There was a time just a few short months ago that buying into the world of legal cannabis seemed like a sure thing.
But that optimism has gone up in smoke.
A major pot stock sell off continued on markets Monday, partially because consumers are less than enthused about legally available cannabis.
In theory, the black market should be under tremendous pressure now, by the new regulated and ultimately safe marijuana supply sanctioned by provincial governments in Canada.
Unfortunately for shareholders, that’s not the way it has worked out. A whole host of problems has sent stock prices plunging, with some local companies like Hexo and Canopy Growth posting big losses again.
Smiths Falls' Canopy Growth has lost more than 47% of it's value so far this year, taking a 29% loss in stock value in just the last five days.
At Gatineau's Hexo, the news is just as grim. As of close of business Monday, Hexo's stock was down more 53% on the year and nearly 25% in the last five days.
Slower roll out for retail stores in both Ontario and Quebec, weaker sales and cash flow than expected, and problems for companies getting certified by Health Canada to grow cannabis, all contributed to a very challenging market for these companies.
But one of the biggest factors may be the price on the street. Illegally obtained cannabis is still much cheaper than legally produced and sold product.
Statistics Canada reported in October that legal prices were nearly $4.00 more per gram, than illegally sourced cannabis. 34% of respondents to Statistics Canada reported legal cannabis is “too expensive”, as their reason for using the black market.
As fewer users turn to the legal market, sales and revenue continue to miss expectations for cannabis producers.
