Cannabis Is Now Legal In Canada: Industry Insiders Discuss What It Means For Stocks, International Market

Canada is now the second country in the world to fully legalize cannabis, allowing adults to consume marijuana for recreational purposes. Much has been said about the move, with journalists and experts discussing various topics ranging from the impact on the Canadian economy, to the pitfalls it may have, to supply shortage fears.

The legal age for marijuana use will be 19. Recreational users can possess 30 grams of marijuana, while medical users can carry 150 grams.

Game Changer

“The full federal legalization of a country the size of Canada and part of the G7 is a game changer for the global industry,” said Cynthia Salarizadeh, managing partner at KCSA Strategic Communications and founder and CEO of AxisWire. In her view, U.S. companies will continue to move into public markets on their exchanges.

"[F]rom a supply chain management perspective, this will act as an example for all other markets," she said, adding that it will be interesting to see how e-commerce in general and the Shopify Inc SHOP platform in particular perform there.

“One thing to note is that legalization means more people will have access to health and wellness products," said Michael Klein, CEO of CannabisMD.com. "Now more than ever, there is going to be a greater demand for products that incorporate cannabis compounds and consumers needing credible, easy-to-understand information on the potential benefits of the plant. We are going to see a significant rise in the retail side of wellness cannabis space, becoming a multi-billion dollar industry."

What About The Stocks?

"Theoretically this should help Canadian stocks more than others,” said Kris Krane, president of cannabis investment firm and multi-state operator 4Front. “There’s a risk though that legalization is already baked into the price of Canadian stocks, since this date has been known for a long time and we have seen a big rise in the value of these stocks."

Krane thinks expectations should be somewhat tempered.

"It would not surprise me if American companies saw a boost in their values based on the news, since Canada legalizing may provide optimism that the U.S. can’t be too far behind," he said.

Vinay Tolia, CEO of Flowr Corp FLWR, told Benzinga “we've seen stocks benefit primarily from big bets on the future: adding cultivation capacity, acquisitions, investments from outside the industry.

"[A]s the Canadian [recreational] market opens, we'll be able to see more and more who can operate a business well. Companies that can demonstrate they can cultivate at scale and profitably will certainly reap some benefit because their products can be widely distributed and contribute to the bottom line.”

One topic that isn’t discussed enough, in Tolia’s view, is that of consistency of supply to individual provinces.

“Provincial buyers will trust LPs that meet their quotas and supply a repeatable amount of product to their stores. Investors should be wary of LPs that miss delivery dates and quantities as Provinces will look down on them for future dealings,” he said.

U.S. Stocks To Watch

According to CNBC's Aditi Roy, a handful of U.S.-based companies would be the biggest beneficiaries of Canada’s legalization, given their investments in Canada-based companies. These are:

• Constellation Brands, Inc. STZ, due to its big stake in Canopy Growth Corp CGC.

• Molson Coors Brewing Co TAP, on the back of its joint venture with Hexo Corp HYYDF.

• MedMen Enterprises Inc. MMNFF, for its distribution partnership with Cronos Group Inc. CRON.

• Lowell Brands, which is exploring distribution options in Canada.

• Growlife Inc PHOT, profiting on its recent entry intro the Canada market.

Economic Impact

What could legal cannabis do for the Canadian economy? How much is it potentially worth?

The cannabis industry could be worth as much as a $20 billion in Canada alone, Krane said. CIBC analysts said in May the industry will approach $6.5 billion in retail sales by 2020.

This would provide new jobs and tax revenue for the economy. As a federally legal market, Canadian companies also have access to export markets around the world, which could provide additional revenue boosts for the country.

Since marijuana remains federally illegal in the U.S. –- even for medical uses -- there will be no import/export between the neighboring countries, except for some limited research applications, like the recent export completed by Canopy Growth, said Alan Brochstein, author of the 420 Investor.

Fear Of Missing Out

Terra Tech Corp TRTC on Tuesday ran a full-page ad on The Wall Street Journal, a letter to President Donald Trump calling for cannabis legalization.

“The rapidly growing American cannabis industry represents an extraordinary economic opportunity for our country, yet Canada is threatening to deprive American farmers, workers and businesses from the prosperity that rightly belongs within our borders,” the ad said.

"Our country is currently at risk to lose what we believe is one of the fastest growing Industries our generation is ever going to see to foreign control," Terra Tech CEO Derek Peterson told Benzinga in a statement.

"We believe the president is a business person and we believe his administration is focused on creating jobs and Industry. We also think our political leaders don't understand the economic and business risk U.S operators are currently under and the effect the political climate is having on its growth... If we don't change our stance that allows states to set their own policy around cannabis we stand to lose control and our competitive advantage in the global cannabis marketplace."

Related Links:

4 Major Market Opportunities For The Cannabis Industry

Why Small Cannabis Stocks Matter – And Which Ones Deserve A Closer Look

A legal cannabis ad at Yonge–Dundas Square in Toronto. Photo by Javier Hasse.