Marijuana News Today: Pressure Builds to Improve Canadian Marijuana Market & Help Pot Stocks

Marijuana News Today
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Marijuana News Today

The marijuana news today has us revisiting an old but persistent topic, the overbearing regulations on the Canadian legal marijuana market that have been hurting pot stocks.

Another big voice has been added to this cause. The Toronto Star editorial board has come out in support of streamlining the licensing and regulatory process for cannabis companies—or at the very least, finding some way to fix the currently malfunctioning system that increases legal pot prices while allowing black market players to poach sales. (Source: “Governments must do better on cannabis sales,” The Toronto Star, July 30, 2019.)

That opinion isn’t particularly biting or scathing, but it does get the message across—the same message I’ve been spreading for months now: governments in Canada need to do better.

There are two major problems that Canadian governments, particularly the Ontario provincial government, face.

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The first is access. There are only 25 legal cannabis retailers in Ontario, meaning that you have one store per 200,000 people in the province. That’s unacceptable, especially when, in the province of Alberta, that ratio number drops to one store per 28,000 people. (Source: Ibid.)

Then there’s the problem with price: Statistics Canada recently found that legal pot retailers charge as much as 80% more than the black market in post-legalization Canada.

The legal companies, meanwhile, have been suffering from an overbearing regulation and licensing process that has led to weaker sales. That situation has hurt profits and decreased the value of marijuana stocks.

It’s a system that currently benefits the black market by squeezing legal producers while reducing the consequences of illegally dealing.

People who obey the laws and regulations should not be the ones punished. Canadian governments are simply not doing their part to help the legal business thrive. As a result, pot stocks haven’t been fulfilling their potential.

This is a matter of growing pains, however, and I suspect that the problem will eventually be rectified. But the longer it takes to be fixed, the longer marijuana companies will be shut out from reaching their full potential.

That’s an even more egregious offence when you consider that Canada has first-mover advantage right now. No other modern economy has legalized marijuana. Squandering that advantage due to burdensome government interference would be a pity.

With European markets and the U.S. edging closer to legalization with each passing day, time is running out for Canada to define itself as the worldwide leader in the cannabis industry.

The North American pot sector will face numerous challenges in the years ahead from developing markets, and it is not being helped by government heavy-handedness in Canada.

CTST Stock

Another day, another headline about CannTrust Holdings Inc (NYSE:CTST). This time, the marijuana news today holds some good tidings for the beleaguered company.

CTST stock has been in the dumps ever since an audit by Health Canada found the company to be non-compliant with regulations. The result was that the company’s inventory was placed on hold and its licenses were suspended.

It all went from bad to worse when it was revealed that the company’s CEO knew about the violations months in advance of the audit. This led to his prompt termination.

Now, however, CannTrust holdings is making a Hail Mary play: looking for a buyer. And the stock market has been supportive of this move.

CannTrust stock was up four percent in early-morning trading today and it has surged over 10% in the past five days. While this is hardly enough to offset the massive losses it has incurred since the scandal (it’s down over 50% on the year), this is still positive for the company.

The company’s decision to find a buyer, however, may lead to a surprising turnaround for CTST stock.

“We are certainly investigating our options with financial advisors. But we are conscientious about our shareholders, and we are doing what you would expect a bona fide public company to do,” said interim CEO Robert Marcovitch. (Source: “CannTrust interim CEO says talks with potential buyers still at ‘conversation level’,” Financial Post, July 30, 2019.)

The company has a market cap of less than $330.0 million, making it small enough to be on the radar of a number of buyers. And frankly, this is about the best way I could see CannTrust stock turn its fortunes around in a short period.

Now, don’t get too excited; we have no concrete information on just how real these acquisition talks are. But the fact that CannTrust Holdings is looking for a buyer is going to help restore some faith in the company. And depending on the deal, this could be exactly what CTST stock needs to save it.

If the company does not find a buyer (or the selling price is acrimoniously low), then I would expect CannTrust stock to languish in the doldrums for a while yet.

HEXO Stock

On the flip side to CannTrust, we have Hexo Corp (NYSE:HEXO), long one of the top pot stocks that I believe will be more than fine, despite its poor performance as of late.

HEXO stock was up over one point in early-morning trading today and it has broken even over the past five days. This month, however, has been tough for the company, with the stock down 20%. Still, it’s up big on the year and still shows promise for the future.

I’ve gone over many times why I believe this marijuana penny stock is a winner. To put it succinctly: strong partnerships and supply deals.

But now we have a report from short seller “The Friendly Bear,” alleging that Hexo is en route to a scandal not dissimilar from CannTrust Holdings, due to its marketing practices on social media platform “Snapchat.” (Source: “Hexo, pot investors shrug off Friendly Bear short-seller report,” BNN Bloomberg, July 30, 2019.)

Canada has strict regulations prohibiting marketing pot products to minors. Many minors use Snapchat, and Hexo has been aggressive in its marketing on the platform.

Hexo replied to the allegations, claiming that “Hexo is scrupulous in adhering to rules and regulations surrounding cannabis promotion, both federally and provincially.” (Source: Ibid.)

The company went on to explain that it doesn’t advertise on Snapchat or run any promotional campaigns in its home province of Quebec, and that it has an agreement with Snapchat to ensure its ads are only seen by adults in provinces where they’re permitted.

Personally, I believe this is smoke, not fire. While it’s possible that The Friendly Bear is on to something, this is also a common tactic used by short sellers: raise an issue (often forcing a regulatory body to investigate), report that an investigation is underway, then watch share prices tumble.

Regardless of the merit of the accusations, the very mention of an investigation can often send investors running for the hills.

That appears to not be the case here, however, and that’s a good sign. If this investigation turns up nothing of note, then I will remain extremely bullish on HEXO stock.

HEXO and CTST Stock Performances

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

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today may seem like other journalists and analysts are finally catching up to yours truly, but better late than never.

I’ve been harping on the overregulation of the Canadian marijuana market for a long time now, and will continue to do so until the various governments in Canada step up and fix the problem.