Can Marijuana Stocks Survive Legalization?

Federal marijuana legalization in the U.S. is seen as a potential catalyst for pot stocks achieving massive growth. Currently, 14 states allow recreational marijuana use, and 36 have authorized medical marijuana; in those states, cannabis sales surged 46% in 2020 to a record $17.5 billion. Some outlets estimate sales may grow to nearly the size of the craft beer industry, or $41 billion, by 2026 — and if marijuana were legalized, it could move in on $100 billion in annual black-market pot sales.

The Marijuana Opportunity Reinvestment and Expungement Act of 2021, or MORE Act, was introduced in the House of Representatives by Rep. Jerry Nadler, and a companion bill is expected to be introduced in the U.S. Senate by Sen. Chuck Schumer later this year. Both would decriminalize marijuana and expunge the records of individuals who were previously convicted of marijuana offenses while setting up a regulatory framework for legalization.

Yet the old adage to be careful of what you wish for applies to marijuana legalization. Regulation may not be the panacea you think.

Not much green in pot stocks

Despite the legalization of recreational cannabis in Canada two years ago, most marijuana producers there continue to report multimillion-dollar losses.

Canopy Growth (NASDAQ: CGC) remains the largest marijuana stock by market capitalization and by flower market share in Canada, but fiscal 2021 fourth-quarter results were less than stellar. While the pot stock enjoyed sales growth of 38% as revenue hit $148.4 million Canadian, that fell short of analyst expectations of CA$151.8 million. It did narrow losses to CA$616.7 million, or CA$1.85 per share, from CA$1.3 billion, or CA$3.72 per share, a year ago, but that too missed forecasts of losses of CA$0.26 per share.

Even on an adjusted EBITDA basis, Canopy Growth showed losses of CA$94 million, only slightly better than the CA$102 million recorded last year, though it maintains it will be adjusted-EBITDA-positive by the back half of fiscal 2022.

Tilray (NASDAQ: TLRY), which after its acquisition of Aphria in November had… Continue reading at