Marijuana News Today: Industry Grows, But Losses Mount

Marijuana News Today: Industry Grows, But Losses Mount
iStock.com/Yaman Mutart

Marijuana News Today

The marijuana news today is positive on the future but bleak for the present as losses continue to pile at pot stocks.

First, however, let’s tackle the good news: the marijuana industry is growing fast.

California is currently on track for a record $3.1 billion in licensed cannabis sales this year. That’s enough to make it the largest legal marijuana market in the world (sorry, Canada). (Source: “California has the biggest legal marijuana market in the world, despite black market,” Los Angeles Times, August 15, 2019.)

This was always going to be the case, however, as California is both more populous and richer than the “Great White North.”

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Better yet, legal sales have seen significant improvement from 2018, which came in at around $2.5 billion, according to Arcview Market Research and BDS Analytics, two firms that track sales. It’s also worth noting that 2018 was the first full year of legal pot in the state, so growth may very well continue for several years on.

California, like virtually all other marijuana markets on earth, faced difficulty at the outset of legalization due to overbearing regulation. Now, however, companies appear to be getting wise to the game and figuring out how best to navigate these complicated, and at times onerous, government-installed obstacles.

Of course, there is still one major bleak point in the Californian market: the black market still accounts for an estimated $8.7 billion in cannabis sales for the year.

Considering the black market continues to dwarf the legal market, that only means that more growth is likely to occur as the Californian government takes steps to balance those numbers out. Reducing regulatory burdens—which will in turn drive down cost of production—will go a long way towards weeding out that pesky black market.

Still, overall, this is a stellar showing from the largest marijuana market on the planet right now. Marijuana investors ought to be stoked about what the future holds.

As the U.S. continues on its path towards total legalization, more and more U.S. pot stocks could pop up and allow investors to gain full exposure to the market. As such, expect to see massive growth in the coming years in this sector.

Right now, most pot stocks are Canada-based and have little to no connection to the U.S. market. While that is changing, new U.S. pot stocks will grow from a legalized environment (which is likely to come within the decade), and therefore huge opportunities await investors willing to keep with pot.

CGC Stock

The major breaking story in the marijuana news today, however, is the losses we’re seeing at Canopy Growth Corp (NYSE:CGC), setting off major falls across the board among pot stocks.

Canopy reported losses of CA$1.28 billion during the three months ended June 30, its fiscal first quarter of 2020, compared with a loss of CA$91.0 million in the first quarter of fiscal 2019. (Source: “Canopy Growth’s loss widens as soaring expenses offset revenue,” BNN Bloomberg, August 14, 2019.)

The loss came to CA$3.70 per share, a huge increase from the CA$0.40 per share a year earlier.

A big contributor the to losses this quarter came by way of CA$16.2 million in operating costs relating to facilities not yet producing cannabis or operating under capacity. It also cited a shift in the product mix away from higher-margin products as inventories evened out.

Financial data firm Refinitiv determined that analysts had predicted that Canopy Growth Corp would see a loss of CA$0.70 per share on CA$107.1 in revenue. (Source: Ibid.)

The company did manage to see a huge uptick in its revenue, hitting CA$90.5 million in net revenues, compared to CA$25.9 million a year earlier. That is largely due to the fact that marijuana was not legal in Canada a year ago.

Another boon to CGC stock, however, is that the company did see a strong increase in international sales.

Still, all the surge in revenue was offset by the 215% increase in operating expenses to CA$229.2 million, which in turn led to that huge billion-dollar loss.

This comes as CGC stock is in flux. Bruce Linton, founder and CEO, was fired after it came out that board members were looking to make profit faster. Today, we see how that focus can be damaging.

The fact is that the marijuana market is too small right now to see truly impressive profits. The beginning of this article, detailing California’s massive and growing marijuana market, reveals that. Furthermore, most of these huge markets remain untouched due to legal obstructions. After all, California is technically in violation of federal law by having legal weed.

All this to say that focusing on profits rather than growth at this stage of the game is likely going to lead to disappointing quarters like this, where investors will see a company failing at its supposed goals. Shift that focus to growth, however, and the losses become more palatable.

But with Linton’s firing, Canopy Growth Corp has made its choice and will have to turn these numbers around fast if it wants to avoid further stock plunges.

CGC stock fell over eight percent in early morning trading and finds itself down almost 13% over the past five days.

IIPR Stock

One of the few companies we routinely cover that didn’t see a huge decline in the market today is Innovative Industrial Properties Inc (NYSE:IIPR).

The marijuana real estate investment trust was able to weather the storm today and see only a minimal fall, with IIPR stock remaining stagnant. Over the past five days, Innovative Industrial Properties stock has dropped only about two percent.

While there’s not much to cover that’s new about IIPR stock, what today does reinforce is the fact that IIPR stock is a great way to get involved in the booming pot industry while avoiding the worrying volatility that plagues other marijuana stocks. You get the possibility for growth without as much risk, a nice middle ground for many investors and a good way to avoid seeing massive wipeouts in a marijuana-focused portfolio.

CGC and IIPR Stock Performances

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

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today isn’t exactly peachy, but neither is it apocalyptic.

Yes, the pot stock market took a big hit today. But that’s going to happen so long as investors expect to see huge profits so early on in the industry’s lifespan.

As the Californian market illustrates, we’ve only begun to scratch the surface of what marijuana can offer investors. As such, declines like the one we’re seeing today aren’t going to derail weed, but instead serve as a speed bump.