Cannabis: Billions of dollars in smoke

Cannabis is becoming increasingly profitable for the state. Legal sales continue to increase. But for pot’s producers and promoters, it’s a descent into hell!

Shares of publicly traded marijuana growers hadn’t fallen that much since marijuana was legalized in October 2018.

To be honest, pot company titles are a shadow of their former selves.

From October 2015, when Justin Trudeau won for the first time, to the official legalization of cannabis in October 2018, which was one of Trudeau’s flagship promises of 2015, cannabis company stock prices skyrocketed.

Back then, many investors wondered if the stock market craze for cannabis producer stocks was just a smokescreen.

Now, almost four years later, the immense gains accumulated between October 2015 and October 2018 have gone up in smoke.

Here are some examples.

The market cap of Canopy Growth, Canada’s largest pot company, hit a whopping $17 billion on October 15, 2018, up 33 times its October 2015 capitalization. The stock has traded from $2.18 to 73, $75 up.

Today, Canopy stock (ticker symbol: WEED) is struggling to stay above $4 a share. Its market cap is just $1.93 billion, down 89% since cannabis legalization began.

Number 2 back then was the Aurora Cannabis Company. The stock had risen from 42 cents (October 2015) to $15.07 in October 2018. The company’s market capitalization had reached $14.5 billion.

Today, Aurora Cannabis stock is trading around $2.00. Its market value is just $816 million, down 94%.

The other pot companies that were also “billionaires” when cannabis was legalized in October 2018 have all taken the field this year.

From $15.07 in October 2018, Cronos Group shares are currently trading at $3.94, down 74%.

Hexo’s shares are now worth just 27 cents a share, down from $8.95 in 2018. Its market cap has shrunk by 94%.

For its part, OganiGram Holdings plunged 85%, with the stock falling from $10 to just $1.43.

What factors does Morningstar attribute to the collapse in cannabis supplies in Canada?

The Swing of the Pendulum: Excessive optimism in 2018 gave way to a bleak outlook for investors regarding cannabis producers.

To a price war between pot growers.

On the persistence of the illegal market.

AND YET…

According to a report by the Canadian Center on Substance Use and Addiction (CCSA), the legal retail cannabis market continues to grow as the public shifts from illegal to legal sources.

“While dried cannabis still dominates overall sales, demand for other types of products such as edibles and extracts is increasing,” the report states.

In 2021, retail sales of cannabis products were $3.8 billion, according to Statistics Canada, compared to sales of $2.6 billion in 2020 and $1.2 billion in 2019.

And through the first five months of 2022, revenue continued to grow, reaching nearly $1.8 billion, up 23% from 2021.

SQDC

Meanwhile, our state-owned pot seller, Société Québécoise du Cannabis (SQDC), is doing very well.

For the year ended March 31, SQDC reported revenue of $601 million.

Selling pot pays off for the state! Of that $601 million, Quebec collected $214.5 million in dividends and taxes of all kinds, and Ottawa collected $56.4 million in taxes.

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