Recreational marijuana is soon to be legal in Canada. Most of the Canadian population, especially people living in Toronto, is pro-cannabis. Despite that fact, we are seeing marijuana stocks going down. On June 19th of 2018, the Canadian government passed a bill, referred to as bill c-45, to legalize the recreational use of marijuana. This bill is going to be effective October later this year. Now, with that type of news you’d expect to see a noticeable rise of some of these marijuana stocks, but having a look at some of the top players in the industry, we see Canopy Growth Corp. down about 10% since the announcement, Aurora Cannabis Inc. is down as well, essentially flat. In fact, if you take a look at a year-to-date number, you’ll quickly find that the stock is down over 20%.
Now, the question that comes forward is: why is this the case? A lot of believe in the long-term prospects for this industry. That being said, it’s not shocking to see this type of performance. As we should know, the stock market can be very unpredictable over the short term, especially with the buzz surrounding this marijuana industry.
There is still a very high level of uncertainty and investors do not like uncertainty. There are still a ton of variables at play, there are questions regarding adoption as well as questions about expansion, how well these companies are going to be able to penetrate the US and international markets. Weed is legalized in Canada but how do those sales translate into a much bigger market? Although the reality is that’s really where the growth opportunity lies, a lot of Toronto-based investors are still playing safe despite that fact.
Already priced in
The stock market is forward-looking, the smart money is not waiting until legalization to start taking positions as they’ve been buying into these stocks for well over the past year in anticipation. If we look back over the past two years, we see Canopy Growth’s stock up nearly 1,300% and Aurora up over 1,800% without any real fundamentals to support that. It’s very much been driven by hype and speculation. Smart money is already priced in. We also see a lot of private investors based in Toronto, Canada honing in on these investments who are looking for an upsized profit.
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