Cannabis Stocks Rise on Edibles Legalization Day

LEGALIZATION 2.0 COVERAGE

One year after Canada completed the federal legalization of recreational marijuana, the nation will now open its market to novelty products infused with the drug. This includes edibles such as cookies and gummies, as well as cannabis beverages, which will be introduced to the market in an attempt by legal producers to tap into a replacement product for alcohol.

As such, on the eve of the launch of this second phase of the marijuana market in Canada, the Investing News Network brings investors a collection of stories and interviews on the impact this opening will have.

Canada’s nascent legal marijuana industry has had the last year to grow based on a small sample of products, but on Thursday (October 17) legislation ushered in a new wave of consumption: cannabis-infused edible products.

Stocks across the sector saw gains on Thursday as legalization came into effect.

Many licensed producers, including Canopy Growth (NYSE:CGC,TSX:WEED), Aphria (NYSE:APHA,TSX:APHA), Aurora Cannabis (TSX:ACB) and Organigram Holdings (TSXV:OGI,OTCQX:OGRMF), saw value increases as the trading day began.

A collection of Canadian exchange-traded funds (ETFs) also saw gains as the day kicked off, including the Evolve Marijuana ETF (TSX:SEED), which rose on Thursday to C$15 shortly after the start of trading.

The Horizons Marijuana Life Science Index ETF (TSX:HMMJ), which acts as an index for a pool of cannabis stocks, jumped 3 percent from a close on Wednesday of C$10.62 to C$10.94 early in the trading day.

It’s a different story from last year, when companies in the sector took a hit on the day of initial cannabis legalization in Canada in a generally accepted selloff seen across the board.

Up until now, recreational users of cannabis in Canada only had access to dried flower and oils, but retailers will soon be able to stock their shelves with marijuana derivatives in foods, beverages and topicals, giving consumers options other than inhalation.

While the legislation is now in effect, sales won’t begin until mid-December, according to Health Canada. The federal regulator will be subjecting new products to a 60 day review period.

The beginning of the year saw sky-high valuations for cannabis companies, but the industry was put through its paces over a summer marked with volatility. It suffered from an array of setbacks, including high investor expectations for revenue generation and a lack of retail locations in the country.

However, industry experts and analysts have said edibles could prove to be a boon for the space.

A study from Lift & Co. (TSXV:LIFT,OTCQB:LFCOF) and EY estimates that 1.5 million new customers could be introduced into the market now that alternatives to smokeable products will be available.

A report from business research company Deloitte furthered excitement about the space after the firm projected this new legalization could create a C$2.7 billion industry in Canada.

Performance of Canadian extraction companies

At the core of these new products will be cannabis extracts, and companies have been amping up their extraction capabilities to prepare for the next phase of Canada’s cannabis legalization.

Extraction giant MediPharm Labs (TSX:LABS,OTCQX:MEDIF) jumped in value early on in the trading day on Thursday, opening at C$4.19 and rising 2.6 percent to C$4.30 by 10:20 a.m. EDT.

Quebec-based Neptune Wellness Solutions (NASDAQ:NEPT,TSX:NEPT) also saw some gains in Toronto, rising from a closing price on Wednesday of C$4.59 to C$4.75 at open on Thursday.

Another successful extraction firm was Valens GroWorks (TSXV:VGW,OTCQX:VGWCF), which opened at C$3.21 before reaching C$3.34 by 11:50 a.m. EDT.

Investor takeaway

Since products won’t be available until the end of the year, it’s still not clear how edibles and other novel cannabis offerings will impact the overall financials of the industry.

Cannabis companies will have trouble in Quebec, which has banned the sale of cannabis-infused foods that would appeal to children, a decision that’s been criticized by players in the legal industry.

Elliot Johnson, chief operating officer at Evolve Funds Group, told the Investing News Network that investors will be taking note of this new development.

“The legalization of edibles in Canada will draw some more attention to this sector. Obviously the sales results will not be actually known until 2020, but speculation may drive valuations higher,” he said.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: MediPharm Labs and Valens GroWorks are clients of the Investing News Network. This article is not paid-for content. 

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.