Not long ago, a Member of Pat McKeough’s Inner Circle asked him about a Canadian pharmaceutical stock that’s aiming for a breakthrough in marijuana.
CTT Pharmaceutical Holdings is developing a special wafer to deliver smoke-free medical marijuana. It has an agreement with one of Canada’s three largest marijuana growers, Aurora Cannabis, to develop, make and market its wafers globally. The company also hopes to deliver a variety of opioids with its wafers. Its products are still in the testing stage, notes Pat, and with no revenue yet, the company entails huge risk. .
Q Hello Pat. What do you think of CTT Pharmaceutical Holdings? It recently went up, but I am unsure if it’s safe to buy now. Thank you.
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A: CTT PHARMACEUTICAL HOLDINGS, (symbol CTTH on the U.S over-the-counter bulletin board; www.cttpharmaceuticals.com) is an Ontario-based developer of fast-dissolving film wafers that users take orally to get a dose-specific, smoke-free delivery of medical cannabis or another active ingredient.
The company’s share price has shot up since its announcement on May 22, 2018, that Aurora Cannabis, symbol ACB on Toronto, now has the option to acquire a 9.14% stake in the company.
Aurora is investing in CTT by way of a $1 million U.S. 5% convertible debenture (essentially, an unsecured bond). It can convert this bond into CTT common shares at a price of $0.268 a share, for a 9.14% interest. The agreement also includes the issue of warrants that would let Aurora further increase that stake to 42.5% of CTT’s outstanding shares.
Under the agreement, CTT will give Aurora exclusive rights to develop, make and market its oral thin-film wafers globally. The companies will work jointly towards obtaining Health Canada’s approval to introduce those products. They’ll also work on winning the same kind of approval in other jurisdictions.
The debentures will come to maturity three years from their date of issue and will pay 5.0% interest. At any point before that maturity date, Aurora can choose to convert them into CTT common shares at a price of $0.35 per common share.
Under the terms of its initial investment, Aurora has the right to appoint one member to CTT’s board of directors. Upon achieving 42.5% ownership, it would also have the right to appoint a second board member.
CTT’s oral fast-dissolving drug delivery systems consist of edible wafers that dissolve without water and within a few seconds after placement in the mouth. The company says its drug delivery system lets medication enter the bloodstream quickly and is convenient and discrete. It can also be administered anywhere.
CTT says that a faster absorption rate is achieved over other drug delivery methods because the mouth contains a very thin mucous membrane letting a drug pass quickly into the many blood vessels underneath. The company promotes the film wafers—and this medication delivery system—as free from bitter tastes and less likely to degrade the medication because it bypasses the stomach, and its digestive juices. That may allow for lower dosages. Patient compliance is also improved, especially for those who have a fear of choking or difficulty swallowing. That includes children, the elderly and the disabled.
In addition to marijuana, CTT hopes to use the wafers to release a variety of opioids such as morphine, fentanyl and codeine.
The company’s products are still in the testing stage, and it has yet to generate any revenue. As well, the medical benefits of marijuana haven’t been full proven. Final regulations around the cannabis industry in Canada, at least, are also still in development.
The deal lets Aurora buy into CTT through a debenture that pays it interest—other investors will not receive the same cash flow. Aurora can also buy shares of CTT way below today’s market price—and only if they choose to.
Shares of CTT may move higher as momentum investors look to jump in on the latest hot marijuana stock. However, this early-stage company entails huge risk.
Inner Circle recommendation: We don’t recommend shares of CTT Pharmaceutical Holdings or Aurora Cannabis.
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