Marijuana News Today
The pot stock market stumbling to start the week and the black market continuing to thrive in Massachusetts despite legalization in that state are the two main stories in the marijuana news today.
First, the Massachusetts marijuana problem.
As has happened many times before, higher legal weed prices and low supply have driven consumers to the black market. (Source: “Massachusetts legal pot sales sparking illicit marijuana market,” Boston Herald, April 7, 2019.)
The same thing has happened in Canada and many U.S. states since legalization.
It may seem counterintuitive, but legalization can often lead to a stronger black market. This is usually due to the reduced stigma regarding marijuana that legalization brings, combined with lower prices and higher supply on the black market. The combination often ends up juicing the illicit trade of pot rather than harming it.
There are a number of reasons that this keeps happening.
High marijuana taxes are often imposed by the government, leading to a higher price for legal pot. The black market, as you would expect, is tax-free.
Regulatory standards on everything from packaging to cultivation have also been linked to higher costs of production. Again, the black market skirts these problems.
And perhaps the biggest impediment is the lack of supply. Massachusetts, like many legal markets, simply does not have enough marijuana to keep up with the demand.
This is again likely attributed to the high standards that producers and growers have to comply with, leading to a shortage but also an invigorated consumer who wants to get their hands on marijuana.
The result is that pot buyers are still looking to the well-established black market that served them well in the past, to the detriment of the legal marijuana market currently in place.
Furthermore, black markets are often thriving in the wake of legalized pot precisely because of the price and availability differentials.
In order for the legal marijuana market to thrive in Massachusetts, the state government will have to find a way to reduce costs while increasing supply if it hopes to snuff out the black market.
Sales numbers, you’ll remember, are crucial to a marijuana stock’s success, and a strong black market siphoning away customers is going to negatively impact share prices.
The marijuana news was rather negative on the pot stock market today, with many stocks down this morning. One company in particular, Tilray Inc (NASDAQ:TLRY), continues to struggle mightily in 2019.
While so many other pot stocks are seeing huge gains in the first few months of 2019, Tilray has been one of the few disappointments.
TLRY stock has dropped nearly 20% since the year began. That wasn’t helped by a near-four-percent drop in early-morning trading today. Tilray stock has fallen by nine percent in the last five days alone.
In my view, the main reason for the big Tilray stock selloff is that the company is overvalued.
What I predicted long ago is finally taking place, which is to say that the huge growth we saw take place directly after the company went public on the Nasdaq was too much, too fast.
While I thought that Tilray stock would have dropped much faster than it has, I was right in substance if not timing—it has decreased steadily since its peak in 2018.
At the moment, I find it hard to recommend Tilray stock until the company finds its bottom.
Another stock down today is Cronos Group Inc (NASDAQ:CRON). Cronos stock took a three-point dive this morning, with a loss of about four percent over the past five days.
CRON stock, however, is in a much strong position relative to TLRY stock.
Cronos stock, for instance, did not have the same massive explosion in value during its initial public offering (IPO). You’ll remember that the stock merely listed on the Nasdaq and didn’t have its IPO on that exchange, unlike Tilray.
That has meant slower but steadier gains for CRON shares. In this case, those gains have proved more sustainable compared to its fellow Nasdaq marijuana stocks.
I believe that Cronos Group Inc has a lot of potential, with strong fundamentals backing it up. As such, I wouldn’t worry too much about today’s fall, and I believe that CRON stock will bounce back in short order.
CannTrust Holdings Inc (NYSE:CTST) is also hoping to make a recovery after its weak earnings report.
The company’s quarterly report came in under analysts’ expectations, leading to a steep drop in value for CTST stock. That seems to be changing, however, as the stock is up today.
CannTrust stock climbed almost two points in early-morning trading today. That is impressive when compared to the majority of pot stocks, which fell this morning.
The stock is down about three percent over the past five days, but it is trending in the right direction.
The company was also able to score a win this morning when it announced that Health Canada had approved the company’s Phase 2 expansion at its Ontario, Canada greenhouse. The move will see CannTrust’s production capacity hit 75,000 kilograms (about 165,000 pounds) in 2019. (Source: “CannTrust Receives Health Canada Approval for Phase 2 Expansion,” Cision, April 8, 2019.)
As such, I’m bullish on CTST stock, with a strong chance for recovery—although I do consider it a riskier and more unpredictable pick.
TLRY, CRON, and CTST Stock Performances
The performances of TLRY stock (black line), CRON stock (blue line) and CTST stock (red line) over the past week are seen on the chart below.
Chart courtesy of StockCharts.com
The marijuana news today wasn’t exactly stellar to start the week.
In Massachusetts, we’re seeing a chronic problem of the legal weed industry rear its ugly head once more as the black market is energized rather than stiffed by legal pot.
The pot stock market, meanwhile, was pretty negative all around with a few exceptions, like CTST stock, making gains to start the week.