Pot Stocks Position Themselves for the Future
It’s not an easy game to play, relying on politicians to justify an investment. After all, it’s not exactly as if politicians are world renowned for being the most trustworthy folks on the planet. And that goes double for following through on promises, which makes the latest news about companies gearing up for the recreational marijuana market to go legal in Canada all the more interesting for pot stocks and their investors.
To give a refresher on what’s happening in Canada, the Liberal government under Prime Minister Justin Trudeau campaigned in 2015 on the promise that it would legalize all forms of marijuana use, including recreational. This would make Canada the first western nation to fully legalize the drug for public consumption. Therefore, a great many pot stocks in Canada have been reaping the benefits. (Source: “Liberals to announce marijuana will be legal by July 1, 2018,” CBC, March 26, 2017.)
But beyond those surface gains, there are larger implications at play that go beyond Canada and will affect the marijuana market in general. Many of these are centered on the pot stock companies themselves and how they’re gearing up to face the legal changes and the framework that will inform how the nation deals with weed sales.
Last time, we took a look at marketing marijuana in Canada and how the laws will shake out when it comes to regulations for weed advertisement. My argument there was that, while marijuana marketing may or may not have a massive effect on future sales, ultimately what is important to note is the tone of how legislators are approaching legalized weed.
For instance, if pot stocks are treated more like tobacco versus alcohol, that could have a dramatic effect on sales. And how Canadian legislators ultimately decide to handle the drug will have a far-reaching impact on how other nations perceive it. It could affect the global marijuana market trade when/if other countries join Canada in legalization.
But beyond the laws being enacted, we should also be paying attention to the pot companies in Canada that are gearing up for the recreational drug to go mainstream and the risk they’re taking in their legalization assumptions.
Take the recent Emblem Corp (CVE:EMC) press release that announced the company will be building a state-of-the-art 100,000 square feet production facility, the first of three, to be completed in Q4 of 2018. The new facility will be expected to produce up to 20,000 kg of marijuana in order to supply the recreational market. (Source: “Emblem Corp. Enters Agreement to Acquire Land for Production Capacity Expansion in Preparation for the Adult Recreational Market,” Emblem Corp, May 30, 2017.)
But EMC stock is taking a risk here. First off, it’s going all in. It made a $7.7-million investment in order to get ahead of the proposed legalization and therefore be in a good position to meet demand when the Canadian parliament drafts and passes a law legalizing the drug.
The only issue being, of course, that Emblem is relying on politicians. Like I said at the top, they’re not exactly known as being steadfast promise-keepers.
While there’s no indication that Canada will back out of its current plan to legalize the drug, there’s also precedent for the government being a little flippant when it comes to campaign promises. For instance, the Liberals promised to change the electoral system in Canada, then promptly withdrew that promise once Trudeau was elected.
While a totally different scenario, there is at least one instance of Trudeau and his government backing off the main campaign pledge.
Consider too that 2019 is an election year and marijuana could be a hot-button, wedge issue that would likely fall in Trudeau’s favor.
This should be seriously concerning for companies planning to profit solely off the recreational market in Canada. And EMC stock, already down over 50% since the beginning of the year, can hardly afford to take another hit.