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Legal Weed

Recreational marijuana has been legal for over three years in Canada. Is it everything we hoped for? What have we learned?

October 2017 seems like yesterday. What a simpler time when wearing a surgical masks would get you dirty looks as opposed to today when you can expect those same dirty looks for not wearing one. Weed is legal. No more paranoia about cops, no more masking the smell with half a can of Axe Body Spray and no more being obliged to hang out with your pot dealer in his dirty apartment because he thinks you’re friends.

What We Hoped For

World Peace

Leading up to legalization there was a lot of hope. The nay-sayers were being silenced with facts and the negative stigma of smoking dope was beginning to wear off. The idea of walking into a store and walking out with perfectly legal cheeba was fantasy. Potheads from all over the world would have to travel to Amsterdam where it was not technically legal but decriminalized. You were allowed to enjoy such products in a coffee shop without worry of law enforcement killing your buzz .

Canada has a reputation of being a very weed friendly country but our politicians still debated endlessly. A large majority of the country wanted marijuana to be legal. Not decimalized but legal. We’ve heard all the arguments from the left and the right for decades and now was the time to show our cards.

It wasn’t just the potheads who wanted it to be legal. Bay Street had a very keen interest in an industry that already had a large customer base and could be publicly traded. When the Liberal Party won a majority government in 2015 the industry took off with a bang. Stocks in marijuana companies were being bought up faster than a tickle me Elmo in the 90s. It was a sure thing. Think about it. Big corporations were spending cash without prejudice to buy land, facilities and product to sell to a very excited customer base. People thought it was like investing in Coca Cola before it got big.

Sorry organized crime, there’s a new kid in town and it’s far more vicious than any of you twinkle toe bitches. It’s called capitalism.

Canopy was the biggest of these pot stocks. They already were the nations largest medical marijuana producer as they owned half the market in Canada. Once legalization was starting to look like an inevitable reality their market capitalization shot up to a billion dollars.

So what we hoped for was this: Marijuana can be brought into the mainstream and Canopy would be the number one supplier in the country. Weed would be as legal as booze or cigarettes. Having a piece of the pie in a new industry at the ground floor was very inciting for retail and professional investors. We all got high and watched or bank account balances grow….didn’t we?

WTF Happened?

Big Deal

Retail issues

When marijuana became the law of the land you could only purchase it through a government online store. To the surprise of no one, shipping and website crashes happened immediately. In Ontario there was very few dispensaries that were allowed to sell recreational marijuana so the only way you could purchase weed was through the Ontario government. This is a similar model to how the province regulates alcohol sales. If you want a bottle of rum you have to go to the LCBO which is a government regulated liquor store. There are no private liquor stores in Ontario. There might be a gas station in a rural area that sells booze but that is considered a LCBO.

Marijuana was tested the same by the province but it couldn’t handle the demand. People had to wait weeks or even months for their orders. How is service like that supposed to compete with the black market? Also, due to high regulation and security requirements of the grow sites the costs were passed down to the customer. The result was higher costs and slower service. There was also customer complaints on the quality of the bud. Due to the product being processed with profits in mind instead of quality illegal dealers were able to take advantage and keep their customer base.

Eventually the provincial government smartened up and allowed private enterprise to enter the market. Now there are dispensaries popping up everywhere. No one would be more relieved than big grow ops like Canopy. They had a large inventory of products but no outlets to sell to customers. This led to giant green houses being shut down and big production facilities never breaking ground.

Poor Stock Performance

That leads us to our next problem legal marijuana encountered. Due to the high regulation requirements for selling marijuana, the lack of retail stores and the competition from unregulated illegal operations, the value of pot stocks did not sky rocket as expected. While there are multiple big companies like Aurora and Aphiria we’ll focus on Canopy as an example of why the green rush hasn’t taken off just yet.

Canopy (or Tweed) was the main supplier of medical marijuana in the country. When recreational marijuana was legalized it was logical to believe that the recreational market was larger than the medical one. Canopy then changed its focus to recreational marijuana instead of medical which led to shortages. Also, because of the new laws and regulations it became harder for patients to get their marijuana treatments.

Combine that with the fact there was only one legal way to purchase weed (the guvment) your pot stocks aren’t looking too hot. Canopy had a billion dollar market cap and it actually hit 2 billion at one point. With the value of their product plummeting you can see where this is going. Facilities started to close, jobs were lost and the black market didn’t go anywhere.

For more information you can check out our Know Your Pot Stock series to see our profiles of Canopy, Aurora and Aphiria. While we only focused on Canopy in this entry the stories are similar. Too much cash, poor management and over confidence in the recreational market.

The Outlook

Pot Stocks Canopy

While everything mentioned above seems like doom and gloom you should still be optimistic if you’re an investor or a customer. Retail has exploded. In my home town of Ottawa it seems like there are more dispensaries than Tim Hortons. This can only be a positive as hopefully competition will lower prices.

Also more states in the US are legalizing weed and one would hope federal legislation would follow suit. The Biden administration has expressed interest in decriminalization but not full legalization for recreational marijuana.

Mexico has legalized marijuana which will open up a big market for millions of customers. There are some concerns about this as Mexico is dealing with a violent political environment. Growers are concerned about corporations taken over their operations and leaving them in the dark. They may be more inclined to keep working with cartels which could escalate a very dangerous situation. We’ll have to wait and see how that plays out.

Morally legalization is the right thing to do. At the end of the day millions of people are going to grow and/or smoke weed. To prosecute otherwise law abiding citizens for using a plant will do more harm than good. The prohibition of marijuana will be a fascinating study in propaganda. Once a symbol of peace and love it was turned into a dangerous drug that can turn you into a serial rapist/murderer. To come up with crazy lies like that one must think, what the heck were they smoking?

Legal marijuana is still in its infancy. There will be bumps along the road but there’s no question it will be consumed by a complete corporate take over. If you were a flower child in the 60s that is probably your worst nightmare. If you enjoy a joint after a long day at the office and don’t want to worry about being arrested it will be welcomed. Lets give it a decade and see where we are at. 

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