Marijuana News Today
The marijuana news today is a flurry of activity, with many top pot stocks making moves while we examine the thriving marijuana black market in spite of legalization.
First, we’ll hop over to Michigan, which serves as a microcosm of the larger marijuana black market issue. Despite recreational marijuana legalization in that state, there remains a healthy—some would say booming—black market for pot.
This is also true in Canada and in many U.S. states, including California. Marijuana legalization was supposed to take money out of the hands of black market dealers and put it in the hands of legitimate businesses (not to mention government coffers via taxation)—so what gives?
Frankly, it’s a problem of the government’s own design.
In Michigan, for instance, fees, licensing issues, shifting regulations, and all manner of other government impositions have made legal pot more expensive and, at times, less available than illegal pot. (Source: “Why marijuana sales on the black market are blooming in Michigan after legalization,” Detroit Metro Times, February 26, 2019.)
This is obviously the opposite of what marijuana legalization was supposed to accomplish.
In some cases, the introduction of legal pot has proved a boon to the illicit market due to cops’ overall laxer position on illegal weed. It has also provided a competitor that drives down black market prices, making the black market more attractive to consumers.
After all, why buy more expensive legal weed if you can get cheaper products and have little to fear from the police?
Again, this is not contained in Michigan. Canada and California are two far larger markets that are encountering much of the same problem. Both have high taxes, high regulatory standards, and high fees that have pushed some back toward the black market despite having a legal alternative.
While you don’t want the government asleep at the wheel as the legal marijuana industry develops and matures, you also don’t want it stifling growth through onerous regulations.
I’m as happy as the next person that governments are able to eke out more revenue from the pot trade and put it toward the collective good, but by overtaxing and over-regulating, we’re seeing legal sales underperform. At the end of the day, that’s only going to decrease the overall tax revenue, help fuel the illicit trade, and also hurt pot stocks.
After all, marijuana stocks’ fortunes are tied to how much pot they can sell. If people are turning away from the legal market, that means a whole lot of lost revenue. That will impact the next quarterly report and harm marijuana stocks moving forward.
There are simple enough solutions. These taxes need not be eliminated, but they do need to be sensible. As the legal cannabis industry grows, we’ll hopefully see the illicit trade diminish as governments find the sweet spot.
The marijuana news today, as mentioned, is a hotbed of activity, even if the pot stock market has been unimpressive.
The first and perhaps biggest piece of news is the acquisition of Gaia Pharm Lda. by Aurora Cannabis Inc (NYSE:ACB).
Aurora will assume a 51% stake in the Portuguese marijuana company. The deal will see the construction of a new facility that is expected to be completed in 2020. It will be built in phases, with Phase 1 seeing 4,409 pounds (2,000 kilograms) per annum produced, doubling to 8,818 pounds (4,000 kilograms) by Phase 2. (Source: “Aurora Cannabis Expands into Portugal, Enhancing European Market Leadership,” Cision, February 26, 2019.)
The cost of the deal has yet to be disclosed.
ACB stock remained flat to start the day. Over the past five days, it has jumped by nearly nine percent.
The acquisition is very much in keeping with Aurora’s 2018 strategy: buy, buy, buy. Aurora stock has a reputation as an acquisition machine, and 2019 is only solidifying that moniker.
While I’m very much in support of international expansion—especially in a lucrative eurozone market—these acquisitions rarely yield short-term gains. While in the long run having a hold in Portugal and the eurozone could pay huge dividends, I wouldn’t expect ACB stock to see a swell in value any time soon.
Aphria Inc (NYSE:APHA) also made headlines after it announced a license agreement with Manna Molecular Science, LLC. Manna produces cannabis patches. (Source: “Aphria Signs Worldwide License Agreement with Manna Molecular Science to Develop State-Of-The-Art Cannabis Transdermal Patches,” Aphria Inc, February 26, 2019.)
APHA stock fell by about 1.5% in early-morning trading today and is about even over the past five days.
As I’ve said time and again, Aphria is a stock we should remain skeptical of. Despite the deal tht the company won today, APHA stock is still unable to turn that goodwill into solid prolonged gains.
This is a story we’ve seen repeated time and again in the Aphria stock saga. Too many issues have plagued the company since 2018—from accusations of misconduct to overvaluation—that have made it difficult to justify an investment in Aphria.
That doesn’t mean the stock is irredeemable, but it does mean that investors ought to approach the company with caution.
Despite being a very busy day in marijuana news, most of the market has remained flat or fallen, Tilray Inc (NASDAQ:TLRY) being an exception.
While not marking huge gains, TLRY stock gained about 1.5% this morning. Tilray stock is down about 1.5% over the past five days.
Tilray stock has still been one of the weaker performers to this year, despite closing 2018 with a rally.
The gains today don’t seem to be tied to anything other than perhaps a response to the slight downturn the company experienced over the past few days.
ACB, APHA, and TLRY Stock Performances
The performances of ACB stock (black line), APHA stock (blue line), and TLRY stock (red line) over the past week are seen on the chart below:
Chart courtesy of StockCharts.com
The marijuana news today was alive with activity—not of all it great. Or at least, not as far as the pot stock market was concerned.
Government regulation needs to be implemented more reasonably if it wants to deter the black market.
ACB stock needs something other than acquisitions to help boost its share price; a partnership is something that could really get the stock moving.
APHA stock, on the flip side, needs a string of multiple wins and prolonged gains to regain trust.