Marijuana News Today
Some good tidings in the marijuana news today as Canadian marijuana legalization gets more business-friendly, with Ontario switching from a lottery system for licensing to a market-based one.
This is strong news for pot stocks, as Ontario up until this point has relied on an arbitrary lottery system for doling out licenses. The effect of that has been a small number of stores—75 set to operate following the most recent lottery—to service the 14-million-plus people living in Canada’s richest and most populous province.
Toronto alone has roughly six-million people living in the city. In a city famed for its selection of restaurants and bars, having only a few dozen cannabis stores in operation speaks to a flawed system.
One concern is that the switch from a lottery-based system to a market-based one will exacerbate issues with supply. (Source: “Ontario releases results of cannabis store draw in what may be province’s last lottery,” Marijuana Business Daily, August 22, 2019.)
But many of these supply issues are not due to a lack of production by marijuana producers, but instead due to a number of burdensome regulations.
Regulatory burdens in the marijuana industry has been a bit of a theme of many of these columns of late, primarily because they are a huge reason we’re not seeing higher sales numbers for pot stocks. Higher sales numbers, of course, means higher revenue, which in turn will promote stock growth.
The situation in Ontario is one of the more dire ones, where political mismanagement has curtailed pot sales while also allowing the black market to thrive in the absence of more storefronts.
After all, consumers are more likely to buy marijuana if the process is made easy and safe. With too few storefronts in Ontario—and many consumers still unsure about online sales—that simply hasn’t been the case in the province.
To be fair to Ontario, it did have a harder time than most during the transition to weed legality.
The province initially had planned to have a government monopoly over marijuana, with pot being sold exclusively in provincially-operated stores, not unlike how it handles direct sales of alcohol in the province.
But before that plan could be implemented a new government took over the province and radically altered that plan, opting for privately owned marijuana storefronts. The transition, lottery and all, has not been as smooth as many would like.
The endgame here is that marijuana sales are largely being slowed by two factors that are intertwined: overregulation and a thriving black market. Pot stocks will thrive if only governments would get out of the way and let them. Ontario, it appears, is staring to take steps to that end.
The other marijuana news today is, while not good, at least not horrible.
Unlike Monday and Thursday this week, we’re seeing fairly neutral performances across the board. While a rebound would have been nice after yesterday’s tough run, neutral is still better than calamitous.
Canopy Growth Corp (NYSE:CGC) is a company that needed exactly this kind of break.
CGC stock is up about half-a-point in early morning trading. Over the past five days, however, CGC stock has dropped 10%.
Canopy Growth Corp has now dropped almost 40% from a year ago. Considering that CGC stock was once up 100% in 2019, that’s a hard pill to swallow.
There are a number of factors playing into CGC stock’s fall. Since April, the company has dropped more than 50%. Much of that is due to the shaky markets of the summer, with trade wars and recession talk leaving many investors concerned and unwilling to invest in volatile industries.
Having said that, CGC stock is not totally without blame. The company axed Bruce Linton, jettisoning the co-founder and CEO over what many believe is a difference of opinion on whether the company should focus on growth or profit.
While I have no doubt that losses still would have occurred if Linton still helmed the company, I do believe that those losses would have been somewhat mitigated.
The last thing you want a company to do is make a major change during an already tumultuous period. The combination leaves many investors concerned, and scared investors are dangerous ones for volatile stocks.
I believe that CGC stock can and will regain much of its former glory down the line, but that won’t be for some time yet. I would personally hold off before reinvesting in CGC stock.
About the one company that is being hammered today is also, ironically, one of my top pot stocks.
OrganiGram Holdings Inc (NASDAQ:OGI) is still one of my top picks in the industry, despite having one of the worst performances on the day.
OGI stock dropped four percent in early morning trading. OGI stock is also down about eight percent over the past five days. Still, I have a lot of faith in OGI stock’s ability to recover.
This continues to be, in my opinion, one of the better marijuana stocks out there. In fact, the price drop might be a blessing in disguise.
One of the things that I’ve said would be great for OraniGram Holdings Inc is an acquisition. By losing value, some company may come along and gobble up the company at its reduced price, sending shares soaring. A partnership with a “Big Alcohol” member or other outside force is equally possible at its lower valuation after this marijuana correction, opening the door for several opportunities to see OGI stock growth.
Right now things may seem bleak, but I’m still bullish on OGI stock and its ability to recover.
CGC and OGI Stock Performances
The performances of CGC stock (black line) and OGI stock (blue line) over the past week are seen on the chart below:
Chart courtesy of StockCharts.com
The marijuana news today was, all things considered, pretty solid.
First, you have an overall neutral performance on the pot stock market. While neutral isn’t great, it’s far better than the disastrous performances earlier in the week.
And now, in Ontario, we’re finally seeing some solid moves being made by a government to help rather than hinder the marijuana business. This will pay off for both consumers and pot stocks down the line.