. to 7 p.m. ET, (646) 465-9090
Sales and trading 7 p.m. to 7 a.m. ET, (646) 465-9063

Colorado Cannabis Prices and Production

A story last week, in Marijuana Business Daily, Fears of Marijuana Price Crash, Bloodbath in Colorado as Regulatory
Changes
Take
Hold,
(http://mmjbusinessdaily.com/fears-of-rec-price-crash-bloodbath-in-colorado-as-regulatory-changes-take-hold)
highlighted the potential for price declines in the wholesale market resulting from the lifting of restrictions that removed
the requirement of retail stores to purchase 70% of their product from commonly-owned facilities. We highlighted this
same issue in our February 17th industry note.
The number of retail (recreational) cultivations increased 21% since the end of September, but the number of retail
stores has also increased by a similar amount, or 18%, suggesting the increase in cultivations may have been driven
by the increase in the overall market and not just the relaxation cited in R402 of Colorados retail marijuana code.

Colorado Retail Stores and Cultivations

450
400
350
300
250
200

Colorado-Pounds of Flower Sold per Store

0 150
100
0
0

50
0

0
Retail Stores

Cultivations

0
Source: Colorado Department of Revenue-Marijuana Enforcement Division
CannaBase reports a 20% drop in wholesale prices since September but to date this has not resulted in lower retail
prices. Vertical integration can still be strong enough that lower prices on the wholesale market is not yet a critical
factor, retailers may be working off inventory of higher-priced products, or retailers could be realizing higher margins.
Price pressure at the retail level will be impacted by a variety of factors including wholesale costs, legal demand and
black-market prices.
We believe black-market demand is still substantial, upwards of 50% of the total market in Colorado. But this market
doesnt seem to be pressuring prices in the legal market. A High Times nationwide survey of prices shows a 5%
decline in prices in 2014 for both premium and mid-range product.

Please refer to important disclosure information and Regulation Analyst Certification found on pages 7 - 8 of this report.

Industry Note
March 2, 2015

Agriculture Technology

Source: High Times, Chardan Capital Markets.

More localized surveys, like priceofweed.com, which surveys users in Colorado shows little movement in
prices over the past 12 months.
Last week the Colorado MED (Marijuana Enforcement Division) released an annual update on the
medical and recreational market that provides additional details of the market not available in its monthly
tax reports.
The total amount of flower sold during the year exceeded 148,000, 109 thousand for the medical market
and 39 thousand in the retail market. In the second half of the year the medical market began to decline
suggesting to us market share loss to the recreational market.

Source: Colorado Department of Revenue-Marijuana Enforcement Division

As mentioned above the number of cultivations and retailers has increased steadily and significantly over
the course of the year. The pounds of flower sold per store flattened in the medical market, before
declining in Q4. The number of pounds per store for the recreational market grew through July, then
declined through November, and grew again in December.

Chardan Capital Markets, LLC

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Industry Note
March 2, 2015

Agriculture Technology

Source: Colorado Department of Revenue-Marijuana Enforcement Division

It is still early times in the market and we would not be surprised by an eventual shake-out of the
wholesale and retail markets but as of now demand remains strong.
Industry Overview
We expect the $40 billion marijuana market to continue to grow in the coming decades as legalization of
both medical and recreational marijuana result in increased consumer demand. Marijuana consumption in
the US increased at about a 7% compound annual rate though the first decade of the 2000s, and with
legalization of recreational marijuana beginning, consumption will likely increase due to: consumers who
have avoided marijuana because of its legal status; increased per capita use due to lower prices;
substitution of beer and alcohol; and new delivery form factors, such as edibles. Medical marijuana is now
approved in 23 states and the District of Columbia and recreational use has been approved in four states:
Colorado, Washington, Alaska and Oregon as well as the District of Columbia. Marijuana is classified as a
Schedule I drug under the Controlled Substances Act and there are also banking restrictions that impede
the growth of the industry. However, a sign of a possible change in federal policy was passage of the
appropriations omnibus bill which included two sections favorable to medical marijuana consumption and
hemp production. We believe the market is in its early growth stage as marijuana use moves from black
market to legal production and consumption. If usage approaches the same penetration rates as alcohol
the market could approach the current size of that market, or $200 billion annually. For entrepreneurs in
the space this is a unique opportunity. Some expect Big Tobacco and Big Food to move into this market
and dominate the space. While possible, it is by no means a sure bet. History shows large companies
have a particularly poor record of moving into new growth industries and most often new industries are
the domain of new competitors. We expect the same for the marijuana market.
Annual marijuana consumption in the US is estimated in a range of $30 billion to $60 billion, growing
between 6% to 8% annually. These estimates are mostly based on the National Survey on Drug Use and
Health survey conducted by RTI International under contract to the U.S. Department of Health & Human
Services and then adjusted for assumed under-reporting of consumption. So although marijuana
consumption can only be estimated in a very wide range, it is a substantial market, probably as large, or
larger, than consumption of cigarettes (excluding excise taxes) and about 20% of the size of the alcohol
market.
We believe legalization for recreational use will increase marijuana consumption for a number of reasons.
Prices could decline from an estimated range of $200 to $300 per ounce and depending on taxes, move
closer to indoor production costs of $35 per ounce or much lower for outdoor production. Price elasticity

Chardan Capital Markets, LLC

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Agriculture Technology

Industry Note
March 2, 2015

of demand is estimated at -0.25 so there could be a substantial increase in demand from lower prices.
Legalization could also result in more consumers of marijuana since the latest survey on drug use shows
only 12% of the population over 18 has used marijuana in the past twelve months, while alcohol usage for
the over 18 age group is 56%, suggesting ample room for growth. The introduction of new delivery form
factors, such as edibles, could also result in greater consumption from existing users as well as
consumption from new users who may be reluctant to smoke anything.
Medical marijuana is now legal in 23 states and the District of Columbia, although one-third have yet to
open a dispensary or finalized rules for the program. For instance, Delaware authorized medical
marijuana in May of 2011 but its first dispensary is expected early this year, almost four years after the
legislature legalized medical marijuana. On average, since California voters first passed a ballot initiative
legalizing medical marijuana in 1996, about one state per year has either voted to legalize or legislation
has been signed to legalize medical marijuana. However, in the past five years, eleven states have
legalized medical marijuana demonstrating the legalization momentum is accelerating. In our view it is
important to note since 2010, 9 of the 11 states, or 81%, have legalized medical marijuana through
legislation, suggesting politicians are seeing the issue as widely supported by the electorate. In the
previous 13 states, ballot initiatives were the means to legalization 69% of the time.
The following tables present selected financial information on Canadian and US traded cannabis-related
stocks. Many of these are development stage companies, with little other than the intention of
participating in the cannabis market. Many are located in Colorado, because of that states leadership in
the industry.

Chardan Capital Markets, LLC

Page 4 of 8

Industry Note
March 2, 2015

Agriculture Technology

Canadian Growers/Retailers
Price

TSXV: APH
TSXV:BED
TSXV:MT
TSXV:OGI
TSXV:TPI
TSXV:TWD

Aphria
Bedrocan Cannabis
Metrrum Health Corp.
OrganiGram Holdings
T-Bird Pharma Inc.
Tweed Marijuana

C$

0.87
0.75
2.10
0.52
0.40
2.18

Shares
(M)
52.5
69.5
23.0
53.7
46.1
40.6

Avg. Volume Avg. Value

(000)
(000)

Mkt Cap
(M)

111 C$ 95.3 C$
191
150.3
18
36.6
89
56.2
43
18.7
124
279.5

45.7 C$
52.1
48.3
27.9
18.2
88.6

TEV
(M)

LTM
Sales (M)

45.6 C$
41.0
25.0
27.0
15.8
84.7

Cash
(M)

C$
0.5
2.4
0.0
1.1

Total
Debt (M)

0.2 C$
11.1
25.3
5.8
2.5
5.8

0.2
2.0
2.5
0.1
1.9

US Traded Cannabis Stocks (Table 1 of 2)

Price

AMEX:XXII
OTCPK:ATTB.F
OTCPK:AERO
OTCPK:RSSF.F
OTCPK:AGTK

22nd Century Group

Abattis Bioceuticals Corp.
AeroGrow International, Inc.
Affinor Growers, Inc.
Agritek Holdings, Inc.

OTCPK:AMMJ
OTCPK:ERBB
OTCPK:CANN
OTCPK:AVTC
OTCPK:BRDT

Shares
(M)

0.82
0.14
3.76
0.15
0.03

63.8
66.3
6.5
65.4
70.9

American Cannabis Company, Inc.

American Green, Inc.
Avanced Cannabis Solutions
AVT Inc.
BREEDIT Corp.

0.41
0.01
3.50
1.19
0.07

43.0
643.4
13.3
21.0
92.1

OTCPK:CNBX
OTCBB:CBDS
OTCPK:CBIS
OTCPK:LGBI
OTCPK:CBGI
OTCPK:CGRW
OTCBB:MJTK

Cannabics Pharmaceuticals Inc.

Cannabis Sativa Inc.
Cannabis Science, Inc.
Cannabiz Mobile Inc.
CannaBusiness Group
CannaGrow Holdings
CannaSys, Inc.

0.20
6.00
0.05
0.00
0.01
0.79
1.50

OTCPK:CANV
OTCPK:CANL
OTCBB:CHUM
OTCPK:CGRT
OTCPK:FITX
OTCPK:EAPH

CannaVest
CannLabs, Inc.
Chuma Holdings Inc.
CorGreen
Creative Edge Nutrition, Inc.
Easton Pharmaceuticals

OTCPK:ECIG
OTCPK:EDXC
OTCPK:ENRT
NasdaqGM:FULL
OTCPK:FSPM
OTCPK:FWDG
OTCPK:GLCO
OTCPK:GRNH
OTCPK:GBLX
OTCPK:PHOT

Avg. Volume Avg. Value

(000)
(000)
269 $
237
17
50
369

Mkt Cap
(M)

TEV
(M)

LTM
Sales (M)

364.1 $
33.7
68.8
7.6
19.9

52.2 $
9.2
24.6
9.8
1.8

46.9 $
8.8
27.2
9.1
3.1

33
22,347
19
24
178

21.8
285.7
76.8
32.9
16.4

17.6
6.4
46.5
25.0
6.4

17.6
11.5
46.2
27.8
4.3

100.6
15.0
934.9
5.6
0.0
2.5
10.8

15
13
4,836
7,278
235
167
1

3.5
92.9
291.7
20.9
0.9
105.5
2.0

20.3
90.2
46.2
0.0
0.0
2.0
16.3

2.76
1.38
0.42
2.00
0.01
0.02

33.4
65.5
54.7
27.0
642.1
359.7

111
14
38
0
25,806
5,309

362.0
16.7
33.8
1.2
367.6
121.7

Electronic Cigarettes Intl.

ENDEXX Corp.
Enertopia Corp.
Full Circle Capital
Fusion Pharm, Inc.

0.12
0.03
0.06
3.88
0.22

246.4
128.5
75.7
11.9
2.8

14,471
438
354
134
16

FutureWorld Corp.
Global Links Corp.
GreenGro Technologies, Inc.
Growblox Sciences
Growlife, Inc.

0.01
0.00
0.10
0.27
0.03

454.0
478.1
126.0
34.9
879.1

4,765
11,751
1,245
66
2,063

0.5 $
0.0
17.0
0.1
0.0

Cash
(M)

Total
Debt (M)

6.4 $
1.1
2.3
0.7
0.2

1.1
4.9
1.5

0.7
0.0
0.2
7.0
0.0

0.2
0.0
1.1
0.4
2.2

0.1
5.0
0.8
3.2
0.2

20.2
90.6
47.6
0.0
0.0
4.4
16.3

0.0
0.0
1.2
1.6
1.7
-

0.1
0.0
0.6
0.0
0.0
-

0.4
2.0
0.0
2.5
-

92.2
90.4
23.0
54.0
7.2
7.0

87.5
90.8
23.7
56.3
7.1
6.9

8.3
1.0
0.0
2.0
3.8
-

4.8
0.1
0.0
0.0
0.3
0.2

1.2
0.7
1.8
0.3
0.1

1,249.8
21.0
22.1
619.6
2.7

30.3
4.4
4.5
46.4
0.6

71.1
4.4
3.9
111.4
0.9

32.0
15.6
0.3

7.3
0.6
2.6
0.0

48.1
67.6
0.3

33.4
8.2
144.7
24.4
65.2

2.6
0.3
12.6
9.4
26.4

3.1
1.6
12.6
9.0
26.9

0.4
2.0
8.7

0.2
0.0
0.3
0.3

0.7
1.4
0.0
0.8

Source: S&P CapitalIQ

Chardan Capital Markets, LLC

Page 5 of 8

Industry Note
March 2, 2015

Agriculture Technology

US Traded Cannabis Stocks (Table 2 of 2)

Price

NasdaqGM:GWPH
OTCPK:HEMP
OTCPK:HMKT.F
OTCPK:ICBU
OTCPK:UPOT

GW Pharmaceuticals plc
Hemp, Inc.
Highmark Marketing
IMD Companies, Inc.
Indie Growers Association

OTCPK:NRTI
OTCPK:LXRP
OTCPK:LVVV
OTCPK:MCIG
OTCPK:MDBX
OTCPK:REFG

Shares
(M)

Avg. Volume Avg. Value

(000)
(000)

Mkt Cap
(M)

TEV
(M)

LTM
Sales (M)

Cash
(M)

Total
Debt (M)

80.92
0.03
0.04
0.00
0.40

236.6
227.9
13.4
47.1
148.7

342
9,863
11
3,095
132

25,584.0
339.0
1.0
32.7
62.9

1,530.0
7.1
0.6
0.2
59.4

1,491.3
7.1
0.4
0.2
59.9

30.5
2.4
-

57.5
0.0
0.2
-

5.9
-

Inergetics, Inc.
Lexaria Corp.
Livewire Ergogenics Inc.
mCig, Inc.
Medbox, Inc.
Medical Cannabis Payment Solutions

0.01
0.09
0.00
0.13
1.81
0.04

114.7
34.4
154.5
272.0
30.4
111.2

2,106
130
870
1,281
214
315

34.5
12.4
5.9
205.1
668.2
18.2

1.7
3.1
0.7
36.4
55.1
4.9

18.0
2.7
1.4
39.2
56.3
4.9

2.0
0.2
0.7
1.0
-

0.0
0.4
0.0
0.3
1.6
-

7.2
0.6
3.0
2.7
-

OTCPK:MJNA
OTCPK:MDCN
OTCPK:MNTR
OTCPK:MJNE
OTCPK:MDRM
OTCPK:NTRR

Medical Marijuana, Inc.

Medican Enterprises
Mentor Capital, Inc.
MJ Holdings
Modern Mobility Aids, Inc.
Neutra Corporation

0.11
0.01
0.91
1.15
0.03
0.07

598.6
60.1
14.5
13.9
86.9
38.6

3,536
2,413
32
1
189
555

443.1
38.0
33.3
1.5
7.4
49.4

66.4
0.3
13.2
16.0
2.4
2.5

43.4
1.0
12.5
17.4
2.8
2.7

14.2
1.6
0.0
-

33.1
0.1
0.7
0.3
0.0
0.0

10.1
0.9
0.1
1.8
0.4
0.2

OTCPK:NDEV
OTCPK:ENDO
OTCPK:OXIS
OTCPK:PMCB
OTCPK:PLPL
OTCBB:PMCM
OTCPK:RFMK

Novus Acquisition & Dev.

Omnicanna Health Solutions, Inc.
OXIS International, Inc.
PharmaCyte Biotech
Plandai Biotechnology
Primco Management Inc.
Rapid Fire Marketing, Inc.

0.28
0.01
0.02
0.12
0.24
0.00
0.00

1.9
67.9
591.7
699.3
134.3
8,996.8
4,785.2

81
299
1,580
2,370
108
65,751
47,481

25.4
6.2
39.8
377.9
30.4
10.6
23.0

0.5
1.0
13.9
81.1
31.8
1.8
1.9

0.6
1.9
16.1
80.0
44.9
3.3
2.0

0.1
0.1
0.2
0.1
0.0

0.1
0.0
0.7
1.2
0.9
0.3
0.0

0.2
1.0
3.0
15.4
1.8
0.1

OTCPK:SING
OTCPK:SPRW.F
OTCPK:SRNA
OTCPK:TAUG
OTCPK:TRTC
OTCPK:THCZ

SinglePoint, Inc.
Supreme Pharma
Surna Inc.
Tauriga Sciences, Inc.
Terra Tech Corp.
Totally Hemp Crazy Inc.

0.01
0.20
0.24
0.01
0.22
0.03

14.0
78.8
104.4
870.3
197.7
202.4

745
81
337
2,697
1,233
5,815

9.2
22.0
110.4
37.4
332.2
110.9

0.2
15.7
24.5
12.2
44.0
6.7

0.2
17.4
24.9
11.9
47.1
-

1.2
0.0
6.2
0.0

1.6
0.2
0.3
3.5
-

3.5
0.5
0.0
6.6
0.1

OTCPK:TURV
OTCBB:CNAB
OTCPK:VAPE
NasdaqCM:VPCO
OTCBB:VAPO
OTCPK:WORX

Two Rivers Water & Farming

United Cannabis
Vape Holdings, Inc.
Vapor Corp.
Vaporin, Inc.
Worlds Online Inc.

0.52
1.42
0.60
1.16
1.86
0.14

26.5
43.9
11.5
16.6
4.9
32.0

19
67
92
188
11
31

11.5
91.7
70.8
242.3
17.7
4.8

13.8
62.3
6.9
19.2
9.1
4.5

46.8
62.7
7.5
18.5
8.5
1.8

2.1
0.1
1.2
20.6
1.4
0.0

0.8
0.5
0.3
1.7
0.8
1.6

11.7
0.9
0.9
1.0
0.2
2.1

12.4 $

12.6

Median

Source: S&P CapitalIQ

Chardan Capital Markets, LLC

Page 6 of 8

Industry Note
March 2, 2015

Agriculture Technology

Important Research Disclosures

Distribution of Ratings/IB Services
Chardan Capital Markets
IB Serv./Past 12 Mos.
Rating
BUY [BUY]
HOLD [NEUTRAL]
SELL [SELL]
NOT RATED [NR]

Count

Percent

Count

Percent

21
11
1
1

61.76
32.35
2.94
2.94

10
2
0
0

47.62
18.18
0.00
0.00

Regulation Analyst Certification ("Reg AC") JAMES McILREE, CFA

ANALYST(s) CERTIFICATION: The analyst(s) responsible for covering the securities in this report certify that the
views expressed in this research report accurately reflect their personal views about Company and its securities. The
analyst(s) responsible for covering the securities in this report certify that no part of their compensation was, is, or will
be directly or indirectly related to the specific recommendation or view contained in this research report.
DISCLOSURES
Chardan Capital Markets expects to receive or intends to seek compensation for investment banking services from all
companies under research coverage within the next three months. Chardan Capital Markets or its officers, employees
or affiliates may execute transactions in securities mentioned in this report that may not be consistent with the reports
conclusions.
RATINGS
Buy: Expected to materially outperform sector average over 12 months and indicates total return of at least 10% over
the next 12 months.
Neutral: Returns expected to be in line with sector average over 12 months and indicates total return between
negative 10% and 10% over the next 12 months.
Sell: Returns expected to be materially below sector average over 12 months and indicates total price decline of at
least 10% over the next 12 months.
FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involve risks and
uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the Risk Factors section in the SEC filings
available in electronic format through SEC Edgar filings at www.SEC.gov on the Internet.
GENERAL: Chardan Capital Markets (Chardan) a FINRA member firm with offices in New York City NY, Palo Alto,
CA and Beijing, China is an investment banking and institutional brokerage firm providing corporate finance, merger
and acquisitions, brokerage, and investment opportunities for institutional, corporate, and private clients. The analyst(s)
are employed by Chardan. Our research professionals provide important input into our investment banking and other
business selection processes. Our proprietary trading and investing businesses may make investment decisions that
are inconsistent with the recommendations expressed herein. Chardan may from time to time perform corporate
finance or other services for some companies described herein and may occasionally possess material, nonpublic
information regarding such companies. This information is not used in preparation of the opinions and estimates
herein. While the information contained in this report and the opinions contained herein are based on sources believed
to be reliable, Chardan has not independently verified the facts, assumptions and estimates contained in this report.
Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the
fairness, accuracy, completeness or correctness of the information and opinions contained in this report. The
information contained herein is not a complete analysis of every material fact in respect to any company, industry or
security. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It
is for the general information of clients of Chardan. It does not take into account the particular investment objectives,
financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material,
clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional
advice. Certain transactions - including those involving futures, options, and other derivatives as well as
non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is
based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not
be relied on as such. The information contained in this report is subject to change without notice and Chardan assumes
no responsibility to update the report. In addition, regulatory, compliance, or other reasons may prevent us from

Chardan Capital Markets, LLC

Page 7 of 8

Agriculture Technology

Industry Note
March 2, 2015

providing updates.
COMPENSATION OR SECURITIES OWNERSHIP: The analyst(s) responsible for covering the securities in this report
receives compensation based upon, among other factors, the overall profitability of Chardan Capital Markets including
profits derived from investment banking revenue and securities trading and market making revenue. The analyst(s) that
prepared the research report did not receive any compensation from the Company or any other companies mentioned
in this report in connection with the preparation of this report. The analysts responsible for covering the securities in
this report currently do not own common stock in the Company, but in the future may from time to time engage in
transactions with respect to the Company or other companies mentioned in the report. Chardan expects to receive, or
intends to seek, compensation for investment banking services from the Company in the next three months.

Chardan Capital Markets, LLC

Page 8 of 8