Marijuana News Today: Pot Stocks Struggle to Overcome Government Barriers

Marijuana News Today

The marijuana news today has us seeing marijuana companies struggle with the increased price of pot in Canada in the wake of legalization.

While we’ve seen huge jumps in sales across the board for most pot companies post-Canadian legalization, Canadian governments (federal and provincial) have in many circumstances proved to be a hindrance rather than an asset to legal marijuana companies.

A variety of regulations—from mandatory packaging stamps to licensing fees—have forced the price of marijuana higher. The new higher prices have in turn kept many people in the illicit weed trade.

A new voluntary survey by StatsCan reveals that, after legalization, the price of marijuana jumped 17% and the disparity between legal weed and black market weed is 57%. (Source: “Legalization pushed up price of pot by 17%, StatsCan says,” CBC, April 10, 2019.)

People tend to not want to break the law, but considering how low-stakes marijuana possession is, it makes sense that many would rather keep their old drug dealer who was selling them pot at a much more reasonable price than buy the government-approved, much-more-expensive weed.

On top of that, you have to contend with a number of other barriers that legal weed has faced in Canada ever since October, such as supply shortages.

The overall picture, then, is one where many people are keeping their dollars in the black market, and that’s hurting marijuana stocks.

Only a few days ago, analysts slashed their sales expectations for the Canadian marijuana market. That is in large part due to the weaker-than-expected sales numbers in Canada. Those sales numbers are being heavily impeded by supply shortages and runaway pricing, among other issues.

The problem here is that government missteps are going to have a growing negative impact on pot stocks.

While many quarterly reports have been positive in the wake of Canadian legalization, others have been less so, and part of the blame lies at the feet of government.

While it’s by no means easy taking an industry from black-market to legal within a few years, the many regulatory hoops that companies have been forced to jump through are preventing legal weed from squashing the far cheaper black market.

Until the Canadian government is able to reduce its stringent regulations, marijuana sales will not meet their potential. If sales don’t match expectations, expect to see several prominent pot stocks decline in the near future as their quarterly reports reveal the damage.

CGC Stock

While the future is looking a little troublesome in the marijuana news today, the present hasn’t been a cakewalk either; many pot stocks are down to start the day. In fact, this week in general has been a poor one for the marijuana industry, with April appearing to be the first real bad showing for the pot stock market.

One company that was especially hurt when trading began is Canopy Growth Corp (NYSE:CGC). CGC stock dropped about three percent to begin the day, and finds itself down five percent over the past five days.

To make matters worse, analysts at a major Canadian bank have lowered their revenue projections for Canopy’s next quarter by 26%.

“We see street estimates being far too high, which we expect to result in large earnings misses next quarter,” said Bank of Nova Scotia (NYSE:BNS) analysts.

“Consensus expectations remain too optimistic, both on the ability for producers to bring production to market and the size of the current market.” (Source: “Canopy Growth heading for ‘large earnings misses next quarter’: Scotiabank,” Yahoo! Finance, April 11, 2019.)

This sales cut was no doubt influenced by the issues we’re seeing in the Canadian market that I referred to above.

So while the future of pot stocks may suffer due to Canadian regulation, the present is also at risk of seeing prices fall as analysts adjust to the weaker numbers.

Canopy Growth Corp remains among my top picks in the marijuana industry, Canadian sales issues and all.

While CGC stock may take a hit next quarter if the numbers come in low, ultimately the Canadian market will stabilize as it matures, seeing a decrease in price and a corresponding increase in sales.

How long this takes is the question, but even with these issues, Canopy Growth has a number of other exciting moves on the come up. Its entry into the U.S. cannabis market via cannabidiol, for instance, is one of the more widely anticipated moves that could more than offset the weak sales in Canada.

CRON Stock

Another company that took a significant hit this morning was Cronos Group Inc (NASDAQ:CRON). Cronos stock fell by over two percent in early-morning trading and has dropped by nearly four percent over the last five days.

While there was no direct link to CRON stock’s drop as there was with CGC stock, Cronos shares have stumbled a bit in April.

Cronos began 2019 on a rip-roaring run, but has since slowed down as the months have progressed. This is mostly due to the excitement of the Altria Group Inc (NYSE:MO) deal wearing off.

In any case, Cronos Group Inc, much like Canopy Growth Corp, has a lot of growth potential.

I am beginning to suspect that we’re going to see some tough times ahead for the marijuana industry in the near term. But overall, I’m still as bullish as I’ve ever been on pot stocks.

The sector has yet to face a true correction in several months now and pot stocks have soared in 2019, meaning that a pullback would not be unexpected in the coming weeks or months.

Still, as we’ve seen before, the pullback (if it happens) would only be temporary and would be balanced out by higher gains in the aftermath.

CGC and CRON Stock Performances

The performances of CGC stock (black line) and CRON stock (blue line) over the past week are seen on the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today is about as negative as it has been since the beginning of the year.

Canadian regulations continue to hurt legal marijuana sales, which in turn has been harming pot stocks.

The cannabis stock market, meanwhile, has been seeing a slowdown in April, which could herald an oncoming correction.