All Is Not Well In Canada’s Cannabis Industry

A brief on the sector

It is a year since Health Canada gave the thumbs up for licensed stores to begin selling marijuana for recreational use. The news of Canada legalizing weed for adult use kicked off a sandstorm of euphoria, with companies setting up operations and promising astronomic returns for their investors. Nonetheless, it seems not all went as planned.

According to an analysis in the Financial Post, the legal cannabis industry in Canada has failed to impress one year later. Instead, companies reporting underwhelming earnings, leadership wrangles, and scandals have rocked the industry. One pillar of the legislation decriminalizing recreational use of cannabis was to stem the pervasiveness of the black market.

The analysis in the Financial Post paints a different picture, one that speaks of a thriving black market. As of October 2019, 42% of users reported having obtained marijuana from the shadow market, according to government figures. During the month of legalization, the percentage of Canadians obtaining weed from illegal sources was at 52%. However, it is possible that the figures do not represent the reality on the ground since they were obtained from a survey in which respondents were not under any obligation to be truthful.

Besides problems facing individual companies, the industry as a whole faced critical cannabis supply issues. However, the government argued that the problem could be shipping of the product to the shelves. This is because official figures show that inventories are larger than sales, according to government data published in October 2019. As such, the problem could be inadequate licensed stores from which Canadians should access the substance.

Performance of licensed producers’ stocks underwhelming

Licensed cannabis producers make up the upstream sector in the Canadian cannabis industry. As such, their efficiency determines the success of the whole concept of legal weed. Nonetheless, all is not well for some of Canada’s largest producers. While some LPs are grappling with revised production targets, others are hemorrhaging high-level employees.

For example, Aurora Cannabis (NYSE: ACB) announced the departure of Cam Battley, the company’s Chief Corporate Officer, on Friday December 20. According to the company’s statement, Cam resigned to take up an executive post at MedReleaf Australia. As a result, the company’s stock suffered where it fell by approximately 9.8% to $2.66.

Interestingly, an underperforming stock is not Aurora’s problem alone. Aphria (NYSE: APHA) is one of the ‘best’ performers in the cannabis industry this year. This is because the company managed to lose just 16% of its value in a year where majority major players lost close to half their value. On Tuesday December 17, the second phase of cannabis legalization, dubbed Cannabis 2.0, went into effect. As one would expect, this is the moment stocks like Aphria’s would gain some much needed growth. Instead, the stock tumbled for two straight days from $5.27 to $4.78 on December 19.

Source: Google Finance (NYSE: APHA)

The last five days since Cannabis 2.0 have been a roller coaster for Canopy Growth’s (NYSE: CGC) stock. On December 17, the stock closed the day at a five-day high of $20.77. Under 24 hours later, the stock sunk to $19.54, which is so far the lowest level in the last five days. Besides the stock woes, Canopy is beginning to get on its feet concerning top management. A new CEO will be unveiled in mid-January 2020 after the unceremonious exit of the celebrated former CEO, Bruce Linton.

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This article by Money News National is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Money News National has no position in the stocks mentioned. Thank you for reading.

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