Marijuana News Today: Black Market Continues to Plague Pot Stocks

Marijuana News Today

The marijuana news today offers a clearer picture of a problem that the industry has been contending with for years: the continued success of the black market.

An audit by the United Cannabis Business Association found that there are about 2,835 unlicensed weed dispensaries and delivery services operating in California, the largest marijuana market on earth. (Source: “Nearly 3,000 illegal marijuana businesses found in California audit, dwarfing legal trade,” Los Angeles Times, September 11, 2019.)

By contrast, the legal market in the state is made up of only 873 cannabis sellers operating with state licenses.

Another industry-backed audit found that about $8.7 billion will be spent on unregulated cannabis in California this year. Again the legal market limps behind; in the same period, there will be about $3.1 billion spent on cannabis sold by legal businesses in the state.

This issue has been something we’ve tracked for months. While we knew that transitioning from a massive illegal network to a legal one wouldn’t happen overnight, it is disheartening to see that a massive disparity between legal and illegal profits still exists.

To put this in investor terms, every dollar that is spent on illegal pot is one less dollar that could have filled a legal company’s coffers, bolstering revenue and stock value.

There are a number of reasons for the illegal trade gulf. One is that fewer than 20% of cities in California permit retail shops to sell cannabis for recreational use. But even in cities where marijuana sales are permitted (including major hubs like Los Angeles, San Diego and San Francisco) there still exists a booming black market cannabis trade.

Many blame the web site “Weedmaps,” which allows many illegal marijuana businesses to advertise using the online tool. The company has vowed to cull unlicensed advertisers from its site, but it took a fair bit of cajoling to get to this point.

Even then, this will likely hardly put a dent in the black market for a simple reason: the black market is thriving because people trust it and it’s cheaper.

On one hand, you have long-time pot users choosing to continue to make use of the black market that was their only supplier for years. They’ve grown accustomed to trusting non-licensed marijuana dealers.

While the government will say that there are inherent dangers in illegal marijuana due to its unregulated nature, that warning rings hollow to many who have used the drug for years—sometimes decades—without ill effect.

Even though, all things being equal, most people would likely prefer to keep their purchases legal, the problem is that things are not equal. Taxation and high regulatory fees means that legal marijuana is often far more expensive than illegal pot.

So the main draw of legal marijuana, the fact that it’s not illicit, doesn’t help in this case because that benefit is outweighed by the cost disparity. With consumers generally trusting illegal pot and knowing there are relatively minor penalties for purchasing it, the result is the problematic situation in California (and elsewhere) that we see now.

The solution is simple: reduce fees and taxes, at least until the illicit trade is snuffed out. Then slowly ramp up those fees and taxes later. This would benefit legal marijuana companies, consumers, and governments.

CURLF Stock

The marijuana news today isn’t all that much brighter when we take a look at the stock market. While the industry has certainly turned things around in recent weeks, today is an outlier, in that many share prices are down.

But one marijuana stock that we’ve been celebrating quite a bit lately has seen its fortunes continue to skew toward gains: Curaleaf Holdings Inc (OTCMKTS:CURLF, CNSX:CURA).

CURLF stock gained one percent in early-morning trading today, continuing its upward trajectory. Over the past five days, Curaleaf stock has jumped 10%.

While a one-percent gain is hardly worth shouting about from the rooftops, it’s quite impressive, considering that almost all of the company’s major competitors were down today.

Much of this is due to the string of victories that Curaleaf has scored lately.

The company was recently crowned as the first to have created a marijuana billionaire. Curaleaf chairman Boris Jordan is reportedly worth $1.1 billion, making him the first billionaire to derive said fortune primarily from legal pot. (Source: “Cannabis King: Boris Jordan, Chairman Of Curaleaf, Becomes The Only Pot Billionaire,” Forbes, September 10, 2019.)

On top of that, Curaleaf launched a new dispensary in Port Charlotte, Florida. It’s the 49th dispensary that Curaleaf has opened in the U.S., and the 26th that the company has opened in Florida. (Source: “Curaleaf Opens Port Charlotte’s Largest Medical Cannabis Center,” Curaleaf, September 3, 2019.)

Curaleaf’s increasing U.S. presence is helping the company achieve another remarkable milestone: it issued guidance predicting over $1.0 billion in revenue for the next fiscal year. If successful, that would make Curaleaf the first marijuana company to clear that mark. (Source: “Cannabis Canada: Will Curaleaf be the first pot company to report US$1B in sales?” BNN Bloomberg, August 28, 2019.)

All this has coalesced to make CURLF stock one of the hottest stocks in the marijuana market right now.

ACB Stock

As I said, despite Curaleaf stock’s relative success this morning, many pot stocks were on the descent. And few were worse off than Aurora Cannabis Inc (NYSE:ACB).

Aurora Cannabis stock dropped nearly nine percent in early-morning trading today. The fall wiped out all the gains made over the past five days.

ACB stock plummeted following a weak quarterly report. The company saw a net loss of CA$2.3 million on net revenue of CA$98.9 million, with an adjusted earnings before interest, tax, depreciation, and amortization (EBITDA)  loss of CA$11.7 million. (Source: “Aurora Cannabis stock drops after earnings, as pot sales miss revised target,” MarketWatch, September 12, 2019.)

Analysts surveyed by FactSet Research Systems Inc had estimated adjusted losses of CA$0.06 a share on revenue of CA$108.0 million.

While the company still saw growth over the previous year, missing analyst expectations went about as you would expect for Aurora Cannabis stock: poorly. This wasn’t helped by the fact that the company had already adjusted its forecast down for the quarter.

While a poor quarterly report is never a good thing for a company, it can be an opportunity. This will lower expectations for the next quarter and mean that ACB stock has a chance to recover later.

On the other hand, a second failure in a row could spell disaster for Aurora Cannabis stock, making the company’s projection at this time highly volatile.

CURLF and ACB Stock Performances

The performances of CURLF stock (black line) and ACB stock (blue line) over the past week are seen in the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today is hardly the best we’ve seen. Heck, it’s about the worst we’ve experienced so far in September.

Still, the legal cannabis industry does appear to be on the upswing in general, even if long-term problems like a booming black market persist.