Marijuana News Today: Canadian Sales Figures Cause Research Firm Downgrade

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Marijuana News Today
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Marijuana News Today

In the marijuana news today, we’re still feeling the aftershock of cannabis research firm Brightfield Group, LLC downgrading its Canadian marijuana market projections, which briefly sent many pot stocks into the gutter.

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Brightfield reassessed the Canadian market to be worth $5.0 billion by 2021 due to weaker-than-expected sales so far in Canada. (Source: “Cannabis industry to be worth just $5 billion by 2021 amid flat rollout, high costs,” Financial Post, February 6, 2019.)

From Canadian recreational marijuana legalization in October to the end of 2018, total cannabis sales (including medical) totaled about $210.0 million, which forced the research group to pare down its projection to $5.0 billion from $8.0 billion.

“To give you some context, in Colorado, with a population of four million, they sell about a billion dollars worth of cannabis in a year,” said Bethany Gomez, managing director of Brightfield Group.

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“When the recreational market was announced here in Canada, there was so much hype and hope that the rollout was going to be strong. We didn’t see that.” (Source: Ibid.)

This is part of the reason so many see pot stocks as overvalued, as the current market valuation of Canada’s top 10 pot companies far eclipses that $5.0-billion mark (and the $8.0-billion mark) at $43.0 billion.

Another analysis put together by New Frontier Data has the industry valued at $9.2 billion by 2025.

Brightfield claimed that two major factors contributed to the weaker overall sales:

  1. Supply shortages and a lack of the full spectrum of cannabis products (edibles, vape pens, etc.)
  2. A stalled Canadian medical marijuana market.

But the report wasn’t all doom and gloom. For instance, 36% of people surveyed said that they were waiting for the confusion to clear up before purchasing cannabis, while another 32% said that cannabis prices were simply too high in the legal market at the moment. (Source: Ibid.)

The black market is still strong in Canada, selling marijuana sometimes as much as 50% cheaper than legally bought pot.

But there’s a lot here that goes unsaid.

First, the valuation of the companies is based on the global marijuana trade, with Canada ultimately only accounting for only a small part of that.

Second, marijuana supply shortages are rampant across Canada and are going to naturally affect sales numbers significantly. You can’t buy a product that doesn’t exist, after all. When that gets addressed, I expect that the numbers will balance out.

Third, the industry is still maturing. Ontario, the largest and richest province in Canada, doesn’t even have physical storefronts yet, and won’t until April.

Fourth, edibles and other products are expected to be legalized as time goes on, solving one of the issues mentioned in the paper.

And finally, the black market will eventually be eaten up by the legal market as innovation, competition, and better regulation help drive costs down and convenience up, and allow customers to enjoy marijuana while in compliance with the law.

With that in mind, all the problems in Brightfield’s research paper are easily addressed and will likely be fixed as time goes on.

This is a very new market and will have growing pains. I believe that the analysts at Brightfield may have jumped the gun by lowering their projections so fast.

But even if they do prove to be correct, this doesn’t speak to a smaller market than expected—the customers are there, after all—but instead speaks to an industry that still has room to mature in order to fully tap into that market.

CRON Stock

Aside from the rather disappointing marijuana news today (although not as bad as it may appear at first blush), the pot stock market was staging a rally this morning after starting the day on a down note.

Many companies started the day in the red but have quickly scaled back into positives. One of the biggest winners this morning is Cronos Group Inc (NASDAQ:CRON).

CRON stock jolted by nearly seven percent to start the day. This caps an over-10% gain over the past five days.

Cronos stock was one of the harder-hit pot stocks yesterday, when the industry took a collective hit, but now it is benefiting from one of the better rallies in the industry.

This is likely due to its presence on the Nasdaq, traditionally a more volatile exchange than the New York Stock Exchange (NYSE), where many other pot stocks are listed.

Nevertheless, CRON stock’s huge move this morning is a good balm to soothe concerns following yesterday’s market meltdown.

That said, my position on Cronos remains bullish, with predictions of wild swings.

ACB Stock

Another company that enjoyed a strong turnaround this morning was Aurora Cannabis Inc (NYSE:ACB).

ACB stock jumped about 2.5% in early-morning trading today and is up nearly seven percent over the past five days.

This is a strong rally from a stock that is redeeming itself in my eyes after a weak performance in 2018.

Readers who have been following me for the past few years will remember that I was once a huge Aurora supporter. That support wavered in 2018 when the company was unable to score a major partnership, instead resorting to bigger and bigger acquisitions.

This year, however, ACB stock is looking to be rallying and is performing as strongly as any other pot stock on the market.

While I still believe that Canopy Growth Corp (NYSE:CGC) is the better stock at the moment, there is a chance for Aurora to be a true champion in 2019 if the company is able to score one of those much-coveted partnerships—something I’m sure it is desperate to have.

In any case, ACB stock is full of potential in 2019, and its rally today is a nice sight to see.

CRON and ACB Stock Performances

The performances of CRON stock (black line) and ACB stock (blue line) over the past week are seen on the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today was a mixed bag, with the first bit of analyst pushback coming by way of Brightfield Group’s lowered expectations for the Canadian marijuana market.

But it’s worth noting that those projections are easily adjusted if the industry can solve several key issues, each one being more than manageable.

The marijuana industry is still looking strong in early 2019, and I imagine it will continue to perform well this year.

Check out the original article here.
Author: Stephen Karmazyn, BA

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