Canadian marijuana companies started off with higher profits than American companies thanks to a fully legal domestic market. Currently, the slow pace of legalization in the United States puts them at risk of becoming bystanders.
Potstocks have plummeted for seven months as Washington halted cannabis transformation. Recent Democratic proposals for legislative changes are considered too ambitious to pass. Contrary to intuition, this influenced the Canadian name the most. It is out of the thriving US marijuana market until the federal ban ends.
Shares of Canada’s most valuable listed cannabis company, Canopy Growth CGC, after a rough party earlier in the year when the US Senate was dominated by the Democratic Party -2.15%
It has decreased by about two-thirds since mid-February. Another Top Name, Cronos Grouphandjob
It is more than half.
Cannabis producers in this country are looking to expand south of the border. Data provider Headset expects the legal cannabis market to more than fivefold by the end of 2022.
Canadian producer Tilray TLRY on Thursday -4.81%
He said plans to increase revenue to $4 billion by the end of fiscal year 2024 depend heavily on being able to sell smokers in the United States. The company reported a 43% increase in sales in the three months in August as compared to the same period in 2020. This is impressive, but falls short of analysts’ expectations, indicating a slowdown in Canada.
For now, Canadians cannot buy a US marijuana company that “touches plants.” However, you can sign a coalition that will kick in when federal law changes. Tilray recently purchased a bond option that could convert a 21% stake in US cultivar MedMen.
Canopy has similar placeholder contracts with two US producers. These are potentially dangerous transactions. No one knows what the American company will look like before the drug is fully legalized.
Meanwhile, in Canada, where over-licensing has led to overproduction, businesses are getting tougher. According to a recent report by securities firm Stifel, indoor farming now covers 18.7 million square feet, enough to meet 200% of the country’s demand. Today, more than 500 marijuana companies are taking market share, making it difficult for Canada’s big-loss cannabis companies to turn a profit.
Even if the US federal ban is lifted sooner than expected, not everything is good news for Canopy, Mound, etc. Canadian cannabis stocks are traded at a large premium, mainly because they are allowed to be listed on a US stock exchange. Their US rivals are being forced by a federal embargo to use the illiquid Canadian market instead.
But if cannabis reforms allow U.S. cannabis companies to get their shares back, valuation levels are likely to plummet, said Stifel analyst Andrew Carter. This could make it more expensive for Canadians to buy US property.
Canadian producers want to talk about the opportunity waiting for them in the United States. Unfortunately for investors, they can stay on the sidelines for a long time.
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write to Carol Ryan ([email protected])
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