Marijuana News Today: Marijuana Investors Need to Be Wary of a Pot Stock Stumbling Block
Marijuana News Today
In the marijuana news today, another legal pot company was found to be in non-compliance with Canadian regulators. This shines light on an issue that could become more prevalent as time goes on.
While the company in question, British Columbia-based Evergreen Medicinal Supply Inc., is not publicly traded, that doesn’t mean investors ought to ignore the federal regulator’s move to crack down on non-complying cannabis producers. (Source: “Health Canada suspends British Columbia cannabis producer Evergreen’s licenses,” Marijuana Business Daily, September 16, 2019.)
You may remember that, earlier in the year, CannTrust Holdings Inc (NYSE:CTST) was the target of a Health Canada audit that found the company to be in non-compliance of regulations. The result was disastrous for CTST stock, with the company having much of its inventory seized and the potential for its marijuana license to be suspended.
This event naturally had investors worried, so they rapidly fled CannTrust stock. The stock collapsed from about $5.00 a share in July, when this occurred, to its current price of about $1.45 a share.
With that in mind, it’s clear that there are a number of concerns that investors should have regarding the future of pot investments.
Health Canada has the power to completely demolish a company’s future with a single pen stroke. Having said that, it’s not arbitrary. The regulator’s guidelines are fairly clear and, whether one agrees with their stringency, they have been followed by virtually every other company operating in the market.
The key takeaway for investors is to follow a company closely and examine its management before getting too involved with that particular pot stock. If a company has a lot of turmoil or flux at its top leadership, then perhaps it’s worth reconsidering how much you want to invest in said company.
While that’s a good rule of thumb no matter what industry you’re investing in, with marijuana stocks, this can be particularly important as the government plays such an important role.
Another important consideration is to disregard rumors (or at least investigate them instead of taking them at face value).
Many rumors will be sure to emerge, claiming that this company or that company is next on the Health Canada chopping block. In fact, that has already taken place, with several murmurs being heard about top pot stocks and possible licensing suspensions.
But those rumors, unsubstantiated as they are, are often only trying to distract. That doesn’t mean all of them should be prima facie dismissed, but it does mean that savvy investors won’t go whichever way the wind blows. Instead, they will do their due diligence and fact-check the rumors to the best of their abilities and then make informed decisions.
And finally, investors ought not to be totally afraid of Health Canada. I don’t see too many of these licensing bans manifesting in the future, and investors shouldn’t be struck by fear to the point that they miss out on lucrative investment opportunities.
The marijuana news today was a mixed bag for the pot stock market, with many stocks seeing slight declines while a select few saw minor gains.
One company on the positive side of things today is Canopy Growth Corp (NYSE:CGC). Canopy Growth stock gained one percent in early-morning trading and is up about two percent over the past five days.
CGC stock appears to have mellowed out as of late, seeing only slight gains and falls over the past several weeks—a few weeks of major activity notwithstanding.
Canopy Growth is still trying to recover from the marijuana stock market correction, the company’s fairly weak quarterly report, and its firing of Bruce Linton from his position as CEO.
The largest marijuana company in the world by market cap has a number of important decisions to make, and none are more important than the central one concerning its identity.
I’ve been writing a lot lately about a crossroad facing many marijuana companies: to pursue profits in lieu of growth, or vice versa.
Nowhere has that decision been more stark than at Canopy Growth. The prevailing narrative is that Linton was fired precisely because he was focused on growth at the expense of near-term profits, something that the board could not abide.
We’ll see if the company’s decision pays off (my bet is that Canopy Growth went the wrong way), but in either case, Canopy Growth stock will likely see major gains as it returns to its all-time highs sometime in 2020.
Another marijuana stock on the rise today was Innovative Industrial Properties Inc (NYSE:IIPR). Innovative Industrial Properties stock climbed nearly two percent in early-morning trading, and is up eight percent over the past five days.
IIPR stock, in my view, is in a prime position for gains.
While the marijuana stock market correction caused many pot stocks to see significant setbacks, Innovative Industrial Properties stock remained one of the few companies tied to the marijuana industry that was still seeing growth. You may remember that this company is a real estate investment trust (REIT) and is therefore not a traditional pot stock.
But while the company was able to weather the early goings of the stock market correction, eventually the market caught up with it, sending its shares falling.
Now, however, IIPR stock is trading at what I believe is a relative bargain. I have little doubt that Innovative Industrial Properties stock won’t soon again reach its all-time highs, so investing now could pay off with big gains down the line.
And you should know that, as a REIT, it is mandated to distribute 90% of its profits as dividends, meaning that investors can benefit twice from IIPR stock: from price growth and the quarterly payout.
CGC and IIPR Stock Performances
The performances of CGC stock (black line) and IIPR stock (blue line) over the past week are seen in the chart below:
Chart courtesy of StockCharts.com
The marijuana news today has us watching regulators and some of our top pot stocks closely.
On the regulation front, Health Canada wields enormous power in the marijuana industry. Pot stock investors risk ignoring that at their own peril. At the same time, it appears that the federal regulator has been reluctant to apply severe long-term license suspensions.
A healthy middle ground is needed for investors then: follow Health Canada and respect its power, but don’t be overly afraid of it going wild with license suspensions.
On the other side, we have IIPR stock and CGC stock seeing steady—if unspectacular—gains in early-morning trading today, with both looking poised for gains in 2020.