Can Marijuana Stocks Still be a Solid Investment in this Market?


The timetable for Canada’s path to legalization of recreational pot has lost some momentum due skepticism as to its feasibility. Last week, Canada’s Senate held a hearing where the date of the country’s legalization – anticipated for July this year – suddenly seemed doubtful. With billions in investments, business expansions and industry growth riding on Canada’s shoulders in the roll-out of legal recreational pot, this news was understandably unsettling for many in the industry.

Five words spoken by the Public Safety Minister, Ralph Goodale, could mean the difference of at least five billion dollars for marijuana stocks and alleviate some concern.

He stated that Canada appears to be “on track and on time” to continue with its original plans for legalization.

Why are those five words potentially worth billions?

Estimations of the value of Canada’s market of legal recreational pot from the get-go are between $4.2 billion and $6.2 billion, according to the country’s Parliamentary Budget Officer (PBO). Deloitte, a professional services firm, estimates the market value between $4.9 billion and $8.7 billion, while another Canadian analyst in the industry believes those estimates could be doubled.

If the middle value of PBO’s estimated range ($5.2 billion) is accurate, legalization delays would potentially result in a loss of more than five billion dollars for the marijuana industry and related businesses, including weed stocks investors.

This means even a delay of six months in Canada’s legalization could mean a loss of roughly $2.6 billion in projected revenue for the country’s cannabis companies. Time, in this case, really is money, and each day that delays the schedule for legal recreational pot is bound to be costly.

Thankfully, there are three reassurances for the marijuana industry and marijuana stocks Canada investors:

  1. Canadian Prime Minister, Justin Trudeau, is committed to seeing legalization through to completion.
  2. In Canadian legislature, Trudeau’s Liberal Party claims the advantage.
  3. Canadians have significant tax revenue vested in legalization.

Still, it’s a scramble against time as Canada tries to get everything in place to accommodate the high demands that are anticipated in the industry.

How ready are Canada’s marijuana industry and marijuana stocks Canada investors for legalization?

For starters, greenhouses are expanding.

The largest of Canada’s medical pot growers, Canopy Growth (NASDAQOTH:TWMJF), has several million square feet of greenhouse growing capacity throughout eight of Canada’s provinces and more under development. The purchase of a 450,000 square-foot greenhouse and 212,000 more square-feet of greenhouse in construction in Ontario are just two examples of the company’s recent expansion.  Canopy is also part of a joint venture in British Columbia to develop a greenhouse with a growing capacity of 1.3 million square-feet and options for another greenhouse in B.C. with 1.7 million square feet for growing.

Canopy Growth is not the only cannabis stocks company in Canada that has been busy with construction of new facilities.

Aurora Cannabis (NASDAQOTH:ACBFF) is working on an 800,000 square-foot production facility in Alberta, set for completion around the projected time of legalization. Aurora also acquired 48,000 square-foot facility in Quebec when they purchased H2 Biopharma. 

More cannabis growers are expanding their production capacities, in preparation for the launch of legalized recreational pot, but, it is still possible that they will be met with greater demand than supply can initially cover.

With share prices of Canadian marijuana growers already trading on the expensive side – anticipated growth reflected in the current share values – how will the valuations of those weed stocks change if projections for the industry’s market are on track?

Those seeking marijuana stocks to invest in will want to know how well cannabis stocks companies are currently performing.

Canopy Growth has a $4 billion market cap and roughly $50 million in sales over the past year. Aurora Cannabis’ market cap is close behind, though their 12-month sales were trailing. If each company were to claim 20% of the recreational pot market, their annual sales would still be about $3 billion behind the market cap, and the cap itself would appear far less intimidating.

For marijuana stock investors, it’s a wait-and-see, circling back to the validity of those five words spoken by Ralph Goodale and how the timeline of Canada’s legalization actually plays out.

(For more information on Canada’s legalization process, read Dow Drops, Marijuana Stocks Stay High.)


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