Marijuana News Today: How to Find Growth Among Medical Marijuana Stocks

Marijuana News Today
iStock.com/Nikolay Ponomarenko

Marijuana News Today

When it comes to  medical marijuana, not all regulations are created equal, and some U.S. states are performing much better than others, as seen in the marijuana news today.

Across the country, 36 states and Washington, D.C. have legalized medical cannabis, while only 11 states and D.C. permit recreational marijuana. Medicinal marijuana is legally available to over 100 million Americans and, as such, it presents one of the best ways for investors to take advantage of the massive potential in the U.S. marijuana market.

But not all states have the same laws regarding medical marijuana, and what we’re seeing now is a real-time experiment determining which regulations are the most conducive to business growth.

The newest edition of the Marijuana Business Factbook from Marijuana Business Daily reveals which states have seen the highest market growth.

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Oklahoma is the fastest-growing medical marijuana market when looking at the average number of daily patients. Furthermore, a larger percentage of Oklahomans use medical marijuana compared to residents of most other states. (Source: “Chart: Medical marijuana markets expanding at varying rates, with Oklahoma, Florida setting the pace,Marijuana Business Daily, August 13, 2019.)

Other states that have relatively young legal cannabis markets, like Arkansas and Ohio, asso saw massive growth in just a few months, reaching statewide proportions equal to more mature markets like Illinois and New York.

So what makes Oklahoma so great at bolstering the medical marijuana market? It’s pretty simple: low barriers to entry.

That’s an issue I’ve been harping on about in this column for well over a year. The more that government gets out of the way of the legal marijuana market, the faster the industry will grow.

The paternalistic instincts of governments often go too far as an overreaction to the stigma surrounding pot. I’m by no means a prima facie anti-regulation guy, but the response of governments when it comes to pot regulation has more often than not been overbearing and anti-market.

One major boon to the Oklahoma marijuana market is that the state doesn’t have a set of qualifying conditions for doctors to prescribe marijuana to patients; it’s very much up to the doctor’s discretion.

State to state, we see both minor and major differences in how medical marijuana is rolled out. Now, one thing we need to be cautious of is not confusing correlation with causation; just because a state has a stronger medical marijuana market does not necessarily mean that we can attribute all that success to the regulatory framework.

For instance, states with laxer regulations are already likely to be more pro-pot, meaning we’d expect to see a higher share of pot users regardless. Furthermore, marijuana has been in the spotlight in the past few years, so when it is legalized in a particular state, it’s no longer the headline-grabbing news it used to be.

Still, regulation plays a big role in the marijuana sector’s success or failure. That can’t be denied, with many of the problems facing the industry directly stemming from poorly implemented legislation.

Investors who put in the work to find the best regulatory situations for pot and invest in companies operating in said regulatory havens should see payoffs down the road.

TLRY Stock

The marijuana news today on the stock market is rather dim, with many companies taking huge hits today. While there have been a few gems lately, we first have to talk about Tilray Inc (NASDAQ:TLRY).

Tilray stock collapsed in early-morning trading today, plummeting by almost 15%. Over the past five days, the stock has dropped 3.5%, including today’s massive fall.

The reason for the company’s crushing performance today is its recent quarterly financial report.

At first blush, Tilray’s quarterly report had some strong numbers. Revenue came in at $45.9 million and was ahead of the consensus estimate of $40.3 million. (Source: “Tilray CEO says focus on profitability is ‘constraining’,” Bloomberg, August 13, 2019.)

That number, however, was not positive enough to distract investors from the company’s $17.9 million loss before interest, taxes, depreciation, and amortization. That was higher than the $14.4 million loss expected by analysts.

This comes as investors are increasingly focused on profitability when it comes to pot companies, something I’ve been writing about a lot recently.

Tilray said its higher-than-expected loss was due to costs related to acquisitions, expansion, and interest from its convertible notes.

Then again, some numbers were very positive in the company’s earnings report.

Tilray sold 5,588 kilograms (12,319 pounds) of cannabis in the quarter, up 86% from the previous quarter. The problem is that the company’s average net selling price fell to $4.61 per gram from $5.60 in the first quarter. That means, despite selling far more marijuana, the profit increase was offset by making less money per sale.

Chief Executive Officer Brendan Kennedy is putting some of the blame for the poor quarter on the cannabis industry’s newfound rush towards profitability.

“Once in your lifetime, if you’re lucky, you see an entire industry emerge overnight and if you want to dominate that global industry, you’d be constraining yourself if you were focused on profitability at this point,” said Kennedy. (Source: Ibid.)

He said that Tilray could be profitable in a quarter but that “globally, now’s the time to invest.” Kennedy then said that Tilray’s revenue from its international operations will begin to “really kick in” within the next two to three quarters.

I couldn’t agree more with Kennedy. Now is not the time to focus on profitability; now is the time for growth. This is way too early in the legal marijuana industry’s life cycle to be concerned about profitability; only a small portion of the market is even accessible to sellers.

Now back to the TLRY stock price: it had been on a good run lately, but its recent fall is going to kill that momentum. I’ve long said that $40.00 seems to be the holding point, and Tilray’s share price broke about there.

I expect to see a bit of a rebound tomorrow, but Tilray stock is likely going to be slowed by its weak earnings performance and I anticipate that the stock won’t crest $50.00 for a while yet.

HEXO Stock

On the flip side, we have Hexo Corp (NYSE:HEXO). While HEXO stock did not blow anyone away with its performance today—it fell a point in early-morning trading—it has been very strong over the past five days, gaining 10%.

HEXO remains one of my favorite pot stocks, especially at its current price. I strongly believe that it will hit at least $7.00 in 2020 (it’s currently trading around $5.00).

Hexo Corp also scored a victory today with its entry into the Ontario marijuana market with its dried flower products now available in Canada’s largest and richest province.

I foresee HEXO stock continuing to rise even though it has had a rough time recently.

TLRY and HEXO Stock Performances

The performances of TLRY stock (black line) and HEXO stock (blue line) over the past week are seen on the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today was a bit of a mixed bag.

On the macro scale, we are seeing real progress among U.S. states where regulatory burdens are becoming less and less the norm.

On the micro scale, however, many pot stocks were battered today, with none worse off than Tilray stock. Conversely, Hexo Corp continues to impress as it enters the Ontario marijuana market.