Global Marijuana Stocks Down 5% for the Week, 26% YTD

Canadian producers as a whole are now down 40% since the peak of euphoria in January of 2018.

The global marijuana stock index was down almost every day this week as market sentiment continues to deteriorate. It seems that the only positive catalyst that may move these stocks higher is the passing of bill C-45 legalizing recreational marijuana. The final reading of the bill will happen on June 7th.

Looking at just Canadian producers, the large caps were down 6%, mid-caps down 5%, and the small caps were down 9%. Canadian producers as a whole are now down 40% since the peak of euphoria in January of 2018.

Grizzle thinks the industry will require legal supply bottlenecks and higher prices after legalization to push the stocks any higher at current valuations. The stock price gains would only be temporary, however, and if instead prices begin falling soon after legalization, the only direction stocks will go is down at current valuations.

WEEKLY PERFORMANCE OF THE TOP 75 GLOBAL MARIJUANA COMPANIES

Source: New Cannabis Ventures

British Columbia tables more detailed legislation banning legal producers from owning private retail stores

Private retail marijuana stores will have access to 26% of the population. The government will run stores supplying the other 74% of Canadians.

B.C. introduced new legislation on April 26 that effectively bans legal producers or people who own equity in a legal producer from applying for a retail license in the province. Retail applicants could still hide ownership in a legal producer from the government and successfully win a license, but the law makes it clear that legal producers can only sell to the government and cannot operate in a retail capacity at all.

Pulling directly from the legislative document these three groups cannot own a retail license.

(a) a person who has arranged, or agreed to arrange, with another person to sell the cannabis of a federal producer to the exclusion of the cannabis of another federal producer,

(b) a federal producer or the federal producer’s agent, or

(c) a person who is so associated with, connected with or financially interested in a federal producer or federal producer’s agent that the person is, in the opinion of the general manager, likely to promote the sale of cannabis of the federal producer.

What this means for Legal Producers

If Legal Producers can’t become vertically integrated it will be harder for them to maintain adequate margins as the prices of flower, oils and edibles fluctuate with supply and demand. Growing and selling flower is the most commoditized business to be in while selling edibles currently is the place to generate the highest margins.

Cowen and Co. Analyst thinks rising marijuana use will be bad for beer demand. Data is inconclusive

Marijuana analyst Vivian Azer pointed out in an interview that rates of alcohol consumption among consumers fall when they increase consumption of marijuana. She pointed to lower binge drinking rates in states that have legalized marijuana compared to the national average.

Looking at binge drinking rates in Oregon, Washington and Colorado provided by the CDC we see a mixed picture.

Colorado – Binge drinking rates are falling but look to be following the national trend. They do not point to lower alcohol use since marijuana legalization in 2014. Colorado binge drinking rates are higher than the national average according to the CDC.

Oregon – Oregon is showing a decline in binge drinking, bucking the national trend and would support the claims made by the Cowen analyst.

Washington – Binge drinking rates are lower in 2017 compared to 2015, but increased in the last year in line with the national average.

Bottom Line

It’s hard to tell if lower alcohol consumption in legal marijuana states is due to higher marijuana use or just a national trend towards less beer drinking. We need more data to say definitively that marijuana use will lead to lower rates of alcohol consumption.

Colorado (Square) vs Total US (Circle) Binge Drinking Average

Source: CDC

 

Oregon (Square) vs Total US (Circle) Binge Drinking Average

Source: CDC

Washington (Square) vs Total US (Circle) Binge Drinking Average

Source: CDC

 

READ THE MARIJUANA EXPORT MIRAGE FOR AN IN-DEPTH REPORT ON THE STATE OF DEMAND FOR MEDICAL MARIJUANA OUTSIDE OF CANADA