Bill C-45 Inches Closer to Completion
Last week, investors were jumpy over Canada’s path to nationwide pot legalization—but it turns out they needn’t have worried.
Before we get into Canada’s political battles of cannabis and how it affects marijuana stocks, I want to address why we’re talking about Canada and not states like Colorado or California.
It’s simple: Canada is legalizing at the federal level. This opens up a wide range of opportunities that simply aren’t possible in the United States, at least under current law.
What’s more, some of the best marijuana penny stocks have exposure to our Northern neighbor. So, if we don’t evaluate the political situation in Ottawa, we might get blindsided by a crash in our favorite cannabis-related equities.
Now, let’s talk about Bill C-45.
After passing in the House of Commons (Canada’s version of the House of Representatives), the bill was sent to the Senate for review.
Senate approval was considered a foregone conclusion at the time, largely because Canadian senators are appointed rather than elected, which leads to a less contentious body that rarely votes against the House’s wishes. It was supposed to be a formality.
However, rumors swirled ahead of the vote. Some insiders believed that the vote was tighter than expected. Stock prices slipped on the news, with increasing concern that the Senate might block legalization. It turns out that story was way off the mark.
The “close vote” ended up being 56-to-30 in favor of the motion, which means that 70% of voting members gave their blessing to recreational marijuana. That’s not close by any measure I’m familiar with.
They did, however, propose many amendments. Most of them were technical tweaks and legal screw-tightening, but at least two substantial changes were made:
- Restricting marijuana-branded merchandise. Health Canada wants cannabis-related products sold in a monochromatic wrapping, sans logos or designs. The only thing they want on the surface of the packaging is a health warning. This amendment would also limit the ability of weed companies to produce T-shirts, hats, and basically anything else that would “promote marijuana consumption.”
- Allowing provinces to ban homegrown marijuana. Some provinces in Canada (i.e. Manitoba and Quebec) want to outlaw homegrown marijuana, even though mass production is becoming a legitimate business.
The House of Commons will take these recommendations into consideration while revising the bill, and then send it back to the Senate for approval.
Since the Liberal party is currently in power, it’s unlikely that No. 1 will make it into the revised bill.
To be frank, it would have been a death sentence for many companies. Not allowing them to brand their merchandise would cut off a significant source of customer loyalty and ancillary sales. As for No. 2, well, it’s not a matter of life or death.
The Best Marijuana Penny Stocks
Now that the regulatory fog is clearing, we’re scavenging for the best marijuana penny stocks in terms of potential upside.
After all, big players like Canopy Growth Corp (NYSE:CGC) and Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) are already well known. They may have further gains to unlock, but it would be a stretch to call them penny stocks.
We’re looking for cheap marijuana stocks—with a strong emphasis on the “cheap” part.
Here’s what we came up with.
I wouldn’t be surprised if you’ve never heard of Hydropothecary Corp (OTCMKTS:HYYDF, CVE:THCX). It is a small marijuana company nestled in the heart of Canada’s French-speaking province, Quebec. Buying one share costs little more than a cup of coffee.
Although that price is ascending rapidly, it’s still in the affordable range of around $3.80 per share.
Chart courtesy of StockCharts.com
What sets Hydropothecary apart is its connection to the Quebec government. As a locally headquartered marijuana company, it secured the largest contract to distribute cannabis in the province. That’s a five-year contract for 200,000 kilograms of weed.
MedMen Enterprises Inc.
MedMen Enterprises Inc. (OTCMKTS:MMNFF, CSE:MMEN) was recently added to the stock market through a “reverse takeover.”
In doing so, MedMen was able to skirt U.S. federal laws, essentially raising money on the Canadian side of the marijuana market to finance its U.S. expansion plan. This could help it stay one step ahead of domestic rivals.
It could also make it a takeover target, should regulatory concerns arise.
However, the MedMen brand is extremely important to its stock price. The company’s retail outlets are frequently compared to the “Apple Store,” both for their shared aesthetic and for the feeling of exclusivity they create in consumers. So, the details of Bill C-45 are important here.
As for the stock’s history, it’s too brief to warrant a chart. But I’d keep an eye on this emerging player if I were you, since, like Hydropothecary stock, it currently trades at around $3.80 per share.
Given its innovative business model and resilience to industry downturns, CannaRoyalty Corp (OTCMKTS:CNNRF, CNSX:CRZ) is probably my favorite “cheap” marijuana stock.
Chart courtesy of StockCharts.com
On more than one occasion, this hidden gem has stayed afloat when the rest of the market was taking a nosedive. CannaRoyalty owes this hardiness to its “streaming” business model, which relies on investing in third-party projects for a share of future earnings.
Put another way, CannaRoyalty keeps its hands clean.
Like venture capitalists, the company’s management team sorts through hundreds of projects for those that are most likely to succeed. Then they invest in those projects, wait for returns to start rolling in, and pass those returns back to shareholders.
We’ve seen this business model in other industries, such as mining, but never in marijuana. It is a unique play, and it only costs about $4.30 per share.
No one is quite sure what will happen to marijuana stocks if Canada’s Bill C-45 is passed, but right now their fate hangs on whether that bill passes.
I’m not worried, to be honest. The 56-to-30 result showed that opposition to the bill is nothing but hot air and virtue signaling.
Investors should be paying much more attention to the cheap marijuana stocks we outlined above. These are some of the best penny stocks you’ll be able to find in this crowded market.