Marijuana News Today: Gray Market Poses Risk to Pot Stocks

marijuana news today 4 june
iStock.com/Kazyaka

Marijuana News Today

We’ve all heard of the black market, but in the marijuana news today, let’s take a closer look at an equally pernicious (at least as far as pot stocks are concerned) parallel marketplace: the gray market.

The difference between the marijuana gray market and black market is one of degrees. Where the black market is outright illegal, the gray market operates on the fringes of regulation and legality, putting it in an ambiguous middle-zone, and therefore harder to regulate. (Source: “Pot delivery services could be ‘cockroaches’ of marijuana legalization, experts say,CBC, June 3, 2018.)

In the lead-up to Canadian marijuana legalization, we are seeing a lot of growth in this gray market precisely because the laws are so fluid at the moment, not to mention that a great many specifics have yet to be nailed down regarding marijuana regulation.

Some of the most popular gray market operations involve pot delivery. This service is one of the many areas where the laws are not quite settled yet, and will therefore lead to growth in the gray market in order to fulfill that need for the consumer.

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The primary concern with the gray market is that there is simply no efficient way to ward against it. In some regions, CA$1,000 fines to stores operating on the fringes of the law are not exactly strong deterrents for these booming businesses. Not to mention that the police forces in Canada are not going to be dedicating already limited resources to minding a practice that is borderline illegal at best.

Many police agencies are already having trouble controlling these gray market marijuana businesses, and that’s only going to get harder when the federal legalization kicks in.

In British Columbia, for instance, the maximum punishment for selling pot outside of the provincial framework will be a $100,000 fine and 12 months in jail. However, one would expect that this would apply to only the worst offenders, with many smaller marijuana delivery companies getting away with a slap on the wrist.

Considering how profitable many are projecting the Canadian marijuana market to be, the fines will likely amount to pocket change.

The gray market—and Canada’s ability to control it—will have a profound effect on marijuana stocks.

If publicly traded marijuana companies are unable to compete on a level playing field against these gray market operators, or if some listed companies are able to operate on the gray market themselves without consequence, then we’ll be seeing a whole other layer added to the competition dynamic among marijuana sellers.

We’re already seeing strong legal action take place, but with uncertain outcomes. For instance, Vancouver is taking 53 pot shops operating without a license to the Supreme Court of British Columbia, hoping to have them shuttered. But that case won’t be heard until September.

Overall, Canada has a long way to go before it can confidently claim that strictly legal marijuana will be sold in the country.

You can never fully dispose of the black market, but the gray market is more a failing of proper regulation. If it continues on this path, then we may see the effects cascade out into pot stock values.

Marijuana Stocks Today: Canopy Growth Corp

The marijuana news today on the stock market, however, is golden.

Chart courtesy of StockCharts.com

Canopy Growth Corp (NYSE:CGC) is up almost 11% over the past five days, representing a strong recovery, considering the end of May had seen many pot stocks take a hit.

Canopy Growth stock finished last week strong with the announcement of five new retail locations in Saskatchewan. This is the third province where Canopy Growth will operate brick-and-mortar pot locations. (Source: “Canopy Growth announces five retail locations in Saskatchewan,” Canopy Growth Corp, June 1, 2018.)

And CGC stock is also continuing its march towards normalization. The NYSE listing was a major win for Canopy Growth stock, but it also recently held a job fair in Newfoundland. (Source: “Budtenders for hire! Canopy Growth holds job fair to fill roughly 200 cannabis jobs,” CBC, June 2, 2018.)

Not only will events like the job fair help smooth over the public’s view of the marijuana industry, but also show government officials, as well as the laymen, that the marijuana industry can bring hundreds of jobs, if not thousands, to an economy. Both are hard to argue against and will endear marijuana companies to a broader audience that may be turned off by the drug’s legalization.

Cronos Group Inc

Few companies performed as well as Cronos Group Inc (NASDAQ:CRON) did over the past four days, jumping over 13%.

The company has had one of the more volatile runs in 2018, with CRON stock prone to massive jumps and equally calamitous falls throughout 2018.

The problem with Cronos Group stock is that many analysts still believe the company to be overvalued. While that stunted growth, the company has been on an up-and-down ride ever since, often gaining double digits one week only to see those hard-earned percentage points disappear the next.

The company would love to see these gains stick, but I’m still not convinced that it will be able to hold on to these gains long-term, and will need to see prolonged periods of growth before I strongly recommend CRON stock.

Aurora Cannabis Inc

Aurora Cannabis Inc (OTCMTKS:ACBFF, TSE:ACB) came in at just shy of two percent over the past five days, making it one of the weaker performers in that time period.

Still, I have high hopes for Aurora Cannabis stock. The company has made many aggressive acquisitions and seems poised, with its increased production capacity, to take advantage of a burgeoning marijuana market.

Canadian marijuana legalization especially should serve to boost Aurora Cannabis Inc, at least in the short term. My Aurora Cannabis stock forecast, however, remains bright.

Analyst Take

Canadian marijuana legalization will have profound impacts on the global market in more ways than one.

Aside from opening up the first modern economy to legal pot, seeing how the country contends with regulation post-legalization will be a huge litmus test for countries’ preparedness to legalize pot.

The gray market is a threat to pot stocks and needs to be tackled by Canadian regulators in a more effective manner than they are now.

On the flip side, the marijuana stock market is bumping with huge gains by some of the industry’s biggest players.