Marijuana and Canadian currency are arranged for a photo in Toronto on Wednesday October 26, 2011. Photographer: Brent Lewin/Bloomberg

Toronto - By unlocking the once- obscure medical marijuana market, Canada has created a fast-growing, profitable and federally regulated industry with a distinct appeal to the more daring global investor.

About a dozen producers of the drug would find themselves in the spotlight this year as they considered going public or prepared to do so through share sales or reverse takeovers to capitalise on recent regulatory changes, investment bankers said.

The Canadian companies are in a race to raise money to build facilities, attract patients and grab shares in a market projected to grow to C$1.3 billion (R12.8bn) in the next 10 years.

Despite facing considerable risks, they have the advantage of being in one of the few countries where medical marijuana is legal nationwide and where licensed operators can mass-produce it.

In the US, the drug remains illegal at the federal level. Some 20 US states have legalised medical marijuana, but investors worry about the prospect, however remote, that the federal government may strike down those laws.

Although the US market is home to companies including Medical Marijuana and Cannabis Science, their northern counterparts are likely to benefit from greater legitimacy and legal clarity. Sources said much of the private equity investment in the Canadian industry had come from the US.

“Canada is one of the few countries anywhere where its citizens have a constitutionally protected right to access medical marijuana with a physician’s consent,” said Paul Rosen, the chief executive of PharmaCan, a holding company with large stakes in four producers.

Tweed Marijuana, which converted an old chocolate factory into a marijuana farm, led the pack by becoming the first publicly held Canadian company in the sector. Its April offering was oversubscribed within 15 minutes of being announced, sources said.

Inspired by Tweed, PharmaCan plans a listing in the next month or so. Producers Organigram, Aphria and Bedrocan expect to go public in the next three months, while CannMedica and others are looking at doing so.

Highlighting the industry’s mainstream allure, Tweed’s listing was led by two highly respected Bay Street firms, mid-sized investment bank GMP Securities and boutique adviser Jacob Securities.

Other banking firms involved in the sector include Dundee Securities, Bloom Burton, PowerOne Capital Markets, Jordan Capital Markets and Delavaco Group.

An April overhaul by regulator Health Canada has thrown the market open. More than 850 companies have applied for licences to produce the drug, and 13 have obtained them so far.

Analysts expect only a few major companies to remain standing a few years from now.

“The winners will be the ones that are going to have a strong brand, a strong customer acquisition strategy, and have the ability to scale up quickly,” said Jacob Securities analyst Khurram Malik.

Health Canada estimates the sector will grow tenfold in its first 10 years, reaching about 450 000 users and C$1.3bn in sales.

Malik says that is only half of the market’s potential because the same number of people already use medical marijuana through the black market and Health Canada’s measures will bring greater access and lower prices.

Indeed, a list of risk factors takes up about half of the 22 pages in Tweed’s latest quarterly filing.

Potential industry pitfalls include legal changes, resistance from home growers suing for the right to keep producing their own pot and physicians who are not convinced about the drug’s benefits.

Michael Krestell, the president of investment bank M Partners, says investors betting on the sector at this stage are looking for “high-risk, high-reward” opportunities. – Reuters