Marijuana News Today: Governments Fail to Sell Consumers on Legal Marijuana

Marijuana News Today

The marijuana news today is another edition in a long of string of articles I’ve written bemoaning government ineptitude when it comes to selling consumers on legal marijuana.

Now we have a new campaign in California directed at convincing consumers to buy legal weed instead of weed from the black market. The state government hopes that the newly launched #GetWeedWise campaign will be enough to curb the black market and redirect business back to the legal market. (Source: “California urges marijuana buyers to keep it legal,” NBC News, June 21, 2019.)

The problem is certainly an extensive one in California. Far from destroying the illegal cannabis trade, marijuana legalization in the state has had little effect on illegal pot sellers. In fact, the number of illegal dispensaries far outnumber the legal ones in Los Angeles.

Some put the disparity as high as five-to-one. In any case, California maintains a thriving illicit marijuana trade and the government is keen on cracking down on the black market businesses.

The problem is they’re going about it the wrong way. While a trendy campaign may help sway a few people from black-market pot, ultimately the government will need to look inward if it wants to fix the problem.

Regulations, taxation, licensing fees—all these are big factors when it comes to the most important aspect of marijuana: the price. That’s what consumers care about most.

Despite being able to boast safer and cleaner pot, you have to remember that people have been buying black-market marijuana for half a century before legalization came in.

There’s already an inherent trust—or at the very least, a little distrust—between consumers and black-market dealers. Marijuana users aren’t likely to suddenly jump ship because they fear black-market marijuana. Not after all these decades, and especially considering how much more expensive legal marijuana tends to be.

I understand that creating direct parity between illegal and legal pot prices is practically impossible (the overhead is simply much smaller for unregulated businesses), but governments need to do more than try to convince consumers to buy legal pot. They need to make the legal products more attractive by lowering the prices.

Another huge area of concern is the laissez-faire attitude that law enforcement has seemed to take when it comes to illegal dispensaries.

Marijuana stocks trying to earn investor confidence through impressive sales numbers are going to encounter stumbling blocks by way of the black-market competition until governments step in and help balance the playing field. And if sales stall, expect share prices to follow.

CGC Stock

A perfect example of what happens to a marijuana stock when it fails to meet sales expectations can be seen with Canopy Growth Corp (NYSE:CGC). In the midst of a downturn as the pot stock market faltered in May and June, CGC stock has taken a considerable hit following its less-than-stellar quarterly report.

The company’s adjusted loss per share hit CA$0.98, compared to an expected CA$0.32. The adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) loss of CA$97.7 million was much higher than the expected CA$63.8 million loss. (Source: “Cannabis producer Canopy Growth slips after a disappointing earnings report (CGC),” Markets Insider, June 21, 2019.)

The losses were attributed to investments in sales and marketing, as well as general and administration expenses.

Quarterly revenue, however, came in at CA$94.1 million, higher than the expected CA$92.2 million.

The company managed annual net revenue growth of 191% to CA$226.3 million, with CA$140.5 million of gross revenue from Canadian recreational marijuana sales and CA$78.9 million in global medical marijuana sales.  (Source: “CANOPY GROWTH CORPORATION REPORTS FOURTH QUARTER AND FISCAL 2019 RESULTS WITH ANNUAL SALES OF$226.3M,” Canopy Growth, June 20, 2019.)

The company’s fourth-quarter revenue growth was a tad slow, at 13% over the third quarter, but still trending in the right direction.

So it wasn’t all bad.

While this was a disappointing quarter for Canopy Growth, the company isn’t totally sunk.

Its Canadian harvested cannabis is expected to increase to approximately 75,000 pounds in Q1 fiscal 2020. Furthermore, a move into the U.S. cannabidiol market,  something that Canopy Growth has mentioned in the past, would be a huge boon for CGC stock.

The next quarter presents a strong opportunity for the stock to recover if the company is able to impress.

Canopy Growth stock dropped over three percent in early-morning trading today, and is down more than seven percent over the last five days.

TLRY Stock

In a strange reversal, while Canopy Growth stock has been getting battered in the early second half of 2019, Tilray Inc (NASDAQ:TLRY) has seen huge stock price growth.

While I’m still very much on the side of CGC stock over TLRY stock, due to a number of factors—from assets and management to sales and vision—at the moment, TLRY is the undisputed leader between the two.

Tilray stock fell two percent in early-morning trading today but gained over 20% in the past five days.

While I’m not sure these gains are sustainable, it’s refreshing to see TLRY stock thrive for the first time in 2019, especially considering how poorly it was performing earlier this year.

While Tilray missed out on much of the stock gains in the first half of 2019, that may make it uniquely suited for a strong run in the second half, even while other pot stocks falter.

Still, I’m not entirely sold on TLRY stock and these gains being sustainable. I’d probably wait to see how things consolidate in the wake of this surge before jumping back in.

APHA Stock

In what has otherwise been a weak day for pot stocks, Aphria Inc (NYSE:APHA) represents one of the few bright spots. APHA stock gained about one point in early-morning trading and has fallen by about one percent over the past five days.

While not exactly amazing numbers, they are pretty solid, considering how poorly many other pot stocks have performed lately.

This is likely due to the renewed investor confidence in Aphria stock. Much like TLRY stock, APHA stock is on the upswing after a brutal period extending a year back. Both companies are parlaying that momentum into stock gains (or at least, smaller decreases) during this down period in the marijuana stock market.

CGC, TLRY, and APHA Stock Performances

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

Chart courtesy of StockCharts.com

Analyst Take

I’ve said it before so I’ll keep this brief: governments need to lessen the burden on legal marijuana businesses if they want to wipe out the black market.

The marijuana news today reveals that they’re slowly coming to this conclusion, but until we see real work done at the taxation/regulatory level, things will largely stay the same.