cannabis products.” data-reactid=”12″>The recent pullback in the Canadian marijuana market demonstrates the weakness in the slow rollout of the country’s legalization of adult use of cannabis products.
Canada legalized the recreational use of marijuana in 2018, and sales began the following October. While the Canadian cannabis industry was surging for several months, a lack of inventory stymied sales.
The government recently rolled out its cannabis 2.0 market, a term used by Canadian officials to mark the inclusion of the sale of edibles and cannabis concentrates. While the sale of additional products could boost profit margins for cannabis companies, the lack of dispensaries could dampen sales.
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investors should keep in mind:” data-reactid=”16″>Here are a few trends with marijuana stocks in Canada that investors should keep in mind:
— Watch cash levels.
— Provinces need more dispensaries.
— Canadian marijuana stocks could pull back again.
cannabis companies is extremely low, says Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader and investor.” data-reactid=”21″>The cash level of many Canadian cannabis companies is extremely low, says Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader and investor.
“There are only six Canadian companies that have enough cash for six months,” he says. “The name of the game right now is stretching your cash out long enough until the provinces open up a lot more dispensaries.”
CRON), which has 140 months of cash, Aphria ( APHA), which has 22 months of cash, and Canopy Growth Corp. ( CGC), which has 18 months of cash, based on their monthly spending, Spatafora says.” data-reactid=”23″>The top players currently are Cronos Group (ticker: CRON), which has 140 months of cash, Aphria ( APHA), which has 22 months of cash, and Canopy Growth Corp. ( CGC), which has 18 months of cash, based on their monthly spending, Spatafora says.
“Investors should look at which companies have the cash to sustain themselves over the long term,” he says. “In the future, these companies are also going to acquire a lot of companies that are mismanaged projects and companies for literally pennies on the dollar.”
Cronos has $1 billion cash that it can deploy.
“Right now, they are not getting as hammered as 75% of the market based on their cash positions, and Cronos started pivoting last year to wholesale and building up other segments of their business,” Spatafora says.
stocks in Canada is the lack of available dispensaries. The ratio should be about one dispensary to every 10,000 people, which is based on the model that Colorado used after it legalized the adult use of marijuana, Spatafora says.” data-reactid=”28″>One of the largest problems facing marijuana stocks in Canada is the lack of available dispensaries. The ratio should be about one dispensary to every 10,000 people, which is based on the model that Colorado used after it legalized the adult use of marijuana, Spatafora says.
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Instead, Ontario, the most populous province in Canada, has less than 3% of the number of dispensaries called for in that plan. While there are 14 million people who live in Ontario, the province has 40 dispensaries, but the model calls for 1,400, he says.
“In 2019, Colorado reported $1.75 billion in medical and recreational revenue, and the state has the same population of Alberta, which has the largest number of dispensaries in Canada,” he says.
The Canadian rollout has been “a complete disaster,” says Jeff Siegel, managing editor of Green Chip Stocks, a Baltimore-based investment research service.
Many of the cannabis companies are struggling since the number of dispensaries is inadequate.
“The cheap money is gone and some of these bigger licensed producers have a horrible reputation of growing really bad quality weed and people are going back to the black market,” he says.
TLRY) up by 1,700% after its initial public offering in 2018, but declines occurred rapidly.” data-reactid=”36″>Some cannabis stocks tumbled dramatically in 2019 as investor hype pushed stocks like Tilray ( TLRY) up by 1,700% after its initial public offering in 2018, but declines occurred rapidly.
bear market in cannabis stocks is not over, Siegel says.” data-reactid=”37″>The bear market in cannabis stocks is not over, Siegel says.
“It’s a really rough time for cannabis stocks, especially in Canada,” he says.
The upside is that while the larger licensed producers will struggle, other smaller companies can be a good deal.
The Canadian cannabis market will start to pick up again in September, Spatafora says.
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Buy-and-hold investors will see large declines in stock prices. The liquidity in the market drops, and marijuana stock prices follow suit.” data-reactid=”43″>Since 2013, the cannabis market in the spring is always a trade, Spatafora says. Buy-and-hold investors will see large declines in stock prices. The liquidity in the market drops, and marijuana stock prices follow suit.
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