By Ciara Linnane, MarketWatch
MarketWatch photo illustration/iStockphoto
Cannabis stocks rallied out of the gate Friday, after a report that the Canadian province of Ontario will open up the market for retailers with plans to issue about 20 new store approvals starting in April 2020.
The news, reported by network Canadian Broadcasting Corp. , eased concerns about the shortage of stores that has hampered the development of the legal cannabis market in Canada and allowed the black market to continue to thrive. Ever since Canada fully legalized cannabis for adult recreational use in October 2018, licensed producers have struggled to bring product to market, blocking their path of profitability.
“This is certainly better than the status quo,” said MKM analyst Bill Kirk. “In the fight to take share from the illicit market (which has ~80% share), access to stores has been a major issue.”
Kirk cautioned, however, that access is not the only obstacle the market is facing. A survey conducted by MKM found Canadian consumers said they are still using the black market due to price, convenience and quality.
“Further, Canopy teased an expectation for 40 Ontario stores per month beginning in January,” said Kirk. “If the details of 20 store/month beginning in April hold true, Ontario would have 62% fewer stores by year-end 2020 than Canopy had expected (480 vs 180). All else being equal, we would recommend selling into any strength this news may produce.”
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Investors thought otherwise, sending the stock of market leader Canopy /zigman2/quotes/200603886/composite CGC +0.70% /zigman2/quotes/202205609/delayed CA:WEED 0.00% up about 4%. Aurora Cannabis /zigman2/quotes/210559470/composite ACB +2.71% /zigman2/quotes/203734337/delayed CA:ACB +1.80% rose 3.5%, Cronos /zigman2/quotes/206842762/composite CRON -1.25% /zigman2/quotes/202715342/delayed CA:CRON -1.50% was up 1% and Tilray /zigman2/quotes/209129655/composite TLRY +0.06% rose 1%. MedMen /zigman2/quotes/201940908/delayed MMNFF +5.09% rose 16%, Aleafia /zigman2/quotes/203485112/delayed ALEAF +1.37% rose 5% and Organigram /zigman2/quotes/209289540/lastsale OGI -0.12% added 3%.
Cresco Labs stock /zigman2/quotes/200392306/delayed CRLBF +0.54% /zigman2/quotes/205276242/delayed CA:CL +0.15% shed 0.2% a day after it said it has raised $50 million in a sale-and-leaseback deal of its Lincoln, Illinois facility with GreenAcreage Real Estate Corp. The agreement, which won’t dilute its shares, will allow the company to operate the property as a licensed medical and recreational cannabis grow facility in time for the full legalization of adult-use cannabis in Illinois in January. That market is expected to reach $2 billion to $4 billion in sales once it reaches maturity.
The ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ +0.30% was up 1.4%, with 32 of its 36 constituent stocks trading higher. The Horizons Marijuana Life Sciences ETF /zigman2/quotes/208856346/delayed CA:HMMJ +0.34% was up 1.4%, with 45 of its 54 member stocks gaining.