Marijuana Market About to Enter the Next Phase

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  • Canada is moving rapidly towards the legalization of marijuana. The move comes as leaders of the G-7 nations met in the country. The G-7 are the largest economies in the world and include the United States, Canada, France, Germany, Italy, Japan and the United Kingdom.

    Canada is on track to be the first of the G-7 countries to legalize marijuana after the Senate recently voted to legalize recreational marijuana. The legislation now heads back to the House of Commons for final action.

    The move had been widely expected. According to CNBC, “Health Minister Ginette Petitpas Taylor said earlier this year that marijuana would only go on sale a few months after it was legalized because the new retail system needs time to start working properly.

    The amendments proposed by the Senate include tighter advertising restrictions and giving the provinces say over whether Canadians can grow marijuana at home. The government’s legislation would allow Canadians to grow up to four plants at home for personal use.

    Although legalization has already been delayed from the government’s initially planned July launch, some provinces and police forces have argued they need more time. The provinces have been left in charge establishing how and where marijuana will be sold.

    The Liberals, which made legalizing recreational use part of their successful 2015 election campaign, say the new law would keep marijuana out of the hands of underage users and reduce related crime.”

    Companies Prepare to Meet Demand

    As Canada moves towards full legalization, it’s not surprising that Canadian marijuana companies have generated interest among investors.  Canadian companies including Canopy Growth Corp, Aphria Inc, Aurora Cannabis Inc and Horizons Marijuana Life Sciences ETF have been hot investments.

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  • The chart of the ETF is shown below. This includes all data since it began trading on 4/20 in 2017.

    daily chart

     

    The chart shows the optimism and pessimism of investors in the country’s fledgling market. It might be surprising that some pessimism exists in what appears to be a vast market opportunity.

    But, not all companies believe the launch of legal recreational marijuana will be smooth. One medical marijuana shop owner is concerned that could paradoxically mean less cannabis is available for the first few months.

    James Whitehead owns three Medijuana Dispensaries and the recently opened Cannabis Medical Centre in Victoria. He recently told the Canadian news service CBC, “I do foresee an upcoming gap in supply.”

    Whitehead said there is still confusion among dispensary owners as to what will be required to obtain a non-medical cannabis retail license and whether having owned an illegal dispensary previously will have a negative impact.

    One thing is clearly laid out in the province’s Private Retail Licensing Guide though: once a license is granted, only cannabis obtained from the licensed Liquor Distribution Branch can be legally sold on the shelves.

    “You will be immediately required to cease selling cannabis that is coming from any outside sources,” said Whitehead. “I anticipate that there will a fairly substantial gap between the issuing of licenses and the actual reality of being able to pick up the phone and order cannabis stock.”

    Dispensaries will still be able to sell accessories and do educational outreach programs, but the risk of fines and licence revocation will stop them selling previous unauthorized cannabis products, he said.

    “In the lead-up days to when licensing is actually being issued, you are going to see all sorts of blow out sales — similar to a going-out-of-business sale,” Whitehead said. “There will be a need to liquidate all current stock.”

    Police will be allowed to enter and inspect dispensaries to make sure they are compliant with the legal requirements, the licensing guide states.

    It’s not just recreational users who will be impacted by the “upcoming dark period,” Whitehead said.

    “I’m concerned that if there is a large interruption to the supply chain — that if many people, in order to comply with the licensing requirements, have to shut down — people that are accessing cannabis for medical purposes are going to see an interruption in what up till now has been a very comfortable form of access for them,” he said.

    Trading the News in the US

    There is the same mix of optimism and pessimism in the US as investors ponder the impact of marijuana legalization. This is shown in the chart of Cronos Group Inc. (Nasdaq: CRON) below.

    CRON daily chart

    According to experts, the company, which is based in Toronto, “became the first cannabis “plant-touching” company to be listed on the Nasdaq in February 2018.

    The company has medical marijuana production and distribution operations across many different countries like Israel, Canada, Germany and Australia.

    …the challenge for Cronos is that, unlike other geographies in which it operates, marijuana and cannabis continue to be illegal in the United States at the federal level.

    For a company that does not have active operations in the country and operates in a sector that could see significant tightening of regulation, that might just be a tough spot to be in. On the first trading day of May 2018, Cronos shares plunged around 10%, partly in response to a downgrade from Canaccord Genuity analysts following the company’s earnings release.”

    The path of CRON is why some experts recommend companies like GW Pharmaceuticals plc (Nasdaq: GWPH). This stock has soared since it began trading.

    GWPH monthly

    The company is a biopharmaceutical company that engages in discovering, developing, and commercializing cannabinoid prescription medicines using botanical extracts derived from the Cannabis plant. It’s indirect involvement in the field makes it less volatile than companies directly touch cannabis plants.

    GWPH and CRON are just two of many options for investors in the US to trade marijuana related ideas. But, they demonstrate the challenges. There will be winners and losers and times when some companies soar while others languish. In short, it will be like other volatile sectors.

    But, marijuana is likely to make millionaires out of investors who make the right trades. We’ve put together a special report that can help you navigate this emerging market. You can access that report by clicking right here.