Stocks in pot producers have been oscillating of late, first buoyed by the coming legalization of the ubiquitous leaf and then shaken by rumours of postponement. Has marijuana already had its big moment on the TSX or is there time for another hit?
In this article, we’re going to take a look at whether the Canadian marijuana boom will actually happen — and what patterns might emerge through the smoke post-legalization. We’ll also look at the best pot stock to consider holding, if any.
Has the marijuana boom already been and gone?
Where an illegal market already exists for a product, the creation of a legal market is going to cause fluctuations. It happened with alcohol post-Prohibition and it’s happened already with marijuana. Will there be a boom? In fact, the boom may already have been and gone.
As a case study, let’s take a look at what happened in the State of Oregon when it legalized weed. In 2017, retail prices for pot plummeted by 50% in that State, dropping from $14 a gram to $7 at the time of writing. Over-production and too many competing companies led to a flooded market, with stale growth in demand in no way matching the massive spike in production.
And the same could happen in Canada. By adding legal production to an illegal market that is already doing fine, thank you very much, you could end up with problems in demand as well as supply. In short, there will be too many suppliers, with little or no growth in consumption. That could very well send the retail value for legal marijuana down to zero.
Marijuana investment is an ethical minefield
Does a flooded market with a poor outlook for demand sound bad to you? Well, it gets worse.
There are ethical issues that might have a very real impact on investment going forward. First, it’s possible that flooding the market with legal marijuana will lead to an increase in users turning to harder drugs; a knock-on uptick in opioid use in the news, for instance, would definitely affect marijuana retail prices, as well as investment choices. Second, by removing marijuana from the roster of street dealers’ revenue, Canada could end up with a complicated drug problem, which isn’t good for legal marijuana’s PR machine.
Even if the moral aspect doesn’t bother you, it’s almost 100% certain that the illegal marijuana trade won’t just go away once the LCBO starts stocking the green stuff. Such competition from an already stable black market won’t do retail prices any favours, let’s put it that way.
Still want to put pot in your portfolio?
In this article, we’re going to take a look at whether the Canadian marijuana boom will actually happen — and what patterns might emerge through the smoke post-legalization. We’ll also look at the best pot stock to consider holding, if any.
Has the marijuana boom already been and gone?
Where an illegal market already exists for a product, the creation of a legal market is going to cause fluctuations. It happened with alcohol post-Prohibition and it’s happened already with marijuana. Will there be a boom? In fact, the boom may already have been and gone.
As a case study, let’s take a look at what happened in the State of Oregon when it legalized weed. In 2017, retail prices for pot plummeted by 50% in that State, dropping from $14 a gram to $7 at the time of writing. Over-production and too many competing companies led to a flooded market, with stale growth in demand in no way matching the massive spike in production.
And the same could happen in Canada. By adding legal production to an illegal market that is already doing fine, thank you very much, you could end up with problems in demand as well as supply. In short, there will be too many suppliers, with little or no growth in consumption. That could very well send the retail value for legal marijuana down to zero.
Marijuana investment is an ethical minefield
Does a flooded market with a poor outlook for demand sound bad to you? Well, it gets worse.
There are ethical issues that might have a very real impact on investment going forward. First, it’s possible that flooding the market with legal marijuana will lead to an increase in users turning to harder drugs; a knock-on uptick in opioid use in the news, for instance, would definitely affect marijuana retail prices, as well as investment choices. Second, by removing marijuana from the roster of street dealers’ revenue, Canada could end up with a complicated drug problem, which isn’t good for legal marijuana’s PR machine.
Even if the moral aspect doesn’t bother you, it’s almost 100% certain that the illegal marijuana trade won’t just go away once the LCBO starts stocking the green stuff. Such competition from an already stable black market won’t do retail prices any favours, let’s put it that way.
Still want to put pot in your portfolio?