The marijuana news today is positive across the board. The pot stock market has been climbing while Canada seeks to expand its legal marijuana market.
Ontario, which is Canada’s largest and richest province, is scrapping its current lottery system for marijuana retail licenses and will be issuing far more licenses than it has in the past. (Source: “Ontario will scrap lottery system, move to expand retail cannabis market in 2020,” CP24, December 12, 2019.)
This is a huge boon for pot stocks; it will allow for more sales of legal weed in what should be a cash-cow province.
The story of Ontario and its introduction of legal marijuana is a complicated one.
During the legalization rollout, Ontario had a provincial election and saw a change in political power a few months before the legalization date in October 2018.
So while the province had for months been gearing up for a government-run monopoly of marijuana vendors, the new administration came in and performed an about-face, opening up the market to private-sector retailers (but delaying the process by several months).
As you can imagine, making such a radical change only a few weeks away from legalization had its issues. Namely, the lottery system and other regulations for cannabis storefronts had to be hastily implemented.
The new Ontario government favored a cautious approach, limiting the number of stores that could open in the province to a paltry 25. For an area of 15 million people, it doesn’t take a mathematician to see that the market would be under-served.
Consider that the ratio of pot stores to consumers in other provinces is far lower than in Ontario and it’s easy to see that Canada’s largest province has a lot of catching up to do.
Alberta, another province in Canada, has 10 million fewer people than Ontario, yet accounts for a similar share of Canada’s legal pot sales. (Source: “Canada’s cannabis landscape: A province-by-province breakdown,” CTV News, July 26, 2019.)
Couple that with the fact that Alberta has been facing a marijuana shortage for a long time now and it’s even more clear that the Ontario marijuana market has yet to meet its potential.
What Alberta did right was issue enough retail licenses that storefronts were able to freely open across the province in order to meet demand.
And that brings us to the future of marijuana in Ontario. The province is looking to add an additional 50 storefronts to its current 25. Starting in April 2020, 20 new pot store authorizations per month will be distributed. (Source: CP24, December 12, 2019, op. cit.)
Moreover, the Ontario government is eliminating the cap on the number of private-sector stores and cancelling certain requirements for prospective retailers. Both measures make the process less prohibitive to entrepreneurs.
On top of that, pot retail operators in Ontario can now own a maximum of 30 cannabis stores, jumping to 75 in September 2021.
For marijuana stock investors, this is fantastic news. The Canadian market has been legal for just over a year now, but the true potential of the industry has yet to be realized.
With Ontario and other provinces loosening restrictions on the pot market, we’re likely going to see revenue increase as sales mount. And increased revenue will likely translate into higher prices for pot stocks.
Speaking of share-price growth, the marijuana news today is extremely positive on the stock market side of things.
One company in particular has had a very strong week: Canopy Growth Corp (NYSE:CGC). Canopy Growth stock climbed three percent in early-morning trading today. Over the past five days, CGC stock has surged by nearly 18%.
The reason for Canopy Growth stock’s huge jump this week has to do with the company’s recent leadership shakeup. On December 9, Canopy named David Klein as its new CEO, causing CGC stock to jump 14%.
Klein had been a senior executive at alcohol company Constellation Brands, Inc. (NYSE:STZ) for 14 years. (Source: “Canopy Growth Announces David Klein As New Chief Executive Officer,” Canopy Growth Corp, December 9, 2019.)
Klein’s work at Constellation was focused on spreading alcohol brands around the world, including the U.S., Canada, Mexico, and Europe. Naturally, this experience will come in handy as the legal marijuana industry looks to expand globally.
Now Klein is sliding into the head leadership position at the largest marijuana company on Earth by market cap.
“Thanks to the efforts of Mark [Zekulin] and the entire team at Canopy Growth, no company is better positioned to win in the emerging cannabis market, ” said Klein. (Source: Ibid.)
Zekulin, for his part, was a co-founder of Canopy Growth, and he assumed the leadership role when Bruce Linton was notoriously fired.
“It has been an incredible six years at Canopy Growth, and I have witnessed the team and Company grow from five people in an abandoned chocolate factory, to thousands of people across five continents,” said Zekulin. (Source: Ibid.)
The move puts more of an emphasis at Canopy Growth on sales and revenue, something that partner Constellation Brands has wanted for a long time. That desire, in fact, is likely the main reason that Linton was fired as CEO earlier this year.
Couple that focus on increasing revenues with an expanding Canadian cannabis market and a rollout of exciting new products like cannabis-infused beverages and you have a lot of momentum building behind Canopy Growth stock.
Another pot stock on the rise today is OrganiGram Holdings Inc (NASDAQ:OGI). OrganiGram stock climbed five percent in early-morning trading and is up about three percent over the past five days.
While perhaps not experiencing as strong a week as Canopy Growth, OrganiGram had a solid victory; Health Canada approved licensing for 16 additional cultivation rooms. (Source: “Organigram Receives Licensing for Chocolate Production and Packaging Area; Increased Production, Drying and Other Post-Harvesting Areas,” Business Wire, December 13, 2019.)
The new rooms are projected to bring approximately 13,000 kg (nearly 29,000 pounds) per year of increased cultivation capacity.
The company also received approval to begin operations on its chocolate line. As the marijuana industry continues to mature and new products are rolled out, we can expect to see higher revenue and higher share prices for pot stocks like OrganiGram stock.
OGI stock is well suited to see a jump in 2020, as the company has been one of the more impressive pot stocks on the market for years.
CGC and OGI Stock Performances
The performances of CGC stock (black line) and OGI stock (blue line) over the past five days are seen in the chart below:
Chart courtesy of StockCharts.com
The marijuana news today came in very strong to finish the week. Pot stocks are up near universally as the market has had a great past few days.
On top of that, it’s looking like 2020 will see some long overdue opening-up of the Canadian legal marijuana market. That should help boost share prices for a long time to come.