Are Marijuana Stocks Headed for a Price War?
Marijuana stocks are absolutely going crazy these days. Take Canopy Growth Corp (TSE:CGC) for example. The leader in the industry has been on a roller coaster ever since the end of the U.S. presidential election, when eight states voted to legalize some form of pot.
Now the marijuana stocks of Canopy Growth and others have been riding up and down on wave after wave of volatile shifts in their share value. And that’s with their valuation hitting one billion dollars shortly following the election.
All in all, the weed market is nowhere close to settled. And companies like Uncle Ike’s Budget Bud aren’t helping the situation any. Uncle Ike’s is a smaller company run out of Seattle, but its aptly named budget bud is some of the cheapest marijuana that can be found, priced at $99.00 an ounce.
That works out to CA$4.76 a gram. Why is that price important? Because the question is what factors will go into pricing pot, like taxes, undersellers, regulations, etc. (Source: “Legal pot in Canada could sell for $5 a gram — or less,” Global News, November 20, 2016.)
For instance, Washington State applies a 37% excise tax to recreational pot, making the profit margin on Uncle Ike’s Budget Bud quite small. This could prove an issue for marijuana stocks and the industry at large if illegal sellers can become more competitive by lowering their prices, unburdened as they are by taxes.
Earlier this month, the Parliamentary Budget Office priced pre-tax legal cannabis at a bottom of $6.67 a gram, with a mid-point estimate around $7.50.
While these prices are currently pretty affordable, you don’t have to look far to see how regulation can artificially inflate prices for consumers in regards to other legal recreational controlled substances. Take alcohol, for example. A 750ml bottle of vodka costs $6.75 for a distillery to make, but retail prices start around $25.
With pot, the government might have to be more careful with how it fixes prices if it doesn’t want its potential customers returning to the already established illegal network.