If Big Pharma Isn’t Nervous, It Should Be; Early Stage Cannabis Technologies…Potentially the Next GW Pharma
VANCOUVER, British Columbia, July 31, 2014 (GLOBE NEWSWIRE) — Deep in the brain, buried within the central nervous system as well as lymphatic tissues and organs throughout the body are cannabinoid receptors; patiently waiting to help address a myriad of diseases. With the advent of cannabis research and therapy development many patients will likely trigger them very soon.
Two known receptors in the Endocannabinoid system are CB1 and CB2. There is mounting evidence that there are many more. Simply put, this system of receptors is involved in dealing with a variety of physiological processes including appetite, pain-sensation, mood and memory.
Activating these receptors by introducing the appropriate drug based on a specific formula of cannabis, primarily utilizing Cannabidiol (CBD) and Tetrahydrocannabinol (THC) has already shown remarkable potential efficacy, albeit somewhat anecdotal, in the treatment of a host of afflictions ranging from cancer to epilepsy, glaucoma, MS, Tourette’s and even eczema.
To date there have been approximately 100 cannabinoids identified; each with the potential to be an integral component of a lower cost treatment; countering the expensive and frequently toxic Big Pharma drugs and therapies.
The current level of research and development of cannabis therapies is analogous to where the Internet was in the mid 1990’s. What is known is that the introduction of targeted phytocannabinoid formulations, such as those with CBD and THC, signal the body to make more endocannabinoids and open more cannabinoid receptors enhancing the body’s ability to fight pain and disease.
“At this point, we don’t actually know how many therapies are possible utilizing phytocompounds, but we suspect hundreds, if not thousands,” stated Craig Schneider, President and CEO of Cannabis Technologies (CAN: CSE, CANLF: OTCQB). “To that end, CAN has developed a proprietary Cannabinoid Drug Design Platform (CDP) to identify new bioactive compounds within the cannabis plant that interact with certain genes responsible for specific diseases.”
The poster stock in this Life Sciences sector is GW Pharmaceutical. The Company IPO’d at $8.90 in May 2013 and traded as high as $107 in 2014. When investors compare the metrics of peers GWPH and CAN, the case for the latter appears compelling.
While it would be easy to draw the usual David and Goliath analogy, in this case the participants, while competitors are really more peers, working toward the same therapeutic goals. And, as a result of the focused CDP development process, cannabis therapies can be on the market in 4-6 years versus 10-15 years as is the norm through the Big Pharma pathway.
GW currently trades at $87 has a market cap of $1.5 billion and had trailing twelve-month (ttm) revenues of $50 million, is virtually debt free and has approximately $163 million in cash. Cannabis Technologies trades at $0.37 is pre-revenue and has a market cap of $12 million with roughly $600k in cash. CAN shares have a 2014 high of $0.71 and low of $0.33.
GWPH market cap is 30 times revenue. Translating that multiple to eventual revenues to early stage CAN evidences compelling growth potential.
GWPH, as CAN, decided early on to dedicate R&D to therapy development and plant their respective flags firmly in Life Science space instead of the class of ‘Medical Marijuana’ companies with all the different connotations.
These companies are involved in serious and life saving science. There are others as well, including AbbVie, which makes the FDA approved chemotherapy nausea treatment Marinol, which is a synthetic formulation of THC. Valeant Pharmaceuticals produces Cesamet, which is a like treatment. The best known to investors is likely GW’s vapor delivered Sativex, used currently in 25 countries outside the US for treatment of the spasticity associated with MS. Sativex is currently in clinical trials for approval as a treatment of cancer pain.
CAN’s Schneider notes: “The media has categorized CAN as an early-stage GW Pharma, a comparison we welcome. We are currently entering Phase 1 trials for our glaucoma treatment CTI-085, which showed great therapeutic promise in pre-clinical trials relieving the ocular pressure associated. This initial therapy is much more, being a proof of concept of the ability of our CDP to identify specifically engineered treatments to deal with many debilitating and deadly diseases.”
For context, the $12 billion ocular disease market includes $5.7 billion for glaucoma.
Other drugs in development include GW’s Epidolex for the treatment of rare diseases as well as other compounds in clinical trials for treatment of autoimmune, diabetes and schizophrenia.
The key to therapy going forward is this specific engineering and the ability to replicate the compound for quality and consistency. Sativex is basically 50{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} CBD and 50{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} THC. The CBD component has the dual task of being the active ingredient as well as damping down the psychotropic effects of the THC. CBD comes from the hemp plant and has only trace THC.
As new cannabis drugs develop, individual formulations will be more therapy specific, have non-cannabis ingredients added and undergo stringent quality and consistency controls.
Big Pharma has a right to be nervous. Side effects from cannabis therapies are virtually non-existent, development costs are extremely low by comparison–$5 billion on average per Big Pharma drug—and companies like CAN are confident that as it progresses it can develop therapies in a period of 60-90 days instead of decades.
Part of the strategic engineering is not just how much of this and that goes into a compound. The key is to develop plants that produce the right material for each formulation. It is not inconceivable that if there were 500 cannabis therapies, there would be 500 different strains of cannabis plant as ‘feed stock’.
The label of Medical Marijuana companies, when referring to enterprises such as GW, CAN, AbbVie and Valeant, are the exception to what appears to be a wild west show at times. These are serious life science companies. To include them with the plethora of Medical Marijuana initiatives, whether junior mining companies looking for a new direction or those that feel simply growing generic marijuana is a sound business plan, many will likely fail or be swallowed.
Like the Internet of old where there are few survivors today from that era, the cannabis space will eventually be littered with casualties as it builds out. What is not in dispute, is that the efficacy of cannabis appears undeniable and therapy development will continue and likely speed up, building on early successes. GW and CAN will likely be among those to grow and prosper; a good thing for both shareholders and, more importantly, those millions of patients suffering from particularly nasty diseases and conditions.
Innovative science requires scientists. Rounding out CEO Craig Schneider’s 20 years of capital market and biopharmaceutical experience CAN has two world-class scientists. Dr. Sazzad Hossain Ph.D, M.Sc., Chief Science Officer, brings two decades of experience in new drug discovery and natural health product development. His practical experience includes senior scientist at the NRCC bringing and has generated over $500 million in revenue from therapies he has been involved in developing from the discovery to commercialization.
Key as well is the Company’s breeding, genetics and cultivation division led by Dr. Hyder Khoja, Ph.D., M.Sc., A.Ag. who brings 17 years of extensive research and business provenance in life sciences and business services.
Management has spoken frequently about addressing larger therapy markets including cancer, metabolic diseases and pain and inflammation. On par with GW, CAN has plans to produce medicines in-house initiated by its CDP technology, breeding and cultivation division and proprietary formula engineering. Even at this early stage, the Company is keenly aware of the need for not just the development of therapies but the ability to replicate each with strict quality and consistency.
Further adding to shareholder value is a patent pending for CAN’s CDP and a plan to protect IP by filing patents as therapies are developed.
If you are considering investing in the cannabis space, buy the science. Hype has a very short shelf life.
Legal Disclaimer/Disclosure: A fee has been paid for the production and distribution of this Report. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this article should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. Financial Press makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the authors only and are subject to change without notice. Financial Press assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this article and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this article.
Also, please note that republishing of this article in its entirety is permitted as long as attribution and a back link to FinancialPress.com are provided. Thank you.
CONTACT: Cannabis Technologies #350-409 Granville Street, Vancouver, BC Canada, V6C 1T2 Tel: 604.669.7207 Fax: 604.683.2506 info@cannabis-tech.com
- Published in Life Sciences, Medical Marijuana
Sirona, Bloom Burton makes anti-inflammatory compound
Mr. Howard Verrico reports
SIRONA BIOCHEM ANNOUNCES SUCCESSFUL SYNTHESIS OF ANTI-INFLAMMATORY COMPOUND FOR BLOOM BURTON & CO. JOINT VENTURE
Sirona Biochem Corp. has achieved the first batch of compound in the joint venture with Bloom Burton & Co. Compounds developed within the framework of the JV will be entering development in the areas of rare inflammatory and infectious diseases.
At present, there are unmet market needs in the areas of rare or neglected inflammatory diseases and bacterial resistance. Sirona and Bloom Burton are identifying and designing a library of compounds to address these substantial markets which combined reach nearly $2-billion (U.S.) each year globally. Sirona is responsible for the chemistry and Bloom Burton for the financing, clinical validation as well as the commercialization of the compounds.
“We could not be more pleased with the completion of the first synthetic compounds. This is a major milestone in the development of our portfolio for rare and neglected diseases,” said Howard Verrico, chief executive officer of Sirona Biochem. “The team at Bloom Burton will plan for the testing of our new anti-inflammatory compounds in the near future. In the next several months, we will be working on the development of further compounds for our JV with Bloom Burton as planned.”
© 2014 Canjex Publishing Ltd. All rights reserved.
- Published in Life Sciences
Oxford Resources Corporate Update
Vancouver, BC – July 30, 2014: Oxford Resources Inc. (OXI — TSX.V) (“Oxford” or the “Company”) announces that it has settled $30,357.60 in debt owed to a certain creditor of the Company by the issuance of 607,152 common shares at a deemed price of $0.05 per share with a hold period expiring November 25, 2014.
Additionally, the Company has recently converted it’s 20{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} working interest in the Ike Property (formerly the Tasco property) which was recently optioned to Amarc Resources Ltd. to a 1{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} NSR for the payment of $50,000.00 received on June 4, 2014.
The Company intends to focus its efforts on a work program proposal from Apex on the Company’s 100{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} owned Aley Creek Niobium property.
About the Aley Creek niobium property
Oxford’s Aley Creek property comprises eight mineral claims in two separate blocks (North and South) totalling over 3,360 hectares within the Omineca mining division, approximately 140 kilometres north of Mackenzie, B.C., Canada.
The Aley carbonatite, which hosts Taseko’s Aley niobium deposit, is associated with a prominent regional airborne magnetic high anomaly within rocks of the Ordovician Kechika formation. Rock and soil samples collected by APEX during 2013 encountered anomalous niobium values in Kechika formation rocks on the Aley Creek North claim block, indicating the potential for rare earth element (REE) bearing lamprophyre and carbonatite occurrences within the property.
Within the Aley Creek South claim block, 6.5 kilometres south of Taseko’s Aley niobium deposit, a distinct two-by-two-kilometre magnetic anomaly occurs. Based on similarities between the Aley Creek South anomaly and the magnetic signature of the Aley niobium deposit there is the potential for the existence of an undiscovered carbonatite intrusion within Oxford’s claims. Currently no carbonatite occurrences are known on the Aley Creek South claim block and no known surface geological work or diamond drilling has occurred within the claims.
APEX is currently in the process of planning a follow-up program including but not limited to, a detailed ground magnetic survey to better define the geometry of the airborne anomaly, as well as follow-up rock and soil sampling, and geological mapping to identify the presence of carbonatite dikes or fenitized host rock suggestive of a proximal carbonatite intrusion. Contingent on the results of the planned phase one exploration, diamond drill testing of the Aley Creek South magnetic anomaly may be warranted.
ON BEHALF OF THE BOARD OF DIRECTORS
OXFORD RESOURCES INC.
Mitchell Adam
President, Director
Tel: 604-343-4546
mitch@mgacapital.net
www.oxfordres.com
- Published in Mining
Argex issues Invitations to Bid to global EPC firms
MONTREAL, July 29, 2014 /CNW Telbec/ – Argex Titanium Inc. (TSX: RGX) (“Argex” or the “Company”) announced today that it has issued Invitations to Bid (ITBs) to three global Engineering-Construction (E/C) firms for the construction of Argex’s first industrial scale 50,000 tonne per annum Titanium Dioxide (TiO2) plant. The pre-qualified E/C firms have each successfully executed Engineering, Procurement and Construction (EPC) projects for chemical and industrial facilities, from front end engineering design stage to successful completion including commissioning of these facilities.
Argex has selected Salaberry-de-Valleyfield, Quebec, for the location of its plant. The plant will be located near the Port of Valleyfield and an existing comprehensive railway infrastructure conveniently linking Argex’s future plant to suppliers and customers in the North American market.
About Argex Titanium Inc.
ARGEX Titanium Inc. is a near-term producer of Titanium Dioxide (TiO2) pigment. With a primary goal of advancing rapidly towards production, Argex has adopted a simple and low-risk strategy for the scale-up of its proprietary process.
Forward-Looking Statements
This news release contains statements that may constitute “forward-looking information” or “forward-looking statements” within the meaning of applicable Canadian securities legislation. Forward-looking information and statements may include, among others, statements regarding future plans, costs, objectives or performance of Argex, or the assumptions underlying any of the foregoing. In this news release, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. No assurance can be given that any events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits Argex will derive. Forward-looking statements and information are based on information available at the time and/or management’s good-faith belief with respect to future events and are subject to known or unknown risks, uncertainties, assumptions and other unpredictable factors, many of which are beyond Argex’s control. These risks, uncertainties and assumptions include, but are not limited to, those described under “Risk Factors” in Argex’s Annual Information Form for the fiscal year ended December 31, 2013, which is available on SEDAR at www.sedar.com; they could cause actual events or results to differ materially from those projected in any forward-looking statements. Argex does not intend, nor does Argex undertake any obligation, to update or revise any forward-looking information or statements contained in this news release to reflect subsequent information, events or circumstances or otherwise, except if required by applicable laws.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Argex Titanium Inc.
- Published in Mining
SIRONA ARRANGES CONVERTIBLE LOANS
Sirona Biochem Corp. (SBM.V) has entered into convertible loan agreements with arm’s-length parties for the purposes of renewing current outstanding loans in the total amount of $670,000. The original loans were taken out in late 2012 and became due this quarter.
The new loans are secured by promissory notes held by each lender, bear interest at a rate of 12 per cent per annum and are due 18 months from the date of advance of each loan or such other mutually agreed upon date. Interest is payable on a quarterly basis at the end of each calendar quarter. Demand payment of each loan and accrued interest thereon may be made after one year from the date of advance of such loan.
Each lender has the right to elect, at its sole discretion, to convert all or a portion of its loan, including accrued interest, at any time during the term of such loan into common shares of the company at a price of 12 cents per share.
Any shares issued as a result of the conversion of the loans will be subject to applicable regulatory hold periods expiring four months and one day from the date of issue of such shares.
The loan agreements and all securities proposed to be issued thereunder as a result of conversion are subject to the acceptance of the TSX Venture Exchange.
We seek Safe Harbor.
- Published in Life Sciences
New Research Shows How Marijuana Compound Can Reduce Tumor Growth In Cancer Patients
Scientists have long known that compounds derived from marijuana have some cancer fighting properties, but a recent discovery demonstrates how exactly one compound may fight tumors.
Published in the Journal of Biological Chemistry, the research reveals two previously unknown “signaling platforms” in cells that allow THC, the psychoactive ingredient in cannabis known for producing the “high” sensation, to shrink some cancerous tumors.
“THC, the major active component of marijuana, has anti-cancer properties,” Dr. Peter McCormick, a researcher from University of East Anglia in England and co-author of the study, said in a statement. “This compound is known to act through a specific family of cell receptors called cannabinoid receptors. However, it was unclear which of these receptors were responsible for the anti-tumor effects of THC.”
When the researchers applied THC to tumors induced in mice using human breast cancer cells, the interaction between two cannabinoid cell receptors — CB2 and GPR55 — were responsible for THC’s anti-tumor benefits.
“Our findings help explain some of the well-known but still poorly understood effects of THC at low and high doses on tumor growth,” McCormick added. He emphasized in an email to The Huffington Post that dosage is critical to outcome, since the wrong protocol can sometimes increase tumor growth, he said.
“So, the ideal would be either the purified THC in an effective dose provided by a health care provider to reduce the known cognitive side effects and still deliver the appropriate reduction in tumor growth, or a synthetic homolog that provides the same effects,” McCormack said. He added that the research team didn’t screen all tumors and that some types may not respond to this treatment if they do not have compatible receptors expressed.
The endocannabinoid (EC) system is a communications network in the brain and body that is involved in a number of physiological processes that affect a person’s feelings, motor skills and memory. The EC system is responsive to the body’s naturally-occurring endocannabinoids as well as the cannabinoids found in marijuana, like THC. And scientists have found that the CB2 receptor specifically is sensitive to the therapeutic properties of marijuana-based compounds.
This isn’t the first time scientists have found that marijuana can be effective at fighting cancer. Previous studies have found that THC cuts tumor growth in lung cancer in half and also prohibited the cancer from spreading. THC has also been shown to induce death in brain cancer cells.
But THC is just one of many cannabinoids found in marijuana. Others, like CBD, a non-toxic, non-psychoactive chemical compound in the cannabis plant, has also shown promise in the battle against cancer. Researchers in California found that CBD could stop metastasis in many kinds of aggressive cancer.
In the United Kingdom, a team of scientists found that six different purified cannabinoids — CBD (Cannabidiol), CBDA (Cannabidiolic acid), CBG (Cannbigerol), CBGA (Cannabigerolic acid), CBGV (Cannabigevarin) and CBGVA (Cannabigevaric acid) — showed a wide range of therapeutic qualities that “target and switch off” pathways that allow cancers to grow.
A number of studies in recent years have demonstrated the medical potential of pot beyond cancer treatment. Purified forms of cannabis has been tied to better blood sugar control, and may help slow the spread of HIV. Legalization of the plant for medical purposes may even lead to lower suicide rates.
Currently, the federal government classifies the plant as one of the “most dangerous” substances alongside heroin and LSD with “no currently accepted medical use.”
McCormack told HuffPost that the researchers are moving toward clinical trials but that it would be at least five years before those would begin.
- Published in Blog
Marijuana, now officially more expensive then gold
Shatter hash and other similar concentrates make up one of the fastest-growing facets of Colorado’s bustling marijuana industry — but shatter, which can be used for dabbing, is also still quite controversial.
Shatter can be dangerous to produce, as many have learned after blowing up their garages or hotel rooms. And it’s also an incredibly potent method of ingesting THC — hardly ideal for the inexperienced pot connoisseur.
Just how popular is shatter?
“At this point gold costs $43.50 a gram,” said Tucker Eldridge, master grower at Nature’s Herbs & Wellness, “and shatter costs $40 a gram off the shelf for medical patients. You add another 30{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} tax to that, and it ends up costing more than gold.”
Shatter can sell recreationally for $60-$90 a gram, Eldridge said in the above video, by Denver Post photographer Joe Amon.
So why do some prefer shatter to flower or edibles?
“If you’re looking for something that’s significantly more potent, has significantly less adulterant plant matter, which is what combusts and produces carcinogens, then shatter hash is going to be more your cup of tea,” Eldridge said. “If you’re not looking for something that’s that potent it can be almost psychoactive.”
- Published in Blog
HIGHMARK ENTERS INTO A NON-BINDING LOI WITH A CORPORATION IN THE FINAL STAGES OF BECOMING A LICENSED PRODUCER OF MARIJUANA
Highmark Marketing Inc. has entered into a non-binding letter of intent with a corporation to acquire 51 per cent of its authorized share capital.
The Corporation is the final stages of their application to Health Canada to become a licensed producer of marijuana under the Marihuana for Medical Purposes Regulations (the “MMPR”). The intended facility is 16,000 square feet and the Corporation has been granted approval from Health Canada to build out the facility (“Ready to Build Letter”). After completing the construction of the facility as per the Ready to Build Letter the Corporation will schedule an inspection by Health Canada, and upon receiving approval the Corporation would then be granted a License to Produce.
Highmark and the Corporation are now negotiating the terms of the long form agreement, and pursuant to the Letter Highmark will issue 30,000 common shares to the Corporation.
The estimated cost of upgrading the facility to comply with the requirements set out in Health Canada’s Ready to Build letter is $2,000,000. The long form agreement will contain a payment schedule whereby Highmark will provide the necessary financing by way of a convertible loan which will convert, at Highmark’s option, into stock of the Corporation that will be equal to 51{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} of the total issued and outstanding shares of every class of the Corporation. Highmark intends to fund its commitments under the long form agreement with Corporation by way of an equity financing in the amount of $2,000,000.
The Corporation cannot legally become a producer under the MMPR until it has been granted a license, and it is not known if and when the Corporation will obtain a license. The key milestones to obtaining a license include the completion of upgrades to the facility as per the Ready to Build letter, approval from Health Canada to produce marijuana upon inspection of the facility, and finally approval to distribute the product to patients.
The Corporation has a management team well suited to the production of marijuana. One Co-Founder holds a Master Grower designation and was a producer of marijuana in the U.S.A. under a state sanctioned program, and he has more than 20 years’ experience working in the agricultural sector. Another Co-Founder has been a Health Canada designated grower of marijuana for 3 years, and another key member of the management team holds a Bachelor’s Degree in Economics and has a successful track record of managing a labour force of up to 40 employees.
The Corporation has presented Highmark a comprehensive five-year business plan in which it forecasts to reach profitability in the second year of operations after receiving Health Canada approval to become Licensed Producer. In that second year of operations, the Corporation is planning on sales of up to $472,000 per month, and obtaining $4,720,000 in annual sales, with a corresponding net income of $2,225,000.
Highmark intends on providing new information about the Corporation, and its assets when Due Dilligence permits, and will additionally update the status of the long form agreement when possible.
We seek Safe Harbor.
© 2014 Canjex Publishing Ltd. All rights reserved.
- Published in Medical Marijuana
The Pursuit of Social Business Excellence
If you are not a social business you are losing market share. If you are not a social business, you are also losing the opportunity to recruit and retain the very best talent in the market. In this social and mobile era, customers have choices and voices that are scaled and amplified like never before. For businesses to truly connect with their employees and customers they must be able to listen, respond, engage, and add value in a timely and robust manner. But, to truly connect we must do so by way of a personalized and mutually beneficial approach; and in order to do this well, we must embrace social collaboration.
By reading the Pursuit of Social Business Excellence you will be able to 1) identify foundational success elements of a social business; 2) follow a prioritized and guided step by step transformation process; 3) measure progress and identify self-reinforcing confirmation points. 4) increase top line revenue, profit, employee retention and customer loyalty.
Afshar and Martin are award winning enterprise technology and management executives who have unlocked the value of social business transformation to drive industry leading growth, customer loyalty and profitability. In 2011, Afshar pioneered and led the efforts to drive the innovation behind enterprise networking industries first social machines. In 2012 Afshar and Martin s company, Enterasys Networks, was recognized as one of Boston’s best places to work and was also awarded for top services-collaboration innovation, best contact center and next generation quality leadership.
The authors of this book are highly social individuals who sincerely appreciate and value your feedback. Please feel free to connect with them on Twitter: @ValaAfshar and @Brad_W_Martin
- Published in Business
The Securities and Exchange Commission last week officially stopped one of the problems that created the financial crisis of 2008.
It was way too late to fix the problems that surfaced six years ago — the fact that it took this long and that the rules were adopted by a split vote of commissioners shows how hard real reform is — but the real question is whether it will stop the financial crisis of 2018, 2024 or whenever the next generational catastrophe hits.
If you’re an investor in money-market mutual funds — the focus of the new rules — you most likely won’t notice any change; as a taxpayer, the potential savings if these regulations work could be in the billions of dollars.
Until the market stress-tests the rules, however, all anyone can do is hope and assume potential problems are eased.
Money funds, which hold more than $2.5 trillion in assets, are supposed to be boring, pain-free investments, a safe place to park cash, which the funds invest in short-term debt instruments of the government and/or some companies. Shares are priced at a constant $1; any interest the fund earns that would otherwise raise the price gets shaved off and reinvested to keep the value stable. If the fund were to lose money — a situation that would typically result in the share price dropping — the fund sponsor typically steps in to make sure that the fund does not “break the buck.”
In 2008, the nation’s oldest and largest money fund, Reserve Primary, broke the buck in the wake of the Lehman Brothers bankruptcy. The $64 billion fund was stuck holding $785 million in Lehman paper; the news started a run of investors fleeing money funds, a dangerously destabilizing event for the entire economy.
Investors who stuck with Reserve Primary — and you can include my own mother in that group — ultimately lost about three cents on the dollar. That’s disheartening but not a big deal when you consider that the fund had paid well-above-average returns for years, meaning that most investors (again, my mother included) did better over the entire time they were in the failed Reserve fund than they would have done in an average bank savings account or certificate of deposit.
The rules changes were not so much about looking out for individual consumers as about curtailing global economic chaos; a smoothly functioning money-market system is, effectively, the foundation of the day-to-day markets.
In 2008, the Federal Reserve and the Treasury backstopped money funds, effectively providing the kind of deposit insurance that’s normally reserved only for bank deposits. That’s not a position the authorities ever want to be in again.
The SEC in 2010 adopted rules requiring greater transparency and forcing money funds to invest in more liquid assets with higher credit ratings and shorter maturities. Officials wanted more; the fund industry didn’t.
Fast-forward to last week, when the SEC’s 800-plus pages of new rules finally ended the threat of an event long-past, without guaranteeing that it can’t happen again.
The biggest step taken to prevent future crises is a “floating net asset value” requirement for institutional prime money funds. Instead of trading at a constant $1, if the fund’s underlying assets suffer a loss, it will show up in the share price, which they will now trade out four decimal places. This reduces what’s called “first-mover advantage,” which is why people rushed the exits in 2008, hoping to get out at $1 despite knowing their shares were worth a few pennies less.
“Government” or “retail” money funds — the ones ordinary investors use — aren’t covered by this provision; they’re keeping the stable $1 value.
The change you might see in your accounts, therefore, is “liquidity gates” and redemption fees.
In times of stress – when a fund’s weekly liquidity falls below certain key levels – a fund’s directors have the ability to halt redemption activity for up to 10 days, if that kind of relief is in the best interest of shareholders. The board also can impose a redemption fee of up to 2{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}.
The reaction to the rules was as expected, with consumer advocates wishing they had somehow gotten more, while the fund companies felt they had done enough in 2010.
“All [regulators] really can do is prevent some of the dominos from falling,” said Peter Crane, president of Crane Data, which tracks the money fund business. “When you have an occurrence like 2008 when a gorilla knocks over the table, it’s questionable whether these changes will really work.”
For the time being, money fund yields are so low — average yields on retail accounts are about 0.02 percent, according to Crane — that investors are looking at roughly zero return while also taking virtually zero risk. Money funds are a convenient parking place for cash; potential troubles won’t surface until interest rates rise.
“We know the rules work for right now,” said Crane. “We’ll find out if they work for what’s next when they see what’s next.”
- Published in Blog