Medical Marijuana Inc (MJNA)

[nopancakemix]

CanChew: A Sticky Situation Possibly Worth Billions

I submitted this to SA as an instablog. It was published but I edited it to add some additional information. I am posting it here because many of us refuse to give SA the click-views but I think this is good info for everyone. Please enjoy

Lost among the recent hullabaloo regarding Medical Marijuana Inc (MJNA), a few days before releasing the soothing shareholder PR, CanChew Biotechnologies, a 50-50 partner of MJNA, launched their website to sell the non-THC, non-intoxicating, CBD version of their chewing gum line. In order to redirect interest from all the nonsense that has been circulated over the past few weeks, it is important to discuss actual sectors of MJNA that are being developed. Here is a speculative look at the potential business opportunities for the freshly launched, CanChew CBD gum.

Disclosure

I am long MJNA. I have no direct affiliation with any of the other companies discussed, except for working in very limited capacity with Wrigley's and Cadbury, without privy to sensitive information.

Let There Be Gum

Like cannabis, chewing gum is not a new to society. Both cannabis and gum have documented use dating back over 5,000 years. The history of gum is quite fascinating and should you want a more detailed look, please click on the following link:

http://en.wikipedia.org/wiki/Chewing_gum

Even though both consumables have been around for several millenniums, it took all that time to finally merge the two thanks to CanChew Biotechnologies.

The Gum Industry Today

For a product that never makes it past your mouth, the gum industry is a cutthroat business. Read about it on the Wiki page and research your favorite brands here:

http://en.wikipedia.org/wiki/Gum_industry

The commercial gum industry is over 150 years old. It is rife with corporate takeovers, megalomaniacs and major money. There are only a small handful of players in the industry who rake in an estimated $19b in annual sales selling 1.3 million metric tons of gum according to the link above. Who knew selling gum was so lucrative? Whether intentional to or not, CanChew has made a grand entrance into an enormous marketplace.

CanChew Goes OnLine

On April 20, CanChew stealthily launched their website under the radar while a battle raged on message boards and blogs regarding distracting MJNA issues. MJNA holds a 50% stake in CanChew Biotechnologies but any revenue sharing structures or exact details regarding the relationship have yet to be provided. The CanChew websites can be accessed here:

https://www.canchewgum.com

http://www.canchewbiotech.com

To coincide with the launch CanChew is offering their THC free, non-intoxicating, CBD version of the gum which is estimated to start shipping by May 15 at the latest. The gum is an effective oral delivery system for Cannabinoids (CBDs) because there are no potentially harmful chemicals released from plant combustion and oral processes quickly break down the compounds, absorbing them quickly and easily into the body. Lets also be perfectly clear hear; CanChew's CBD gum doe NOT contain THC and CanChew's CBD gum is fully legal in all 50 states and most countries worldwide. CBDs are compounds found in cannabis. You can read more about them here:

http://en.wikipedia.org/wiki/Cannabinoid

Clinical studies are being conducted and there is a lot of evidence that CBDs are effective in treating a wide variety of medical conditions including cancer cell reduction, pain management, nausea, skin irritation, epilepsy, Alzheimer's, and Parkinson's just to name a few. The National Cancer Institute even recognizes the potential of CBDs on their official government website, mentioning that "Cannabis has been used for medicinal purposes for thousands of years" (kind of odd considering the Schedule I status of cannabis declares it has no medical value, so say the DEA):

http://www.cancer.gov/cancertopics/pdq/cam/cannabis/healthprofessional/page1

CanChew is also actively pursuing European clinical trials for medical approval of their THC based gum. MJNA has reportedly allocated 47m shares as payment to execute the initiative, which is scheduled to begin in Q3 of 2013. MedChewRX incorporates THC, the intoxicating CBD compound in cannabis, into the chewing gum, providing a smoke free method of experiencing the euphoric relief of the medicine. Obviously, the legality of this product would be subject to the marijuana laws where the user resides as well as national and international shipping regulations.

The current THC free product line being offered on the website is not cheap, costing about $125USD for a box of 32 pieces and as much as $300USD for a box of 96 pieces. Keep in mind the prices accurately reflects the fact that CanChew gum is not intended to treat simple conditions like halitosis, but far more serious medical ailments like those listed above. The non-THC variety of gum is legal all 50 US states and several countries worldwide. Neither MJNA nor CanChew have made mention of retail distribution deals, but there are wholesale opportunities being pursued.

Speculation

Now that the business and products have been established, what is the forward looking potential for CanChew products? Like the product itself, analyzing CanChew is a sticky situation. At this point, we have a few hard numbers like the retail price of some products and overall numbers regarding the gum industry as a whole, but not much more. Fortunately, not having all those figures makes for some fun speculation.

Chomping at the Bits

· R&D - CanChew has already developed the CBD gum line and is also working towards bringing the THC based MedChewRX to market. Research and development for a new product can cost a fortune. Furthermore, clinical trials are extremely expensive. CanChew and MJNA have already performed much of the work required for R&D having brought the CBD product to market. Gum manufacturers are constantly developing gimmicks to further their brands. "Flavor crystals", dual flavors in a single piece, and gelatin interiors are just some of the gimmicks developed to sell you chewing materials. The difference with CanChew's product is that it is not a gimmick. Even the National Cancer Institute recognizes cannabis compounds as a viable treatment.

· Marketing - Marketing is another major device to maintaining a brand. Wrigley's and Cadbury spend massive sums of money creating worldwide marketing campaigns. The purpose of these messages is to bring brand awareness and develop a customer base. The gum industry has been slow to enter the health food market but CanChews products offer a legitimate contender in an explosive market. Cannabis users of all kinds would be interested in a CBD/THC product, presenting a new targeted market for manufactures.

· Acquisitions - The reasons above would be an appealing case for an existing gum manufacturer to target CanChew for a buyout because much of the work getting the product to market has already been executed. The Wikipedia page is filled with multi-hundred million and billion dollar acquisitions. From a business perspective, a CanChew acquisition seems like a strong possibility. The terms of the acquisition could include a complete buyout, a majority purchase of the company with a possible royalty structure, or a licensing of CanChew products.

CanChew Retail Expansion

In the meantime, CanChew is open for business. The online portion is up and running but the retail expansion is another avenue to profitability. Wholesale distribution of gum is obviously where the profits are booked. Since CanChew contains healthy supplements, it is possible to marketed to not only smaller nutritional retail locations, but also major health food operations like Whole Foods and General Nutrition Centers (GNC). This expansion could lead to significant nationwide revenue.

Numbers

For the purposes of this blog and to make the speculation more credible, I am going to keep the numbers regarding sales as simple as possible. If CanChew sells 100,000 units of of the 32-piece box in a year that is $12.5m in sales. Obviously, those are extremely low-ball numbers considering a 2011 United Nations study estimated 164 million cannabis users worldwide, but I am favoring credibility opposed to over-exuberance (http://www.unodc.org/unodc/en/data-and-analysis/WDR-2011.html). Those numbers do not even factor in possible wholesale or worldwide distribution, just online sales.

Additionally, those figures do not include the THC MedChew version of the gum. In conjunction with the estimates of 164 million worldwide users, a THC based chewing gum holds enormous potential, both as a recreational device as well as a medicine. Since there are no available products to price, I will once again refrain from speculation but take a moment to think about the size of the market and you should be able to understand the enormous potential for revenue.

Conclusion

CanChew Biotechnologies is smacking of potential to become a prominent player in the gum industry and bringing in a new revenue stream for MJNA. Speculation abounds, but even the lowest sales figures, licensing or buyout estimates all potentially offer significant revenue. The impact of CanChew is a work in progress and I am very excited to continue looking into the newly developing partner of MJNA.