New Pot Stocks to Watch as Canada’s Best Hit the Market

Four new pot stocks to watch have just starting trading, all hailing from our neighbor to the North.

That's because a recent policy change in Canada has legitimized the cannabis business - a market that's expected to generate $3.4 billion a year in taxable sales over the next decade, according to government estimates.

You see, in 2000, a Canadian court ruled that medical marijuana should be made available to approved patients. From that ruling, a makeshift system was setup in which the government sold directly to consumers, but individuals were also allowed to grow for their own purposes and even set up small operations.

The result was a chaotic, near-impossible environment for law enforcement officials to effectively work within. It prompted the Canadian government (via Health Canada, the country's federal health agency) to move to a federally-regulated system.

In June 2013, the Canadian government announced that the medical marijuana market would be privatized, and companies could apply for production licenses and sell directly to patients.

Starting April 1 of this year, businesses were required to apply for a federal license to grow and sell marijuana. Now law enforcement officials can easily identify and shut down unlicensed growers - and legitimate government-approved producers can thrive.

Between June 2013 and February 2014, 454 companies applied to Health Canada for the coveted licenses. According to federal records, an average of 25 new companies apply each week. The approval process involves site examinations, and extensive background and security checks.

Those who pass muster are able to sell to patients seeking medical marijuana - a massively growing population that Health Canada estimates will reach 400,000 over the next decade with 25% growth year over year.

"It's gone from non-existent in the legitimate market to one that could be potentially worth several billion dollars in a span of 12 to 24 months," Toronto-based Jacob Securities Inc. co-head of research Khurram Malik said to Financial Post in July.

Right now, only 13 producers have won federal permits:

• Bedrocan Canada Inc.
• Canna Farms Ltd.
• CanniMed Ltd.
• Delta 9 Bio-Tech Inc.
• In The Zone Produce Ltd.
• Mettrum Ltd.
• MedReleaf Corp.
• OrganiGram Inc.
• The Peace Naturals Project Inc.
• ThunderBird Biomedical Inc.
• Tilray
• Tweed Inc.
• Whistler Medical Marijuana Corp.

Of these 13, three have recently hit the market as publicly traded entities, and a fourth has plans to IPO in September.

"There is a real industry here that is emerging from the flurry of activity, and if you can find those companies, I think the opportunity for investors is tremendous," Paul Rosen, chief executive officer of marijuana investing firm PharmaCan Capital, said to The Globe and Mail on Aug. 16.

Canadian pot stocks could prove less risky, more legitimate options for investors than pot stocks traded in U.S. exchanges. That's because in the United States, pot is still illegal under federal law, creating an uncertain web of state-specific rules and regulations. Additionally, many medical marijuana firms are listed on the over-the-counter (OTC) market, which is less regulated than Canada's TSX Venture Exchange.

"People talk about the Colorado model; people talk about the Washington model. I think someday they'll talk about the Canada model," marijuana private equity fund Privateer Holdings CEO Brendan Kennedy said to The New York Times on May 24. "By creating a tightly regulated federal system, by creating a federal license, by making it difficult to navigate in and capital-intensive, Canada has attracted a different kind of player into this industry."

Here are the four new pot stocks that've gotten a head start in the burgeoning Canadian cannabis market...