Three Things to Know Before Pot’s Big Day

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Market Trends
This is individual research and does not constitute investment advice.

October 17 is fast approaching.

Starting at 12:01 a.m. on that date, recreational marijuana sales will go live.

It’s a monumental moment for the markets. Nearly a century of prohibition draws to a close as Canada becomes the first G7 country to legalize adult-use nationwide.

Investors are seeing dollar signs.

And consumers are cheering.

But after spiking higher in mid-August and through September, the Canadian Marijuana Index has started to lose some steam…

Since peaking on September 12, Canadian pot stocks have tumbled nearly 12%.

Though the broader markets like the Nasdaq and Russell 2000 have struggled as well.

It could just be the calm before the storm. Everyone is waiting to see how long those lines are going to be. Well, we won’t have to wait much longer.

So let’s take a look at three things investors should know before pot’s big day.

No. 1: The Looming Shortage

There are rumblings of a looming dilemma in the Great White North: Is there enough weed?

The direst of warnings say Canada will be able to meet only 30% to 60% of demand.

According to a new research report, the country’s first-year production will be 210,000 kilograms (kg). But consumer demand is expected to be almost three times that at 610,000 kg.

Personally, I don’t necessarily view this as a bad thing.

Canada is undertaking an enormous endeavor by creating a new legal market. This has been in the works since April of last year. And I know that point-of-sale systems, online portals and websites have undergone rigorous testing to ensure they can handle the deluge.

Producers have built stockpiles.

But I wouldn’t expect Canada’s adult-use launch to go off without some minor snags.

When Nevada launched recreational sales in July 2017, Gov. Brian Sandoval declared a state of emergency as demand rapidly outpaced supply.

In California, long lines made for great nightly news clips. But the state wasn’t as prepared as most had hoped, and sales disappointed.

Let’s not beat around the bush here. A shortage would likely be good news for cannabis share prices. It would stoke excitement about pent-up demand.

Shortage or not, the wait is almost over. Just in time for the latest round of market-moving announcements…

No. 2: More Pot Stocks Join the U.S.

Even though cannabis is illegal at the federal level, there’s no greater honor for cannabis companies than to be listed on a major U.S. exchange.

And Aurora Cannabis (TSX: ACB; OTC: ACBFF) will likely be next.

The Canadian cannabis powerhouse has filed its application to move its common shares to the New York Stock Exchange to trade under the symbol “ACB.” Aurora is still awaiting approval, but an announcement should be made before the end of the month.

Aurora has rapidly emerged as one of the largest players in the industry. It has the capacity to eventually produce 500,000 kg annually. And it has operations in 18 countries on five continents.

On top of that, the company has been aggressive on the acquisition side. It has gobbled up 15 companies so far, including CanniMed Therapeutics, CanvasRX and MedReleaf.

It also has strategic partnerships with Choom Holdings (CSE: CHOO; OTC: CHOOF), Namaste Technologies (TSX-V: N; OTC: NXTTF) and The Green Organic Dutchman (TSX: TGOD; OTC: TGODF), among others.

Aurora will have the distinction of joining Canopy Growth Corp. (NYSE: CGC), Cronos Group (Nasdaq: CRON) and Tilray (Nasdaq: TLRY) as the growing number of Canadian licensed producers received with open arms on major U.S. exchanges.

No. 3: I’m Not Dead!

In Monty Python and the Holy Grail, one of the many quotable moments is the “Just Die Already” scene.

A cart master is collecting dead for ninepence. He comes across a customer who brings him a dead person. The only problem: The dead man argues he isn’t dead… at least not yet.

“I’m not dead! I’m getting better!” he exclaims. He eventually tells the cart master, “I feel fine. I think I’ll go for a walk.”

This is how the medical marijuana industry must feel…

With recreational sales in Canada launching just days from now, there’s a popular misconception that the medicinal market will wither and die.

But a research report from Green Market Research shows the exact opposite might be true.

Using data compiled from 321 dispensaries in Colorado, Nevada, Oregon and Washington state, the study found that though the percentage of a dispensary’s medicinal sales dipped immediately following legalized adult-use… they didn’t disappear.

This isn’t rocket science. If a store goes from selling one product to two, the first product doesn’t just go away even if the second product is more popular.

The report showed medical marijuana accounted for 39% of a dispensary’s sales the first month recreational cannabis was introduced. Over the next several months, that fell to 32%.

But after bottoming, it rebounded. And by the 12th month, medicinal pot accounted for 40% of all sales – more than where sales were the first month after legalization.

So the data reaffirms that recreational sales don’t kill the medicinal market. And they may actually fuel medical marijuana growth as more consumers become acquainted with the idea.

The U.S. medical cannabis market was worth more than $3.5 billion in 2017. And it’s expected to grow to $8 billion by 2024.

Of that, about 75% of market share is pain management.

So it’s still growing.

In Canada, expectations aren’t for recreational to kill off the medical industry. It’ll just become a smaller piece of the pie over time…

In just a couple of days, recreational sales will begin in Canada.

This is the moment investors – and consumers – have been waiting for since April 2017.

Despite some delays and a couple of bumps in the road, history is about to be made. It’s an exciting time as it marks the tipping point of what I believe will be a $200 billion market by the end of the next decade.

One that will continue to reward investors year in and year out.

Good investing,

Matthew