Marijuana News Today: Delay in Canadian Legal Marijuana Store Openings Hurts Stocks

Marijuana-News-Today
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Marijuana News Today

We have a mixed bag in the marijuana news today.

The Ontario, Canada government announced that the private sector will be permitted to open marijuana storefronts in the province after recreational marijuana is legalized. The Ontario government said, however, that these stores will not be allowed to be operational until April 2019.

Ontario is the most populous and richest province of Canada, so it’s the most desirable market in the country. While marijuana will become legal nationwide on October 17, Ontario will only allow online sales from then until April, significantly curbing opportunities for sales.

Naturally, marijuana stocks are not going to be bolstered by that news in the short term. But, as I’ve written before, being able to own and operate private stores is ultimately a good thing for the industry.

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That makes this plan by the current provincial government a short-term negative but a long-term positive for marijuana stocks.

Being able to diversify via retail stores will allow marijuana companies to use tools that were previously unavailable to them to encourage sales, like branding and strong real estate scouting.

The model of the previous provincial government would have seen it maintain a publicly run monopoly over marijuana sales, similar to how more than half of the alcohol sold in Ontario is through government-run stores.

That system would have included about 150 brick-and-mortar cannabis stores in the province by 2020, but the plan had a number of detractors (myself included).

The new model is going to benefit marijuana sales in the long term and it also takes one more thing off the public sector’s already full plate. That is an overall good in my books, but the delay until April is unfortunate.

Another aspect of the plan that’s up in the air is the regulatory framework that will be applied to the privately owned retail operations.

Other than the announcement itself, there’s not much by way of concrete information on what the private model will look like next year.

We do know that the Ontario government is looking to take strict action against sellers who break the rules or operate outside the government’s approval process. But in terms of what regulations we’re going to see imposed on good-faith actors, we’ll have to wait and see.

Legal marijuana will still be available to Ontario consumers online starting on October 17, and the government will remain the sole wholesale distributor in the province.

“The government of Ontario will not be in the business of running physical cannabis stores,” said Finance Minister Vic Fedeli at a news conference, confirming that the government will be taking a backseat to the private sector when it comes to marijuana sales. (Source: “Ontario will rely on private sector to sell recreational cannabis,” The Toronto Star, August 13, 2018.)

“Instead, we will work with private sector businesses to build a safe, reliable retail system that will divert sales away from the illegal market.”

Aurora Cannabis Stock

While the marijuana news today is positive in the long term, the short-term implications are that, until next spring, it will be harder to purchase legal pot in Ontario than anticipated. That is bad for the pot stock market.

It’s hard to say whether cannabis stock prices recently tumbled due to the announcement by the Ontario government or simply because the market is in a downturn. In either case, this week has started off on the wrong foot, with several pot stocks seeing significant declines in value.

Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) is down big, having dropped about 13% since Monday last week. A good chunk of that fall came yesterday, with the stock price declining by about 3.5%.

While it’s hard to say whether the announced delay in Ontario storefront sales directly impacted Aurora Cannabis stock, the company has expressed its support of the move toward privatization of the marijuana retail sector.

“Allowing a private retail channel in Ontario for recreational cannabis is good news for industry, consumers, and taxpayers, and will go a long way to making a meaningful impact on the grey market,” said Aurora CEO Terry Booth. (Source: “Aurora Cannabis and Alcanna Applaud Ontario Government Decision to Open Province to Private Retail of Cannabis,Cision, August 14, 2018.)

Aurora has also announced the completion of its acquisition of Anandia Laboratories Inc., a marijuana research company. The announcement happened just this morning, although the deal had been in the works for some time. (Source: “Aurora Cannabis Completes Acquisition of Anandia Laboratories,” Cision, August 14, 2018.)

Aphria Stock

While Aphria Inc (OTCMKTS:APHQF, TSE:APH) didn’t fare quite as poorly as Aurora Cannabis stock over the past few days, it did take a substantial fall over the past week, dropping about eight percent.

Again, whether Aphria stock’s drop in share value was due to the Ontario government’s recent announcement or simply a continuation of the marijuana downturn is hard to say. In any case, the results remain the same: a damaged APHQF stock price.

Aphria, however, recently announced that it is forming a joint venture with  Perennial Inc., a subsidiary of DATA Communications Management Corp (OTCMKTS:DGPIF, TSE:DCM). The joint venture will focus on new products and brands for the Canadian marijuana market. (Source: “Perennial And Aphria Sign LOI To Establish Joint Venture To Develop New, Consumer-Centric, Cannabis-Infused Products And Brands For The Canadian Market,” Aphria Inc, August 14, 2018.)

ACBFF & APHQF Stock Performances

Check out the chart below of the recent performances of Aurora Cannabis stock (black line) and Aphria stock (blue line).

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today is ultimately good, even if the immediate effects may be undesirable.

I’m quite sure that the delay in the opening of legal cannabis storefronts in Ontario is going to affect sales in that province and will likely create turbulence among marijuana stocks.

Still, I believe that the Ontario government’s move toward privatization of cannabis retail operations is the right one for the marijuana stock market.