On June 7th, Canada’s Senate voted on the bill C-45 also known as the Cannabis Act. The bill, if it goes through, will allow Canada to become the first developed G7 country in the world to legalize the use of recreational marijuana for adults. The act will also allow a projected $5 billion or more in additional yearly sales for the weed industry. With the possible ratification of the act coming up, people are curious as to what benefits and detriments will come with it.
The Cannabis Act presents exciting news for cannabis enthusiasts and marijuana stock investors. The tally had 56 votes in favor with 30 votes against. The overwhelming support for marijuana legalization shows it may very well go through as Prime Minister Justin Trudeau has promised a while back. After the House of Commons’ approval, it took 14 months for the Senate to make amendments and to come to an agreement for the Cannabis Act to go through. The ratification will be good news for cannabis companies that have invested capital and time into expanding the cannabis industry.
On the other hand, the downside of the passing of the Cannabis Act includes more than 40 amendments from the Senate since the bill went through the House of Commons. The amendments would give Canada’s provinces the ability to ban home-grown cannabis, give Parliament the right to vote on whether or not to introduce edibles or vaporizers in the future, and would ban promotion of cannabis companies on merchandise and non-cannabis objects according to the Financial Post. If the amendments aren’t to House of Commons' liking, the bill could go back and forth for weeks between them and the Senate. If they’re fine with it, it’ll go straight to Prime Minister Trudeau.
Initially, the bill was expected to start and go into effect on July 1st, 2018 from last year, and then it was projected to go through in August or September from earlier this year. Now it’s looking like recreational marijuana sales won’t begin until September or October earliest.
Companies like Aphria, Canopy Growth and Aurora Cannabis are three of the larger companies awaiting news of the bill’s passing. Aphira has two projects, Aphria One and Aphira Diamond, which aren’t expected to be completed until January 2019. The delay of legal sales until October 2018 works in their favor with the time narrowed between the legalization and projected sales. Aurora Cannabis and Canopy Growth, however, have facilities ready to push out production whenever legal sales begin. Canopy Growth tripled its licensed production in British Columbia to 2.4 million square feet since 2018 started, while Aurora Cannabis’ Aurora Sky project is expected to be completed this summer. The delay in legalization could lose the competitive edge for these organizations moving forward.
With Canada as essentially a large sample size to test sales in the face of legalization of marijuana, the supply and demand for cannabis is unknown. Health Canada has projected domestic demand to hit 1 million kilograms, with possibility of an oversupply of marijuana. A financial analyst at Yahoo Financeestimates Canadian growers could produce 2.4 million kilograms of marijuana a year by 2020, projecting a tremendous oversupply. If the oversupply isn’t in demand for possibly over a million kilograms of cannabis, the Canadian cannabis market could have per-gram marijuana prices plummet similar to what's happened in Colorado, Washington, and Oregon. This could lead to a loss of value in pot stock margins.