Why This Tiny Marijuana Stock Is Soaring 14% Today

What happened

After reporting that it has received a confirmation-of-readiness letter from Health Canada regarding its filing to become a licensed marijuana extracts producer under Canada's Access to Cannabis for Medical Purposes Regulations (ACMPR), shares in marijuana upstart Neptune Technologies (NASDAQ: NEPT) (TSX: NEPT) are jumping 14% at 2 p.m. EDT on Monday.

So what

Neptune Technologies is in the midst of a transformation that will leverage its 50-year track record in nutraceuticals to provide marijuana extraction solutions to the cannabis industry.

The company's receipt of the readiness letter will result in the company providing additional information to Health Canada that, if approved, will result in Neptune Technologies obtaining a marijuana production license.

In preparation for a possible license, Neptune Technologies sold its krill fish oil manufacturing business last year for $34 million. The company has already completed its $5 million phase 1 preparations at its Sherbrooke, QC, facility to extract 30,000 kg of cannabis oil, and its plans include an additional $5 million project that could more than triple its marijuana capacity to about 200,000 kg.

Now what

The company's nutraceuticals experience provides valuable insight into extraction techniques and delivery solutions, including soft gels and liquids, that has already attracted the attention of marijuana producers.

In February, it struck a deal to supply Tetra Bio-Pharma with purified cannabinoid oil products for pain, inflammation, and veterinary markets, and in June, it struck a multiyear agreement to supply cannabis extract to Canopy Growth (NYSE: CGC), one of the largest global marijuana producers. Canopy Growth has agreed to a fixed minimum supply agreement, and Neptune Technologies says it has "agreed upon commitments" and "projected opportunities" for 80% of its phase 1 production capacity.

Obtaining a license is critical to Neptune Technologies' plan to tap into the fast-growing marijuana market, but there's no telling exactly when that license could be awarded. Nevertheless, the company's management is targeting for commercial marijuana activities to begin this fiscal year, so we appear to be nearing the finish line in the application process.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.