Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Canadian Cannabis Stocks CRASH as Canopy Growth Hits a Dead End

Companies / Cannabis Dec 14, 2019 - 01:00 PM GMT

By: Stephen_McBride

Companies

It was supposed to be a routine police raid…

But when the cops stormed an illegal pot operation in California earlier this year, even grizzled veterans were shocked by what they found.

They went in expecting to confiscate marijuana plants from a farm. Instead, they found a pot factory cranking out 500 pounds of pot a day. That’s nearly enough pot to supply all legal pot shops in California!

As you may know, California legalized recreational pot in 2018… an act that was supposed to put an end to the illegal pot black market. Instead, the total opposite has happened. Black market pot is thriving.



Two years after legalization, 80% of the pot sold in California still comes from the black market. And get this… spending on legal pot has DROPPED 17% since California legalized pot, according to Arcview.

This development is a huge, overlooked threat to pot stocks. If you own any, especially Canopy Growth, here’s what you need to know...

Have You Seen Canadian Pot Stocks Lately?

It’s a bloodbath.

Here’s Canopy Growth (WEED)… down 65%.



Aurora Cannabis… crashing 74%.



And Cronos Group… slipping 71%.



If you’ve been following my work on pot stocks, you saw this coming from miles away back in August. But make no mistake, pot stocks aren’t merely “taking a breather.” They’re crashing. And I don’t see them going anywhere but down for at least the next six months, for one simple reason.

The Canadian Black Market

Pot was legalized in Canada last year. But 2018 was not the first time most Canadians tasted pot. Millions of kilos of pot had been smoked in Canada way before the legalization. It’s been a multi-billion dollar industry for a hundred years.

The only difference is that it was conducted on the black market, illegally.

Just like in California, legalizing pot was supposed to kill the black market in Canada. Just like in California, the opposite is happening.

A year after Canada’s historic legislation, the Canadian pot black market isn’t just alive—it’s booming! Today, 4 in 10 Canadians buy at least some of their pot from illegal sources, according to StatsCan. And in 2019, the black market is expected to make up 71% of all pot sales in 2019.

The Biggest Pot Lie

Mark Zekulin, CEO of Canopy Growth, appeared on TV the other day. He commented on the company’s record-high losses for returned products and excess inventory. The company lost $1.6 billion in the past six months… 3X more than last year.

As you may know, Canopy Growth is the world’s largest pot producer...and one of investors’ favorite pot stocks. Here’s what Mark said:

“There are not enough stores in Canada to sell our products… and it’s very hard to take on the black market”

In other words, the lack of legal pot stores is Canada is at the root of Canopy Growth’s struggles. Once more pot stores open up, black market competition will vanish. That’s a big, capital-L lie.

If California is any indication, access to legal pot won’t disrupt the black market. Quite the opposite… it will make it thrive.

It All Comes Down to Price

"One customer told me, ‘I love you and I want to support you, but I can't buy all my cannabis here. It's too expensive,’ " said Jeremy Jacob, co-owner of a Vancouver pot store. That’s one of the many stories you hear from owners of the first Canadian pot stores. It reflects the main problem with the legal pot industry.

Legal pot is expensive!

In Canada, you can buy a gram of pot on the street for $5.59. In a legal store, you must shell out over $10.23 for the same amount of pot, according to Statistics Canada.

You see, the government of Canada levies huge taxes on legal pot… which inflates its price to practically double that of black market pot. This makes it impossible for a legal producer like Canopy Growth to compete with street dealers.

Canopy Growth Is Sitting on Mountains of Pot

Let me show you the most important chart about Canopy Growth. It shows how it’s piling up bigger and bigger inventories of pot…



It took just a year for the company to fill up its warehouses to the brim with hundreds of thousands of kilos of pot. But because of the black market, only a fraction of it has been sold.

While Canopy Growth is falling over itself to produce more and more flower, most folks are still buying their pot from street dealers.

The Math Doesn’t Add Up

I ran the numbers. Canopy Growth has to sell over $3 billion worth of additional pot a year to get its head above water. That’s 300,000 to 600,000 kilos per year.

This is more than half of what the entire Canadian market consumes in an entire year, according to Statistics Canada. Since the black market makes up 71% of the Canadian pot market, most of Canopy Growth’s pot will stay in warehouses to rot.

Meanwhile, the company’s losses are mounting by the day. This can’t go on forever.

My recommendation: don’t buy the dip in Canopy Growth or other pot stocks. As tempting as a 60% discount sounds, Canopy Growth is a money-burning machine that has hit a dead end.

I see much more blood on the streets from here.

Written with the assistance of Dainius Runkevičius.

The Great Disruptors: 3 Breakthrough Stocks Set to Double Your Money"

Get my latest report where I reveal my three favorite stocks that will hand you 100% gains as they disrupt whole industries. Get your free copy here.

By Stephen McBride

http://www.riskhedge.com

© 2019 Copyright Stephen McBride - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules