Marijuana News Today
The marijuana industry continues to struggle with illegal businesses eating into profit (and therefore inhibiting stock growth), with the marijuana news today seeing a call from Californian producers for the government to intervene.
Pot stocks need to show high sales in order to continue on a path of growth. With so much emphasis being placed on financial reports in 2019—made all the more important now that there’s a legal market in Canada—it’s instrumental that marijuana companies are able to show high sales numbers in order to justify investor confidence.
After all, higher sales means higher revenue, which means a higher valuation in the end.
But that process is being sabotaged by the bevy of illegal marijuana businesses still operating, cutting into marijuana sales and making it difficult to access the full potential of the market.
In Canada and many markets across the U.S., illegal operations have been eating into sales due to unfair advantages that gray- and black-market businesses are able to make use of.
For instance, the regulatory burden placed on companies operating legally often causes prices to soar, making illegal marijuana tend to be cheaper.
Customers will almost always gravitate towards cheaper products if they think they’re similar quality-wise. This is especially pronounced in the marijuana industry because the black market has existed for so long that consumers are far likelier to trust the illegal goods versus the unfamiliar legal products.
If you were buying your pot illegally for the past 20 years, it shows you already trust the black market. Why switch to a more expensive product when a cheaper one will do just as well? It’s basic economics, and it’s an unfair system that benefits illegal activity.
That’s why we’re seeing producers begin to call on governments to act, like in California. Recently, a letter was penned by the Southern California Coalition, a legal cannabis industry group, and sent to the Los Angeles City Hall demanding action. (Source: “Legal marijuana industry presses for crackdown on illegal shops in California,” The Hill, June 11, 2019.)
But as I stated above, this problem is by no means limited to California. In many parts of Canada, gray-market businesses still operate storefronts dispensing marijuana. They sell the product but follow none of the legal regulations that their competitors operating legally are adhering to. This gives them an unfair competitive advantage.
Frankly, it’s a problem for everyone involved. The black market continues to thrive, undermining the authority of the state. Legal marijuana companies are unable to fully access the market, slowing sales and decreasing growth. And money is continuous flowing into the hands of criminals, benign and otherwise, while also largely being untaxed.
It’s a bad situation that needs the government to intervene by putting more effort into clamping down on illegal marijuana businesses and less time into creating intricate regulatory burdens that harm the legal pot business.
Meanwhile, the marijuana news today wasn’t all that great on the pot stock market today, as we saw our first pullback in June—albeit a very small one.
Most pot stocks were down this morning, but these losses were rather minuscule, especially when weighed against the very strong gains we saw at the beginning of the month.
Canopy Growth Corp (NYSE:CGC), as usual, has been weathering this pullback particularly well. CGC stock fell less than a percent in early-morning trading today while being up 4.5% over the past five days.
CGC stock, as we’ve seen a number of times now, continues to impress with its ability to withstand pullbacks, whereas other more volatile marijuana stocks are often sent reeling from these downturns.
This is a function of Canopy Growth’s size and strength in the industry. At this point, it’s probably the biggest household name in the industry and has the fundamentals to support growth for years to come.
Furthermore, whereas many large companies often see their growth begin to slow as they become larger, Canopy hasn’t had that problem yet, seeing very strong gains in 2019, matching and oftentimes exceeding share growth made by smaller competitors.
As such, it’s hard to bet against CGC stock at this time. The company is simply in too powerful of a position to be at great risk of a blindside fall in the stock market while also promising investors steady and sustainable gains that outperform many other companies of a similar size in other industries.
On the complete opposite end of the spectrum from Canopy Growth, we have Tilray Inc (NASDAQ:TLRY). Tilray stock continues to be one of the most volatile stocks in the cannabis industry, with huge swings up and down while being on a continuous downward trend ever since its absurdly high valuation post-initial public offering last summer.
TLRY stock found itself down by over three percent in early-morning trading today, while over the past five days, the company has seen stellar growth of 13%.
The takeaway, though, is that, despite those strong recent numbers, Tilray stock is still among the least solid pot stocks around.
Frankly, the stock’s volatility makes it unappealing to long-term buy-and-hold investors, especially when you look at the stock’s trend line since its peak in the summer of 2018.
Is there potential still locked away within Tilray stock? Absolutely.
The problem is that investor confidence in the stock is at an all-time low, and for good reason. When so many other marijuana stocks have gained, Tilray has lost. It has consistently been outperformed by its peers for a year now.
When investors eventually settle on a reasonable valuation for Tilray, we’ll see the stock begin to recover steadily. Until then, volatility will be the order of the day for TLRY stock.
CGC and TLRY Stock Performances
The performances of CGC stock (black line) and TLRY stock (blue line) over the past week are seen on the chart below:
Chart courtesy of StockCharts.com
The marijuana news today has us rehashing an old but important point: governments need to start helping the legal pot trade instead of hurting it.
It’s a simple diagnosis with a complicated remedy, but the fact is that governments hurt everyone involved, from investors to producers to consumers—to even themselves, when they are unable to create a thriving and fair business environment for the marijuana trade.
While it is long overdue, I believe that governments will get it right eventually. And when they do, marijuana stocks will rise accordingly.
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