Marijuana Stock Growth: 100%+ Gains in 2020
Now that Canada has legalized recreational marijuana, many have expected that pot stocks would continue to rise indefinitely.
But that was always delusional thinking; there were bound to be ups and downs. What isn’t delusional, however, is the belief that marijuana stocks are on a steady path toward growth. From their current prices, they could see gains as high as 100% in the coming year.
There’s one simple reason for that: the Canadian market is maturing.
The Pot Market in Ontario: Huge Future Sales Potential
When legal marijuana came to Canada, the rollout was by no means smooth.
In some cases, there wasn’t enough marijuana available for sale, leading to stores being unable to meet demand. Another issue was that cumbersome regulations and burdensome taxation meant that legal pot was very expensive compared to illicit pot.
The situation has improved in some Canadian provinces, but in others it continues to lag. There’s no other more obvious example of this than Ontario. The richest and most populous province in Canada had a number of things going against it when legalization came to town.
First, Ontario had a transition of governments. The Liberal Party held power right up until the summer preceding legalization (October 2018) and it had planned to operate marijuana storefronts as a government-run monopoly (at least to start).
Then the Progressive Conservative Party took power and quickly shifted gears, announcing that it would not have government-run stores and that it would eventually allow private-owned storefronts to open.
In the first half-year of legalization, the only legal source of recreational weed in Ontario was a government-run web site. Even after brick-and-mortar cannabis stores were allowed to open in Ontario, only a handful were operational.
To this day, Ontario still only has about 25 licensed storefronts operating across the province, with a promised 50 more on the way. That is still far below what would be necessary to satisfy the roughly 15 million inhabitants of the province.
The minimal access to legal pot means the black market is continuing to thrive, so a good portion of the legal market’s potential is being siphoned off by illicit dealers.
Now, Ontario is hardly the only place that has had difficulty with its marijuana legalization rollout. Nevada, for instance, had to institute a state of emergency to bypass marijuana transportation regulations in order to keep deliveries going.
In any case, Ontario has only scratched the surface of what it can deliver in legal cannabis sales.
As the government of Ontario permits more pot stores to open, and as edibles and other marijuana products begin to legally reach the market, we’ll likely see marijuana revenue soar. As that revenue soars, we can expect to see pot stocks also rise.
Oklahoma: A Model for Marijuana Legalization RollOut
A good counter-example to Ontario is Oklahoma. In less than a year, the Oklahoma medical marijuana industry has gone from having zero in medical marijuana sales to becoming one of the most valuable cannabis markets in the entire United States. (Source: “Chart: Oklahoma medical marijuana sales far exceed expectations,” Marijuana Business Daily, November 19, 2019.)
The Oklahoma Tax Commission produced receipts showing that sales of medical marijuana in the state hit $258.0 million through the first 10 months of 2019. And they are likely to eclipse $350.0 million by 2020—going much higher than most analysts’ expectations.
Much of that success is due to a marijuana-friendly government.
More than five percent of Oklahoma’s entire population is now registered to use medical cannabis, exceeding any other such program in the United States. Couple that with the fact that Oklahoma doesn’t limit the number of licensed marijuana businesses it permits, and you have a perfect template for how to successfully handle a marijuana rollout.
Ontario is much larger and richer than Oklahoma and has recreational weed legalization. If Ontario were to adopt a similar approach as Oklahoma, it would likely see marijuana stocks soar as revenue rose.
That’s because legal marijuana prices would fall, hurting the black market, while more licensed storefronts would open, making it easier to buy legal pot.
Ontario has roughly four times the population of Oklahoma, but despite that disparity, Oklahoma has issued licenses for 2,168 dispensaries, 1,415 processors, and 4,931 growers.
We don’t know how many of those businesses are up and running, but if even 2.5% of these licenses result in open-for-business dispensaries, this would far outnumber the 25 storefronts currently in operation in Ontario.
Oklahoma is expecting to generate a marijuana market worth $700.0 million annually. Ontario has four times the population and permits many more types of marijuana products. That means billions of dollars are at play in the province.
Again, one market (Oklahoma) is medical marijuana and the other (Ontario) is recreational pot, but the comparison is apt: if government gets out of the way, the marijuana market (and marijuana stocks, as a result) will thrive.
Oklahoma has shown the rest of the U.S. how to legalize cannabis in a way that allows marijuana companies to succeed. They don’t need government handouts; all they need is for the government to get out of the way and allow them to operate their businesses on an even playing field.
If the entire U.S., when it legalizes marijuana federally, takes as liberal an approach as Oklahoma has, then the future is indeed shining for marijuana stocks.
The marijuana industry is growing by the day. As Canada and other legal marijuana markets continue to figure things out, we can expect to see revenues steadily climb while pot stocks grow in price.