A year after Canada legalized use of recreational marijuana cannabis stocks have lost their market value, and investors betting that the launch of higher margin pot-infused drinks and other products will quickly lift shares maybe in for a bumpy ride.
So called cannabis 2.0-legalization of marijuana derivatives including edibles, beverages, extracts and vape pens takes effect on Thursday, with sales beginning in mid December. While that is expected to help sagging share prices, the crucial factor for a turnaround is a significant increase in the number of stores selling the products, investors, companies and analysis said.
Share prices in the Horizons Marijuana Life Sciences Index ETF has slumped as companies revenues missed expectations. Cannabis producers, investors and analysts have blamed Canadian regulations that have slowed the opening of new retail outlets, strangled sales and imposed higher costs.
Investment bank and advisory from Seaport Global Figures Canada needs about 1055 stores to realize the cannabis market’s true potential.
About half that number truly exists, with 300 of those stores in Alberta, which has loosen regulations than the rest of the country, while the most populous provinces of Ontario and Quebec have lagged far behind.
Canada’s biggest biggest companies including Canopy Growth and Aurora cannabis reported larger-than-expected losses in the latest quarter and pushed back their timelines to profitability blaming their woes on the need for more stores to sell their wares.
One such distortion is evident n prices, with consumer paying far higher prices for legal weed, according to industry experts.
“Too high a level taxation at the inception of a legal consumer system can be a disincentive for consumers to make that move from black market to legal market,” said Aurora Chief Corporate Officer Cam Bartley. Challenges facing the industry and disappointing financial results have spooked investors who have piled into the sector amid initial Euphoria in the run-up to legalization of recreational cannabis last Oct.17.