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Why are Canada weed company stocks getting hammered?

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Photo Credit: lilcrazyfuzzy/iStock Photo

Canada is now the second country that has legalized the use and sales of both medical and recreational cannabis, next to Uruguay. Medical use of this substance has been legal in Canada since July of 2001 and it was just in October 2018 when it became fully legal in the country.

The main reason why Canada pushed for its legislation is to combat the black market. However, things appear to be different than what the Canadian government was expecting since its legislation. Over a year after the legislation of both medicinal and recreational use of cannabis, the industry appears to be struggling with sales and stocks.

Canada now has 335 legal and licensed dispensaries all over the country. The Canucks can also purchase products at i49 online. Home grows are also allowed, but according to law, a household can only grow up to 5 cannabis plants indoors and 2 plants outdoors. This means that you could also but seed products and cultivate the plants yourself.

Many were surely excited and looking forward to this step that Canada took in 2018. On the first day of its legislation, there were around 10,000 sales that British Columbia alone was able to make. According to reports, 9,175 sales were made online. The remaining were made that the government-run store in Kamloops, which was the only government-run store on Day 1.

Since that day, stocks were noticeable running low in the country and this problem went on. It’s even a problem that Canada’s cannabis industry is facing today. Because of this, the price of these products on the market has been affected.

In the first five quarters of its legislation, there has been a significant trend in the pricing of the products. From the fourth quarter of 2018 to the last quarter of 2019, the average selling prices of licensed products grew by more than 6 percent.

Another factor that has affected the sales of the legal products in the market is when vaping became questionable. At some point in 2019, there were issues that vaping faced. Unfortunately, the incident reported also concerned about the use of cannabis. Because of this, sales in Canada were also affected.

There’s now a big gap between the prices of the products in the legal market and the black market. What follows is that there are still people choosing to but from friends, family, and other illicit providers instead. It’s simply frustrating for the government. After all, they were hoping to compete with the black market but appears to be having a hard time beating it.

Many were also pointing out that the government has been slow when it comes to issuing retail licenses to the sellers, just like how it was in Ontario. The negative effect of these factors resulted in revenue declines for manufacturers and companies. Even the industry giants like Aurora Cannabis and Canopy Growth were negatively impacted.

Because of these circumstances, the cannabis industry stocks significantly declined. Investors do not appear to be as interested as to how some were before its legislation. Share prices have tumbled down and it is possible that many businesses in this industry will be bankrupt by the end of this year.

Rishi Malkani, a cannabis industry expert, has shared his thoughts about this. He said, “There’s a lot of trepidation, understandably, and I think it’s going to be some time before the capital markets come back.”

Malkani is expecting that more than a dozen businesses in the industry will be facing significant cash crunches in the next six to twelve months. He, however, did not disclose which businesses and companies he thinks will be shutting down this year.

The co-founder and CEO of Hexo, Sebastian St-Louis also expressed what his thoughts are regarding what Canada is facing in terms of the sales of legal products. He said, “What it takes is more stores to meet demand. “The capital markets took a breath, retail investors pulled back from the industry and that has really created a situation where companies are not profitable and there’s also no cash coming in for most companies on an investment basis.”

The industry forerunners and experts are hoping that things will change this year. This is especially since many territories are now legalizing the sales of edibles. This includes selling of food products and the sale of other substance-infused products like ointments and topicals.

The legislation of edibles and infused products happened in October of last year. It took some territories until December to launch these products. Some territories delayed it until this month.

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