Marijuana News Today: Pot Prices Fluctuate, Weed Stocks Fall

Marijuana News Today

The marijuana news today is on the bleaker side, as we see regulatory hurdles causing a vast disparity in marijuana pricing from state to state, while the pot stock market continues to drop (with a few exceptions).

First, we’ll cover the news regarding pot pricing in the U.S.

Prices for pot on the East Coast are varying widely, ranging from $2,000.0 a pound for flower all the way up to $4,200, depending on the state. (Source: “Cultivators, MJ executives say Eastern US marijuana prices remain strong as industry grows steadily,” Marijuana Business Daily, August 19, 2019.)

This is largely due to each state’s individual laws and regulations. Everything from minimum wage to land pricing can all play a part in the cost of marijuana, but the costs we’re most focused on (as usual) are the ones incurred due to regulations imposed by the governments specifically on pot.

Everything from packaging to licensing to taxation to shipping, all these are regulated and imposed on a state-by-state basis and can have a massive impact on the price of marijuana in these states, as we’re seeing above. Again, this isn’t the only factor—pricing on a state to state basis is multifaceted—but it is a very important one.

One of the major struggles in the marijuana industry has to do with pricing marijuana at an affordable rate in order to beat out the black market, which, despite legalization spreading more every day, is still going strong.

Literally millions upon millions of dollars are being lost to those who sell pot outside law because they have a strong competitive advantage: cheaper pricing. They don’t have to contend with any regulatory-related costs, tax, land costs, or any of the other overhead fees that come along with operating a business (I doubt, for instance, that street dealing carries with it a great health insurance plan or pension).

All this to say is that the legal business is booming, but the prices of marijuana need to come down in order to totally eradicate the black market and bring those sales into the legal sphere, and thereby help boost marijuana stocks.

I normally hate when people say this, but I think in this situation it’s apt: governments need to run more like businesses. By that I mean they need to lower taxation and other regulatory costs so that the legal business can compete with the black market and price them out. Once most of the black market has been eradicated, then you can easily begin raising taxes and other fees. It’s a model employed by tech companies and big box retailers and it’s very feasible in this case.

Overall, marijuana prices need to come down and stop fluctuating the way they do from state to state in order to compete with the black market and bring those sales they would otherwise be losing into the light.

If that’s done, share prices are bound to rise.

CGC Stock

The marijuana news today isn’t all that better when we look at the pot stock market.

Shares across the board are again falling, with Canopy Growth Corp (NYSE:CGC) leading the way.

This has been arguably one of the worst periods for Canopy ever. The company has taken hit after hit, starting with the firing of former CEO Bruce Linton and capped off by a disappointing quarterly report.

CGC stock fell about five percent in early morning trading and is down nearly 19% over the past five days.

The collapse of CGC stock has been so profound in recent weeks that, for the first time in a long while, the company is down from last year about 20%.

Canopy Growth Corp’s quarterly report, which dropped last week, is largely to blame for the massive collapse, alongside broader market forces outside the purview of marijuana (like the increasing trade tensions with China and the inversion of the bond yield-curve causing panic among investors).

One of the big issues with Canopy came by way of its loses: the company saw a decline of CA$1.28 billion during the three months ended June 30. This is a dramatic jump from a loss of CA$91.0 million in the first quarter of fiscal 2019. (Source: “Canopy Growth’s loss widens as soaring expenses offset revenue,” BNN Bloomberg, August 14, 2019.)

One of the biggest reasons for said loss came by due to a CA$16.2-million cost in operations resulting from facilities not yet producing cannabis or operating under capacity.

Analysts were expecting losses in the first place, but underestimated just how much. Financial data firm Refinitiv predicted a loss of CA$0.70 per share on CA$107.1 in revenue. (Source: Ibid.)

On the bright side, Canopy Growth achieved CA$90.5 million in net revenues, in comparison to CA$25.9 million the previous year. Still, even with this increase, the losses were enough to derail CGC stock and send shares plummeting.

The future is about as bleak as I’ve seen it for Canopy Growth Corp, and I’m quickly becoming bearish on the company.

IIPR Stock

One company that I’m very bullish on, however, even in these tough economic times, is Innovative Industrial Properties Inc (NYSE:IIPR).

The marijuana real estate investment trust only continues to impress, bumping up its dividend in the most recent quarter.

Innovative Industrial Properties is also one of the few companies tied to the marijuana market that have seen gains over the past week. IIPR stock jumped nearly nine percent last week, while it gained two percent in early morning trading today.

IIPR stock, overall, is one of the safest picks in the marijuana industry. It’s a far more stable company that pot producers, and is largely unbothered by the regulatory burdens that we touched upon to start this piece.

Overall, even if the company did see a bit of a decline over the past few weeks, I believe that the company could easily gain another 50% before 2020.

CGC and IIPR Stock Performances

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

Chart courtesy of StockCharts.com

Analyst Take

The marijuana industry is facing a tough time right now, and that’s reflected in the marijuana news today.

The fluctuating prices speak to an uneven approach to regulation, something that needs to be sorted on a political level in order to allow pot stocks to reach their full potential.

On the flip side, IIPR stock continues to shine and is quickly becoming one of my top pot stocks, even if it doesn’t touch marijuana directly at all.