When Canada legalized recreational use marijuana last year there was a lot of fanfare regarding the potential of the industry. Although the legalization of marijuana saw the development of markets where there was none the rate of licensing of cannabis dispensaries has been sluggish. Most of the pot stocks have experienced a collapse of share values and some have even decided to downsize.
Ontario considering an overhaul of licensing
Cannabis prices have also felt a blow because of oversupply in the industry where retail outlets are not sufficient. However some of the problems the industry has been facing stem from the pressure to be so big quickly and the fact that legal pot is costly compared to the competing grey-market pot. However, the biggest challenge for Canadian pot companies is the lack of enough retail dispensaries in Canada’s most populous provinces of Ontario and Quebec.
In Ontario, the problem of lack of adequate legal cannabis retail stores could soon be a thing of the past. The government is planning to do away with the lottery process they have been using to allocate licenses which have left the country’s most populous province with few pot shops. As a result of early next year, the licensing process will change to an open allocation system. this means that almost a thousand retail stores will receive licenses in the province.
Potential pot shop owners will be able to apply online and after passing background checks they could be able to receive approval to sell marijuana. This could ensure there are enough stores to support a mature market as previously envisaged by Progressive Conservatives. Ontario’s Premier Doug Ford indicated that their goal is to open up the market and let it dictate.
Cannabis stocks pop following positive development
Although the cannabis stocks have been bleeding lately last week some positive developments helped in boosting the stocks. Stocks of pot companies such as Aurora Cannabis (NYSE: ACB), and Canopy Growth (NYSE: CGC) gained as much 15% while Hexo (NYSE: HEXO) gained around 8% on November 20. These stocks popped because of various reasons.
For instance, Christopher Carey of Bank of America upgraded Canopy Growth from a neutral to a buy rating. This seemed to have a halo effect on its peers especially Hexo and Aurora. Similarly, Aurora had announced the previous day that 94% of its convertible debenture holders that were to mature in March next year had agreed to convert their stock to debt. This is important considering how the company will not have to raise 230 million to repay the debt.
Pop in pot stocks could be short term
Some top analysts are starting to be confident in Canopy Growth. However, the reason behind the pop might be that some investors have started to believe that the selloff that rocked cannabis stocks is over. But the pop might be short-lived because the rally was spurred by the news that Ontario might consider an overhaul in licensing. Also, there was an announcement that the US was legalizing pot at the federal level after the US House passed a bill on the same.
