Marijuana News Today: The Market’s Problem With Oversaturation

marijuana news today 1 june
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Marijuana News Today

In the marijuana news today is a case study in one of the industry’s biggest fears: oversaturation. Oversaturation is linked, you see, to that other bad “over” word: overvaluation.

The marijuana news today tells of a marijuana logjam in Oregon. The state is one of the many that have legalized both medical and recreational marijuana. Oregon has since become known for the quality of its homegrown pot. (Source: “Glut of marijuana in Oregon is cautionary tale, experts say,” Associated Press, May 31, 2018.) 

But the state’s enthusiasm for the reefer business may have erred on the mad side. The state now has nearly one million pounds of marijuana flower, or bud, in its inventory.

That is an enormous amount of pot, considering that the state has only about four million people. There is a quarter of a pound of marijuana bud per person in the state.

While Oregon does have a reputation for being freewheeling and pro-marijuana, I doubt that even it has enough consumers to dispose of all that cannabis.

As a result of this massive supply, the laws of economics have taken effect; a study by the state’s Office of Economic Analysis found that the retail cost of a gram of marijuana dropped from $14.00 in 2015 to $7.00 in 2017.

One of the reasons for this is that Oregon was a little too eager in its licensing, allowing many companies to enter the market, perhaps more than it could bear.

Furthermore, Oregon lawmakers also quickly disposed of a rule that required marijuana businesses to be majority-owned by someone with Oregon residency, after many complained that it was difficult to secure initial capital under those parameters.

With rich investors now faced with a wide open door, many fear that we’ll see a consolidation within the industry with smaller growers being priced out and the business being dominated by larger conglomerates.

To understand the extent of this licensing run amok, consider that over 1,000 producer licenses have been doled out in the small state, and another 950 were in process just a few days ago.

The state claims that it fears that those who don’t receive licenses will turn to the black market, but the solution of granting so many licenses has led to a market that simply can’t sustain small growers.

Another state that may be headed down a similar path is California, where prices have begun to fall.

Meanwhile, states like Washington and Colorado have been able to avoid this fate.

In Washington, the state was more conservative about licensing.

In Colorado, strict rules prevent oversupply by allowing the state to curtail a grower’s farm size based on a variety of factors.

So what does the marijuana news today have to do with the marijuana stock market?

What we’re seeing is what doomsayers have long predicted: An oversaturated market that leads to fierce competition, with the only solution being that some companies have to consolidate, be acquired, or go under.

Not to mention that these companies’ very high valuations cannot be justified due to there being such fierce competition over such a—at the moment—small market.

In Canada, for instance, many believe that we’ll see a similar effect. With so many large marijuana companies operating in the market, that makes sense.

Of course, I’ve long expressed my belief in the long-term projections of the marijuana market. The short term, however, may carry with it some problems when Canadian marijuana legalization hits and too many large companies battle it out for a rather small market.

It won’t be until we see a fuller international expansion of the marijuana market that the true potential of this industry will be unleashed. Along the way, however, there may be some bumps in the road.

CGC Stock News

Chart courtesy of StockCharts.com

With the first day of June here, we’re seeing many of the marijuana stocks beginning to level out following a rough end to May.

Canopy Growth Corp (NYSE:CGC) is up about one percent over the past five days, bringing an end to what was otherwise a tough time for CGC stock.

While the company enjoyed strong growth throughout May, last week represented a reversal of sorts, with the stock price falling.

This was seen across the industry, and I didn’t believe it spoke to a longer trend. I see June being a strong month for CGC stock as hype continues to build around Canadian marijuana legalization and the company enjoys its new NYSE listing.

Aurora Cannabis Stock News

Down a little over two percent in the past five days, Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) would have liked to have seen a stronger end of May.

I predict that Aurora Cannabis stock will stabilize in the first few weeks of June, without much significant movement up or down. I see a push begin to formulate at the end of the month, however, as Canadian marijuana legalization continues to near.

Furthermore, Aurora Cannabis stock rarely remains quiet for long. It wouldn’t be unheard of for the company to make a big announcement regarding further acquisitions—something it has done several times already this year.

Analyst Take

Preventing oversaturation—and therefore also helping ease the claims of overvaluation—is an absolute necessity for the marijuana industry.

Different U.S. states have implemented different rules, as we’ve seen in the marijuana news today, to varying results.

Canadian marijuana legalization will be a huge test of the industry to see if the problems in Oregon replicate themselves, or if Canada can learn from those mistakes.