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Canada Weed Stocks Bummed Out by Legalization Delays, Government Controls

Canada Weed Stocks Bummed Out by Legalization Delays, Government Controls

TORONTO (Reuters) – Canadian marijuana stocks fell to their lowest level in more than four months on Tuesday, hit by lingering concerns about possible delays to legalization of recreational use, disappointment over proposed distribution rules and profit-taking following a strong run-up to a January peak.

Canadian marijuana stocks climbed steeply between October and January as investors piled in in anticipation of a sales surge when the country legalizes adult use this year. But government delays, stringent packaging and distribution rules, limited product choices and high valuations have dampened investors’ enthusiasm, analysts said.

Canada’s Horizons Marijuana Life Sciences exchange-traded fund (ETF) has slumped 45 percent since its January peak. The U.S.-listed ETFMG Alternative Harvest ETF, which began trading on Dec. 26, is down 32 percent from its high, just a hair above a record low on April 4.

The Toronto stock benchmark is down about 6 percent this year.

Liberal government officials have said legalization is unlikely by July as initially expected, with a Senate vote on the draft legislation planned only for June 7.

Last month, Canada’s health regulator set out strict requirements for the packaging and labeling of recreational marijuana, downplaying the brand name. Populous provinces, including Ontario and Quebec, plan a limited number of government-controlled stores that will sell only cannabis flower and oil.

“Licensed producer power won’t be quite the same in the post-medical (marijuana) world,” said Alan Brochstein, founder of cannabis-sector information provider 420 Investor. “They’ll be the suppliers, but they won’t capture the whole retail margin. And the packaging is … kind of a retardant to the growth of the market.”

Jason Zandberg, a research analyst at PI Financial, predicted 2019 sales may be lower than expected, in part due to initial shortages and slow consumer conversion from the illegal market.

However, he said he expects an oversupply in three to five years, when more production comes online. He estimated 1.5 million kg (3.3 million lbs) of supply by 2023, versus 900,000 kg of demand in a Feb. 15 note.

Broader positive sentiment did help lift pot stocks on Tuesday. The Horizons and Alternative Harvest ETFs both rose 1.5 percent.

Both Zandberg and Brochstein said they expect marijuana stocks to rebound this year. Brochstein predicted a bottom between now and the Senate vote on June 7, with sentiment improving as implementation of legal sales approaches. But expecting prices to rebound to January’s peak in the next year or two would be “aggressive,” he added.

(Reporting By Nichola Saminather; editing by Jonathan Oatis).

credit:money.usnews.com

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