Marijuana News Today: Supply Shortages Strike Canada, Pot Stock Market Plummets

Marijuana News Today

Despite a string of positive stories recently, the marijuana news today is rather dour as the cannabis stock market faces a massive, near-universal pullback and Canada faces supply shortages post-legalization.

Let’s start with the supply shortage news. As I predicted, we have been seeing marijuana shortages across Canada in what was a totally predictable development.

When certain U.S. states legalized recreational marijuana, there was often a period of supply shortages as demand outpaced the cannabis on hand. There was no reason to expect otherwise with Canadian pot legalization.

If the supply problem is not solved quickly, a prolonged period of marijuana shortages could eventually lead to an absence of sales and, ultimately, a weakening of marijuana stock performances as a result of poor earnings reports.

This would, of course, negatively affect marijuana stock prices.

I very much doubt that this will end up being the case, but the possibility is worth keeping in mind as the marijuana sector in Canada continues to face growing pains.

Further evidence of the cannabis sector’s maturation process is seen in the marijuana pricing—another key factor in marijuana sales.

Brad Martin, director of Calgary-based Cann Standard Inc., which collects public price listings for cannabis and aggregates the numbers to establish an average, believes that we’re about two years away from a stable marijuana market when it comes to prices. (Source: “Canada’s legal cannabis market needs 2 years to stabilize: analyst,” Global News, October 21, 2018.)

Martin arrived at that number by using Oregon as an example. After the state legalized recreational pot, it took about two years for prices to end their massive fluctuations.

Across Canada, pot prices per gram range from as low as CA$5.25 to as high as CA$13.00. These prices are calculated using a number of factors but, ultimately, we’d expect to see marijuana prices reach a level of stability and uniformity.

This is all part of the growing process of marijuana, with the industry expanding to meet consumer needs and prices adjusting to what is the most profitable.

Which is to say that there is still a lot to be figured out in the Canadian marijuana market, with the legalization of recreational pot in the country being only the first step in what will be a multi-year process toward a stable market.

Canopy Growth Stock

Aside from the issues on the ground in Canada, the marijuana stock market was imploding today, with many stocks dropping by as much as 10% in early-morning trading.

If you go back through my articles, I had predicted that this might end up being the case as hype continued to build in the lead-up to marijuana legalization in Canada.

The explosion in share prices led me to believe that, after legalization came into effect, there would be a stock price pullback in the near future without another massive event on the horizon to generate excitement.

While my prognosis was right, my timing was off, as the marijuana industry has seen a pullback for over a month now.

The pullback was to be expected, however, as the hype for Canadian pot legalization was actually more muted than I had anticipated, and the market had to correct following August’s massive growth.

As you’ll remember, Canopy Growth Corp (NYSE:CGC) received a $4.0-billion investment from Constellation Brands, Inc. (NYSE:STZ), which sent pot stocks skyrocketing across the board.

While that news generated massive share price growth in a few short days, these periods of intense gains are often followed by prolonged bouts of corrections.

It happened at the start of 2018, following a massive run in late 2017. And we’re likely seeing the aftershock from August still hitting us now, with today being one of the worst single days since.

CGC stock fell by nine percent to start the day, and is down about 19% over the past month.

This may be a blessing in disguise, however, because Canopy Growth stock still has one of the best outlooks of any marijuana stock.

While more losses could follow, I see the stock more than likely reaching its all-time high in early 2019 at the latest.

Not to mention that another big investment could be on the way, considering how many companies are sniffing around the weed industry. Should that occur, expect to see a massive spike in stock prices.

Tilray Stock

Another marijuana company that was down today is Tilray Inc (NASDAQ:TLRY), joining many other pot stocks that were down in the dumps.

Tilray stock dropped by about 10% in early-morning trading. It has fallen 25% over the past month.

Tilray stock now appears to have settled in line with industry trends, no longer being the unpredictable maverick that it had been ever since its initial public offering (IPO) on the Nasdaq.

That at once makes TLRY stock more stable, but also less interesting.

While there’s a chance it could return to its volatile ways, I believe that it will now become much more like the remainder of the marijuana industry, only without as much justification for its massive valuation post-IPO, making it a stock I’d steer clear of for now.

CGC & TLRY Stock Performances

The CGC stock (black line) and TLRY stock (blue line) performances from the past month are seen in the chart below:

Chart courtesy of StockCharts.com

Analyst Take

Many of the issues we’re facing in the marijuana news today are dark, but not unanticipated.

There was always going to be a reckoning for the massive spike in value in August, and we’re seeing that come sooner than expected.

Furthermore, marijuana supply shortages are par for the course whenever we see pot legalization enacted.

What marijuana bulls need to be on the lookout for now is the next major event that will help resurrect gains in the cannabis stock market—like a massive investment from one of the many large companies that have linked themselves to the pot industry in recent weeks.