Marijuana News Today
While the marijuana news today may not be as positive as it was to start the week, there’s still plenty of goodwill to go around: OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) is up following its strong quarterly report and California is rethinking its taxation policy regarding pot.
Let’s start with the political news first and dive into the pot stock market later.
California, the largest recreational marijuana market in the world, is looking to lower its taxes on marijuana to help stem the flow of illegal drug sales still taking place in the parallel marijuana black market.
Assembly Bill 286, called the Temporary Cannabis Tax Reduction bill, would temporarily cut state excise taxes for legal marijuana retailers from 15% to 11% and also suspend cultivation taxes altogether through 2022. (Source: “California proposes slashing pot taxes to help regulated industry compete with black market,” CNBC, January 28, 2019.)
The move is essentially a response to the difficult business climate marijuana sellers are experiencing in the state. That isn’t to say they aren’t making tons of money, but it instead speaks to the difficulty in transitioning from a black market, illicit drug to a full-blown legalized commodity.
In this case, the issue at hand is that sellers and growers following the rules are at a disadvantage compared to the established black market, which does not pay taxes (obviously) and can therefore keep its costs down.
The legislation is a response to marijuana tax revenue falling below projections, bringing in about $101.0 million less than expected through the first six months of 2018. (Source: “Cannabis Tax Revenue Update,” Legislative Analyst’s Office, November 15, 2018.)
The causes for that deficit were attributed by state officials to high taxes and banking issues—banking has long been a bugbear for the marijuana industry as banks are apprehensive to hold marijuana-derived cash due to the federal ban on pot.
In any case, California is still very much in support of marijuana as a growing industry. It projects that cannabis could generate between $8.0 billion to $20.0 billion in annual revenue in time. (Source: CNBC, op cit.)
The takeaway here for marijuana investors is that the industry is still very much in its infancy. States and countries across the world are going to have to figure out how best to transition from what was once solely under the purview of criminals to a well-regulated, well-designed industry.
This will take time. California needn’t worry that it won’t hit those high tax revenue targets—that will come. In the meantime, I applaud this move by the state to reduce the strain on businesses, at least as they get off the ground.
While I believe that high taxes on marijuana sales are often a good method for helping encourage states to adopt legalization measures (it’s hard to leave billions in tax revenue on the table), taxes can, of course, be onerously high and stifle businesses if not properly implemented.
California’s move, in this case, is a smart one that will help promote marijuana sales and, hopefully, increase tax revenue, which in turn will help the push for marijuana legalization across the U.S. That will mean huge returns for marijuana investors.
With the politics of the marijuana news today covered, let’s get down to the pot stock market.
OrganiGram stock is up once again as it climbed by 4.5% in early-morning trading. OGRMF stock has seen an 18% gain over the past five days.
Motivating this strong move from OrganiGram stock is its stellar Q1 financial report, which has helped juice an already very impressive company.
A quick refresher from yesterday:
- Net sales swelled 419% compared to the year before, hitting CA$12.4 million. The quarterly gain was similarly impressive, jumping 287%.
- Gross margin hit CA$51.7 million while net income jumped to CA$29.5 million from a net loss of CA$1.2 million last year.
- OrganiGram also posted its first ever positive free cash flow (FCF), with CA$2.9 million in the quarter versus a loss of CA$700,000 a year prior.
OrganiGram stock is a marijuana penny stock worth watching. I’ve had my eye on the company for over a year now and I still believe that it has one of the highest potentials for massive growth in 2019.
This is largely because OGRMF stock has yet to experience one of those crazy runs that are so endemic to the marijuana industry.
Most competitors have seen weeks or months where share prices soared by hundreds of points. OrganiGram stock hasn’t had that same success yet, but it has still seen healthy gains for years now.
It’s largely considered to be undervalued, which means that a huge rush is likely on the horizon, waiting for a big partnership to come through or an acquisition. In either case, I’m expecting big things from OGRMF stock, with the possibility of it doubling in 2019.
On the flip side in the marijuana news today, we have Tilray Inc (NASDAQ:TLRY), which is underperforming again this week. TLRY stock fell by about five percent in early-morning trading, while Tilray stock over the past five days is up about eight percent.
Eight percent in a week is hardly terrible, but it is a bit slower compared to the rush we’re seeing in marijuana shares across the industry over the same time.
Many stocks have near doubled their value over the past month while Tilray stock has been left behind, not even cresting double digits.
So what gives?
In my mind, Tilray stock is the opposite of OGRMF; it’s overvalued and everyone knows it.
That isn’t to say it’s a bum stock—far from it. There’s a lot TLRY stock could do to justify its huge gains that came as a result of its initial public offering (IPO) on the Nasdaq in 2018—the first ever for a marijuana company.
It is looking to get into the cannabis-infused beverage market. But it has yet to land a major partnership or score a unique supply agreement in Canada, making it a laggard among the bunch and a pot stock I’d be wary of for now.
OGRMF and TLRY Stock Performances
The performances of OGRMF stock (black line) and TLRY stock (blue line) over the past week are seen on the chart below.
Chart courtesy of StockCharts.com
The marijuana news today speaks to an industry that is maturing.
California is finding a way to best regulate the market—and therefore promote legal sales—that will ultimately benefit marijuana stocks.
In the pot stock market, meanwhile, OrganiGram stock once again soared while TLRY stock lagged.
Overall, we’re seeing a great start for weed stocks in 2019.