Canada’s Adult Use Delay: Lost Profits & Stock Opportunities

Canada’s burgeoning legal cannabis market won’t be the largest in the world, but it’s on track to be the de facto global superpower of legal cannabis commerce.

However, the track to Canadian legal marijuana is turning out to be a tad longer than advertised. Earlier this month, Canadian officials announced that Canada’s anticipated July 2018 legal marijuana start date would be delayed to at least August or September of this year.

This announcement caused Canadian stocks to dip. The resulting devaluation saw all the major industry players affected: Canopy Growth’s stock value fell almost 6 percent, Aurora Cannabis and Aphira both saw 7 percent drops and MedReleaf’s stock dipped by 8 percent.

There’s a good reason for that dip — the delay spells lost profits for all these companies, with estimates of the dollar amount ranging from $350 million to $2 billion, depending on the length of the delay and the size of the Canadian cannabis market, according to The Motley Fool.

Estimates regarding the annual value of the Canadian recreational marijuana market ranges from $4.2 billion to as much as $12 billion annually.

To put those losses in context, consider that the total revenue for the “Big Four” of Canadian cannabis over the past 12 months was less than $150 million. This means even the rosiest projections for the length and scope of the delay will mean companies losing out on double their revenue for the past year.

Starting today, Feb. 27, the first cannabis stocks began trading on the Nasdaq. The stocks were for the Cronos Group, a Toronto-based company that invests in medical marijuana which was already trading in Canadian markets. Their listing on Nasdaq could be the start of an infusion of institutional capital to the U.S. cannabis industry, now that the legality of this particular investment has been settled.

This is no small matter: Mike Gorenstein, Cronos founder and chief executive officer, told The Globe and Mail that a third of the conversations he’s had with U.S. investors boiled down to whether or not they could legally invest in Canadian cannabis

“A lot of U.S. investors still are unsure about the legality: There’s not a lot of awareness about the fact that it’s federally legal in Canada versus the U.S,” Gorenstein told The Globe and Mail. “By listing on Nasdaq, it will open up the opportunities for a lot of U.S. investors that otherwise were unsure —  even on the institutional level.”

The reason behind the Canadian delay strikes a rough parallel with the deficiencies and frustrations with the rollout of California’s adult use cannabis system. In both cases, an overextension of local control over crucial aspects of the emerging market has slowed down the industry’s advancement.

In addition to substantial financial barriers to entry for its legal market, California struggles with the fact that, of its 58 counties, only 13 have issued cannabis cultivation permits — with 25 so far passing outright cultivation bans, according to a report from the California Growers Association. Even relatively cannabis-friendly counties like Sonoma have passed bans on cultivation in traditional cultivation areas, zoned as “rural residential” and “rural agricultural” zones, which according to the California Growers Association, means another 3,000 or so existing cultivators going off the legal grid and back into the illicit market.

In Canada, there’s less resistance on the local level, but the basic conflict between broad legalization and local municipalities is at play.

From The Motley Fool: 

The Canadian Senate is on track to vote on the bill to authorize legal use of recreational marijuana by June 7, 2018. It appears the votes are there for approval of the bill. Following the assumed passage of the legislation, a royal assent is likely to be quickly given… [but] Canada’s provinces and territories will need from eight to 12 weeks to get ready for retail sales of marijuana… [and] all provinces and territories will begin allowing sale of legal marijuana at the same time, which means just one laggard could delay the entire country.

So while this delay could stretch out as far as late September, this could actually be a blessing for investors looking to cash in on the growing power and stability of Canada’s cannabis industry. While the stocks still aren’t cheap, “buying 0n the dip” provides an opportunity to make short-term gains when legalization finally does rollout and stocks gain in value, but also position yourself for long term dividends from the globally expansive Canadian cannabis market.

TELL US, would you consider purchasing marijuana stock?