Cannabix Technologies Inc.’s (CSE:BLO) (OTC PINK:BLOZF) recent patent filings for a cannabis-based Ignition Interlock Device have investors salivating. There is a lot of financial potential in the new technology. Stock prices rose almost 50 percent on the news in early November, from $0.45 a share to $0.70 a share. Over 1 million shares traded during that time.
Legalization hits Canada come July 2018, and it is making its way across the U.S. as well. Governments are enacting regulatory frameworks to handle the new realities of legalized cannabis. And law enforcement wants reliable technologies to keep impaired drivers off the streets. Investors see big dividends if Cannabix brings the first Marijuana Breathalyzer to market.
Cannabis Stocks Ancillary Market
Many regard cannabis stock as the plant itself. Scores of companies have popped up over the past few years in the recreational and medical marijuana spaces. In Canada alone, the pot industry is shaping up to be a $4 billion market. But companies like Cannabix and competitor Hound Labs are carving out space in the ancillary market, hoping to cash in on lucrative contracts from local governments.
“We expect this same winner-take-all phenomenon to take place in the cannabis breathalyzer space,” wrote crowd-sourced financial site Seeking Alpha. “[It is] due to the long-term contracts awarded by governments to companies that provide products to law enforcement agencies and police departments.”
Investors are also betting on long-term government contracts. Months before Cannabix achieved newfound stock market glory, Hound Labs courted big money and more prominent names. In May the company scored an $8.1 Million Series B investment from Benchmark, a San Francisco based venture capital firm with a history of backing winners like Uber and Yelp. Television producer Dick Wolf, creator of the long-running show Law & Order (and its myriad of spin-offs), is an investor as well. Some believe it is not too far-fetched to predict a product placement in the series somewhere down the line.
Comparing The Two Products
Cannabix Technologies device works by detecting the level of THC molecules. According to their website, Cannabix is working on making their breathalyzer detect recent use of THC, within the two-hour mark. They are working with the Yost Research Group at the University of Florida with an exclusive license of one of Yost’s patents.
Hound Labs technology is currently patent-pending. The company uses what it calls a “proprietary approach,” saving breath samples for future analysis. Both companies devices are still in the testing phases with release dates expected within the next six to twelve months.
Their business models are slightly different because Hound Labs is a U.S. company while Cannabix is from Canada. As others have written before, if each firm wins the market share in their own country, Hound Labs will be in a much better position purely based on size. Fifty-five million people live in states where marijuana is legal in the U.S. There are 37 million people in all of Canada.
“It's important that investors in Cannabix realize that there's competition out there. Yes, the companies are fighting for what will one day be a near monopoly,” Seeking Alpha wrote, “but until then it's an all-out battle to be best and first.”
“We Know It Works”
Investors may want to step back from all of the excitement to examine the future of marijuana breathalyzers. For one, both of these products have been in the testing phase for years, with no real sign of being ready for field use. And more importantly, scientists and law enforcement officials alike still don’t know exactly how to determine marijuana impairment.
Once THC enters the blood, whether, through smoking or ingesting marijuana, levels go up and down over the next few hours. More difficult is the fact that THC stays in the body’s fat cells for weeks, even as the psychoactive effects have worn off. A functionally sober person can test positive for the presence of THC. Just because the substance is there, does not mean the person is impaired.
“There’s a little bit of hype,” retired Los Angeles County Sheriff deputy Nick Morrow told Scientific American. “Maybe those devices aren’t ready for prime time yet, but everybody wants to get the patents. As far as having something that really works, defense and prosecutors can agree—the science is not there yet.”
Hound Labs believes it has figured out the problem. The company says it has successfully tested the device in the field. They claim their device tests for active THC in a person's breath and measures the amount of THC in picograms. It can also detect marijuana that is ingested, such as from edibles, not just smoked.
Cannabix is putting out the same message. "We know it works," Dr. Bruce Goldberger, science adviser to the company told CNN.
Right now investors in both companies would be wise to be cautious. While the potential benefits of betting on the right horse in this race are tremendous, at this point, the technology is not advanced enough to be worthwhile. Legalization has brought about new fears of impaired drivers wreaking havoc on the road, and local governments have money to spend - which is usually a good sign for investors. But until one of these companies can bring a functioning model to the market, investors should proceed with caution.
“There’s a lot that’s not known, so there are a lot of studies that can be done,” Associate Professor of Laboratory Medicine at the University of California San Francisco Kara Lynch was quoted as saying in marketplace.org. That statement holds true for the product, as well as for the stocks.