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Why pot stock MMJ Phytotech Ltd is smoking the ASX today

Credit: West Midlands Police

Shares in pot stock MMJ Phytotech Ltd (ASX: MMJ) are flying higher today after the company received its medical cannabis production license in Canada.

The stock is up 6.5 cents or 36% to 24 cents on the news and investors will no doubt hope to buy low / sell high if the company can achieve its ambitions to commercialise cannabis cultivation.

The green light from the Canadian regulator means the company can start up its purpose built Duncan Facility on Canada’s west coast, with the initial goal to supply patients under the ‘marijuana for medical purposes regulations’ in Canada.

MMJ Phytotech has a vertically integrated ‘farm to pharma’ strategy and thinks it can cash in on the growing demand for cannabis-products such as oral capsules to treat common medical complaints like chronic pain, concussion, and general injuries.

Moreover, it also hopes to eventually sell cannabis for recreational use in Canada and elsewhere under potential new rules that would make its sale legal under certain conditions. It’s no secret that the black market in marijuana is huge and estimates have put it to be worth between US$50 billion and US$65 billion per year in the US alone.

The stock hit a high of 60 cents back in August 2015 and the strategy to profit from the growing trend towards regulation rather than criminalisation of cannabis markets worldwide is not without merit.

However, for my money this stock is definitely not investment grade yet and looks one to watch from the sidelines.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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