Marijuana News Today: Pot Stocks Slowed by Canadian Laws
The marijuana news today has one research firm slashing yearly projections due to lower-than-expected sales in Canada, something that it attributes to strict Canadian laws regulating pot. Lowered sales, of course, will ultimately harm the upward potential of pot stocks.
This is a story we’ve been tracking since October: how Canadian marijuana laws have been stifling growth in the marijuana market.
Between the shortages we’ve seen across Canada, delays in opening brick-and-mortar stores in some regions, and high-priced legal weed, marijuana sales haven’t come in as strong as they could have been. That isn’t to say that they’ve been weak, but the still-thriving black market is indicative of a missed opportunity by marijuana producers to fully capitalize on the market.
Cannabis industry research firm BDS Analytics reduced its projections for the Canadian marijuana market, expecting it to grow to $5.2 billion by 2024, up from $569.0 million last year.
While that growth is still strong with a compound annual growth rate of about 44% over the next five years, BDS’s previous forecast of the Canadian market had it hitting $5.9 billion by 2022.
“Everybody was somewhat taken aback at how Canada hasn’t exploded the same way it did in Colorado, Oregon, and California,” said Tom Adams, lead author of the report. “It’s now a retail product and the medical market may have hid the real numbers for a while…But Canada’s very cautious approach is likely to limit the revenue growth in the overall market.” (Source: “Cannabis research firm cuts estimates on Canada pot market to US$5.2B by 2024,” BNN Bloomberg, April 9, 2019.)
While this may seem like very bad news for pot stocks, there is a silver lining of sorts: solutions abound to the Canadian weed law problem.
The industry is young and transitioning from an illegal good to a legal one, so of course there was bound to be some growing pains.
Canada has taken a more cautious approach, with everything from labeling to inspection being very particular. You’ll remember that special packaging was needed in order to ship pot and that this packaging was in low supply at times, once again stifling the market.
But these problems are only temporary.
While I doubt that Canadian pot laws will shift overnight, as the industry matures and politicians are more at ease with legal pot, regulations will relax.
The result will be wider availability of cheap weed, boosting sales and restoring the market projections to their previous numbers—or maybe even beyond.
While the government does often move at a snail’s pace, in this case, weaker sales not only harm marijuana stocks but the government coffers.
With tax revenue taking a direct hit due to weaker sales, that may prove a motivating factor that could help speed along weed reform.
All in all, this isn’t as doom and gloom as it may seem. The Canadian marijuana market (i.e. the pot stocks operating within it) is still very strong. It just needs some parts of the bureaucracy to get out of the way.
The marijuana news today was pretty quiet again on the pot stock market front, with most stocks moving only a point or two—although in most cases, share prices fell.
Part of the reason for the marijuana stock market slowing down to start the week has to do with the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act), a proposed bill that would bar the federal government from interfering with marijuana markets in states where it has been legalized.
A press conference will be taking place today from lawmakers who support the bill discussing its future. (Source: “Cannabis stocks lower as investors await the fate of the States Act,” MarketWatch, April 9, 2019.)
Despite all that, Cronos Group Inc (NASDAQ:CRON) was one of the few pot stocks able to see gains today. Cronos stock gained about a point in early-morning trading and finds itself down about two percent over the past five days.
The pot stock market has slowed in April, with this week and the last not being particularly notable for marijuana stocks.
Still, there is much to like about CRON stock. While it no longer enjoys the boost it gained from its Altria Group Inc (NYSE:MO) deal, the company still has plenty of foundational strengths that could drive growth in the near future.
The biggest hurdle for Cronos stock to overcome in the numbers; the company needs to bounce back strong from its weak financial report.
While there’s no guarantee, I fully expect that Cronos will be able to meet analyst expectations this go around, so we could see a CRON stock bump within the next two months.
Until then, however, barring some big news breaking, I could see share prices remaining relatively flat.
CannTrust Holdings Inc (NYSE:CTST) is in much the same boat as Cronos stock: both companies appeared strong out the gate in 2019, but both have since been slowed by a weak financial quarter.
Weak, of course, is relative. These financial reports saw huge explosions in revenue, but both CTST stock and CRON stock fell due to the numbers coming in below lofty analyst expectations.
Unlike Cronos, however, I believe that CannTrust is a riskier pick.
While yesterday I wrote that I imagine that CannTrust shares will bounce back eventually—and I stand by that prediction—I also wrote that it was a riskier venture.
Cut to today: Canntrust stock fell by four percent this morning and is down four percent over the past five days.
This comes after the company was able to score approval from Health Canada for the company’s Phase 2 expansion at its Ontario, Canada greenhouse. The move will see CannTrust’s production capacity hit 75,000 kilograms (about 165,000 pounds) in 2019. (Source: “CannTrust Receives Health Canada Approval for Phase 2 Expansion,” Cision, April 8, 2019.)
That was a strong bit of news that helped boost stocks yesterday, but the market uncertainty today mixed with CTST stock uncertainty more specifically combined for a substantial drop.
There is still potential in CannTrust, but I’m wary of potential; other stocks in the cannabis industry had the “potential” to recover before and only ended up sinking further.
If I were a betting man, I’d say that CannTrust stock will recover, but I’d also say there are plenty of safer bets elsewhere in the pot industry.
CRON and CTST Stock Performances
The performances of CRON stock (black line) and CTST stock (blue line) over the past week are seen on the chart below.
Chart courtesy of StockCharts.com
The marijuana news today wasn’t exactly peachy.
The reduced forecast by BDS Analytics speaks to the regulation getting in the way of marijuana sales and future growth of pot stocks, something you don’t want to see.
Meanwhile, the pot stock market has been seeing a general downshift this week as we look to the future of the STATES Act and other developments in the industry.