How enterprising junior miners are ditching pickaxes in favour of an up-and-coming cash crop
When the federal government overhauled marijuana regulations in June last year, Graeme O’Neill, CEO of Bayhorse Silver Inc., took notice. In April this year the junior mineral exploration company announced a shift in business strategy: it had hired consultants to look into opportunities in the medical marijuana business.
O’Neill wasn’t alone. More than a dozen B.C.-based junior mining companies have recently announced they’re seeking greener pastures in the pot business. For many, it’s an act of desperation. The sector has suffered through a bear market for more than three years, and the market cap of the top 100 TSX-Venture-listed junior miners fell 44 per cent last year alone. With financing a distant memory, companies with stalled exploration projects and nearly depleted treasuries have suddenly found new life with the announcement of a switch to the pot business.
Papuan Precious Metals Corp. saw its penny stock jump more than 600 per cent after it said it was looking into trading pickaxes for licensed grow-ops. The Kelowna-based junior miner announced on April 7 that it was “reviewing a number of agricultural projects,” and by April 28 it had entered into a letter of intent to acquire a Colorado marijuana dispensary. By May 2 the stock hit a high of 16 cents, a level it hadn’t seen since 2012.
Southbridge Resources Corp. announced on March 13 it had entered into a letter of agreement to conduct due diligence of Vodis Innovative Pharmaceuticals Inc., a company that has applied to Health Canada to become a licensed marijuana provider. Southbridge completed a $320,000 private placement at $0.10 on March 19 and the thinly traded stock jumped to the 50-cent range by early April.
Miners are seeking money to finance exploratory research into a business they admittedly know nothing about, says James West, founder of Midas Letter, an investor newsletter that focuses on the mining sector. “It would be hilarious if it were not for the fact that so many people will be fleeced out of their life savings,” he says.
Junior miners that have hired consultants or expressed interest in medical marijuana insist that they’re only evaluating opportunities and are moving cautiously. “In extreme downtimes where money is scarce and sources of funding aren’t available, we have to look at what else is out there,” says Bayhorse Silver’s O’Neill, who in the 1990s spent time as a municipal inspector in North Vancouver, which exposed him to grow-ops and their associated problems. “Everyone is of the same opinion that [marijuana] is going to be legalized. We’d be remiss if we didn’t look at it.”
Howard Milne, chair of Victory Ventures Inc., agrees. His junior mining and exploration company announced in March that it would look at opportunities in legal medical marijuana. The company traded four million shares—the most in a day since it was listed in 2011—on the day of the announcement. He acknowledges the skepticism cast by analysts like West, but maintains that “for those who are willing to speculate it’s certainly an interesting business, but it’s not for the faint of heart.”
Many companies looked to the success of Tweed Inc., a licensed Ontario grower that completed a $15-million financing on the TSX-Venture exchange on April 24 this year. That company’s stock, however, did not show much movement following the $3.20 placement, continuing to hover around the $3 range, even as it promised to ramp up production as the new regulations come into effect. (Tweed’s growth plans also hit a snag when the RCMP seized one of its shipments at Kelowna’s airport in March.) Medical marijuana users may not want to pay up to 10 times more for their prescriptions under the new system, says West.