Marijuana News Today: Pot Shortages Continue to Slow Canadian, U.S. Markets

Marijuana News Today

One of the big stories this month continues in the marijuana news today, with supply shortages hurting both the Canadian and U.S. pot markets.

We’ve discussed at length the difficulty that Canada has faced so far in supplying enough cannabis to its eager consumers.

Supply chains have been inefficient, stores have had to reduce their hours, and retailers have publicly complained to the provincial governments that control the supply.

The shortage has produced or revealed many problems in the Canadian marijuana market, but the most important takeaway is this: the county’s legal marijuana industry is missing out on valuable sales.

And now it appears that this supply problem is replicating itself in Michigan. The state was the site of marijuana’s biggest victory in the recent midterm elections, with it becoming yet another addition to the growing list of U.S. states that will permit recreational marijuana.

But judging from its medical marijuana supply woes, Michigan may be a long way off from being ready for the recreational pot market.

The state is experiencing a medical marijuana supply shortage, with 40 newly licensed medical marijuana dispensaries around the state facing shortages of pot from licensed growers. Some dispensaries have been considering closing their doors until spring, when the supply would be more readily available. (Source: “Michigan’s medical marijuana dispensaries could run out of pot to buy,” Detroit Free Press, November 16, 2018.)

The problem stems from the fact that Michigan only has 12 licensed marijuana growers. The production process takes anywhere between four and six months. With growers not receiving approval to make their product until August of this year, the delay in the supply pipeline has led to shortages.

There is a law in place that somewhat provides relief, allowing 40,000 registered caregivers to grow marijuana and sell excess product to the dispensaries.

The problem is that once dispensaries get their license, under the law, they can only buy marijuana from licensed growers—after a 30-day window in which they can buy from caregivers. Following those 30 days, licensed dispensaries are mandated to destroy any excess marijuana they have purchased from the caregivers; a wasteful tactic in a climate that demands more legal pot in circulation, not less.

There are emergency measures in place now to allow unlicensed dispensaries to operate, with many opting for that system until the rule is revoked. It’s understandable why; dispensary licenses come with state rules (including the restriction to buy from licensed growers) and a $66,000 regulatory fee.

All this has served to create an environment which, rather than helping spur on growth in the pot economy, slows it down.

While these sorts of delays are often temporary and plague most legal cannabis markets when they first open, you’d hope that by now, with so many states already having gone through the process, there would be a better system in place.

TLRY Stock

While it’s doubtful that the delays have hurt marijuana stock prices too much (yet), they will likely have a big impact on the next quarterly reports, which will feature weaker sales figures than hoped.

And that’s important, considering that many stocks saw their share prices rise, despite the industry-wide pullback, due to strong financial statements.

Tilray Inc (NASDAQ:TLRY) is one of the companies that showed strong earnings growth in the latest quarter, leading to a week of relative positivity in the stock market compared to the beginning of November.

Tilray stock jumped about two percent on the day of the earnings release and has seen its share price remain even over the past five days.

While this is hardly great news, it is a welcome change of pace, considering how poor things had been for the marijuana industry to start the month.

Tilray’s most recent quarterly report showed its revenue climb 85% year-over-year and its average per-gram weed prices drop from $7.53 to $6.21, which Tilray said was because the company sold more marijuana in bulk than in the previous year. (Source: “Marijuana producer Tilray says revenue surged more than 85 percent last quarter,” CNBC, November 13, 2018.)

While the earnings fell a little short of expectations, it was a strong report that looked even better in comparison to some of the weaker financial reports.

In fact, so far, it appears that Tilray stock may be one of the best suited to endure the current cannabis market correction.

The stock market appears to be favoring the two marijuana stocks listed on the Nasdaq, with Tilray and Cronos Group Inc (NASDAQ:CRON) consistently outperforming competitors as of late.

While I still have doubts about TLRY stock, its performance over the past few weeks is beginning to make me reconsider my position.

CRON Stock

Speaking of Cronos stock, it has also had a relatively decent week when compared to other pot stocks. CRON stock climbed two percent this morning, and led many marijuana stocks on the week, with gains of about 2.6%.

While hardly a huge gain, this is still a welcome result, considering that many weed stocks were in the negative this week.

Cronos, much like Tilray, had strong financial numbers to back it up, outperforming some of its rivals with its impressive quarterly report.

Revenue made significant gains, and overall, the company delivered strong numbers.

CRON stock has always been a little rogue, often setting out on its own path rather than following marijuana stock market trends. As such, it may be one of the better picks during the correction.

APHA Stock

Now on to the bad news: Aphria Inc (NYSE:APHA). It seems that no matter what Aphria does, it’s unable to right the ship.

The company has been suffering through a difficult 2018, with recent weeks not helping any. APHA stock fell nearly five percent in morning trading today, and over the past five days, it has lost over 12%.

While I keep waiting for Aphria stock to make a turnaround, nothing seems to work for the company in a substantial, sustainable way.

Even the switch to the New York Stock Exchange was met with a muted market reaction.

While there is still potential in APHA stock, it’s becoming harder and harder to justify holding on for this long without much to show for it. I wouldn’t jump ship yet, but APHA stock has only a few months left to prove itself.

TLRY, CRON, & APHA Stock Performances

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

Chart courtesy of StockCharts.com

Analyst Take

Weakened cannabis sales are the result of the marijuana news today. Both in Michigan and in Canada, legal marijuana sellers are not going to be able to fully tap into the market due to the disparity in supply and demand.

While this is not unexpected, it is still unfortunate. And it may very well hurt the next fiscal reports, leading to a longer and potentially deeper correction than there would have been otherwise.