Edible Marijuana Legalization in Canada: Could This Help Turn Marijuana Stocks Around?

Can Edible Marijuana Legalization in Canada Save Marijuana Stocks
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Marijuana Edibles in Canada

One of the major events on the horizon for the marijuana industry is that, before the end of the year, we’re going to see a whole new set of marijuana products be made available legally to the Canadian public: namely, edibles.

While Canada legalized some marijuana products federally last October, edibles are still technically illegal (although they aren’t exactly hard to find on the gray and black markets). But this coming December could see another huge run for marijuana stocks.

I’ve long anticipated edible legalization in Canada because edibles represent an intriguing segment of the market.

After all, smoking carries with it a whole set of stigmas that first-time marijuana consumers might not want to wrestle with. Marijuana edibles packaged as gummies and brownies, however, are a lot less intimidating and may bring in a whole new group of users.

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Furthermore, you don’t need any apparatus to enjoy edible marijuana, just a mouth and a set of teeth. Most people are well equipped to handle that. Smoking, on the other hand, needs some manner of device through which to smoke the marijuana, not to mention there’s the smell and ash that need to be dealt with, on top of the aforementioned stigma surrounding smoking.

Edibles, therefore, offer a perfect product to entice first-time users to experience marijuana. As such, I could see them quickly becoming a huge part of the market for Canadian companies, boosting sales and thereby boosting share prices. Of course, that’s if the federal government (or other levels of government) don’t get in the way.

Some marijuana execs are concerned that overregulation—a problem that already plagues the Canadian marijuana market—will similarly stymie growth in the edible sector.

“I think that you need to build your base first and it’s really difficult with these advertising restrictions and plain packaging to build a global brand. If Canadians aren’t sure which brand is what, why would the rest of the world recognize them?” said Mike Gorenstein, CEO of Cronos Group Inc (NASDAQ:CRON). (Source: “Cronos Group CEO is upset over Health Canada’s new cannabis regulations,” Cantech Letter, July 6, 2019.)

Health Canada recently released regulations governing cannabis edibles, beverages, topicals, and extracts, all of which could be available for legal purchase as early as mid-December. The rules are similar to those on cigarettes, with heavy restrictions on labeling, packaging, and advertising.

I wrote a while back that this could become a major conflict in the marijuana industry. If weed is considered akin to cigarettes, that will dramatically handcuff the advertising opportunities available to marijuana companies, and therefore potentially hurt sales.

On the flip side, if pot is instead treated more like alcohol, flashy labeling and funky commercials could be hitting a television set near you sometime soon, offering the latest in marijuana edibles.

But at least for now, it appears that Canada is taking the over-cautious approach and putting in a number of stringent restrictions on marijuana advertising. This is an especially silly move, considering that the marijuana black market continues to thrive, even in a time of legalization.

There also chemical limits placed on the products by Health Canada, something that, again, has drawn derision from some in the marijuana industry as being overly severe.

Whatever the case may be, marijuana companies are lining up to be leaders in the edible space.

Cronos Group is jostling to be the leader in the vape products market, a cause helped along by Altria Group Inc (NYSE:MO), the maker of the cigarette brand “Marlboro.” These restrictions on labeling, packaging, and advertising could hamper some of the company’s full potential, and that’s partly why Cronos Group’s CEO is speaking out on this topic.

But this goes beyond Cronos stock; this extends to the entire marijuana industry.

Edibles offer one of the best chances in 2019 to see a massive surge in marijuana stocks. Of course, other events like legalization in a new major market being proposed would have a bigger effect, but legalization of edibles in Canada is a predictable shift in the pot sector that is almost guaranteed to increase sales.

And much like we said post-legalization last year, the following quarterly reports will show strong gains in revenue as a whole new subset of products become freely available to the public. So marijuana investors ought to keep their eyes on how this all pans out.

Right now, things aren’t looking great for the marijuana industry as far as edible advertising goes, or at least not ideal. But that could change. If the marijuana industry is able to move a few politicians on these laws and change the regulations, that would go a long way toward increasing pot stock prices.

Similarly, Canada may reduce its regulations as time goes on, something I expect to happen in the non-edible marijuana market as well. After all, one of the big promises of pot legalization is that it will reduce the black market’s share of the marijuana trade.

Considering that the black market is still going strong in Canada, in part due to the much higher prices of legal weed (which is mainly due to taxes and regulations), governments in Canada may eventually come to their senses and give the pot trade a little more leeway.

Whatever happens though, edible legalization still represents a huge step forward for marijuana stocks, regardless of whether advertising is curtailed. Watch for pot stocks to strike big gains when the first post-edible legalization quarterly reports roll in.

Analyst Take

While not ideal, the marijuana edible legalization process in Canada is still going apace and will still help bolster pot stocks.

The question of how free marijuana companies will be to reach their potential in the market is entirely up to the government, but at the end of the day, marijuana stocks will still benefit greatly from a whole new range of legal products.