Investor interest in Canadian medical marijuana stocks may already be waning as some of the more popular plays are off as much as 70% from its 2014 highs. Regulatory uncertainty and potential price wars in the future seem to be acting as a ‘buzz kill’ for those looking to make some fast trading cash in this sector.
‘Pot’ has been hot in Canada, specifically interest from the many companies that seem to want a license to grow marijuana for medicinal purposes. Among those eager to join this ‘green’ rush are some junior mineral exploration companies, most of which are challenged to raise funds to do more drilling.
And can you really blame them? The current resource market is one of the worse in recent memory and it is estimated that this new private-sector commercial marijuana production industry could grow to more than $1 billion a year by 2024.
Given how quickly the stock prices of these companies have climbed, though, it shows all the signs of a classic bubble, one that will likely end badly for most investors and speculators, especially those joining the ‘party’ late.
In a recent SmallCapPower.com interview (watch it here), Selective Asset Management President and Portfolio Manager Robert McWhirter said he is expecting a “huge price war” in the medical marijuana industry in Canada. His reasoning is that unlike the beer industry where there’s a government regulated minimum selling price for the product, there’s no minimum selling price for marijuana (although this could change in the future).
Combine that with what he estimates is more than 600 companies applying for ‘grow-op’ licenses currently and it all points to severe pricing pressure and cutthroat competition in the years ahead.
Adding further haze to the pricing issues was a Canadian Federal Court ruling on March 21, 2014, which allowed, at least temporarily, individuals licensed for personal production as of September 30, 2013, to be able to keep growing medical marijuana at home pending a future trial.
Lynne Belle-Isle, chair of the Canadian Drug Policy Coalition, in a recent CBC interview said the retail price licensed growers will charge for medical marijuana will probably be in the range of $6 to $12 a gram, as compared to about 50 cents a gram for someone growing it at home. Indeed, this creates a compelling legal argument for the individual grower who needs the drug for a chronic ailment and cannot afford to pay the market price.
All of this uncertainty may already be acting as a “buzz kill” for those trying to make money speculating in medical marijuana stocks, as some of the more popular plays in Canada have pulled back substantially from its 52-week highs. Satori Resources Inc. (TSXV: BUD) is off about 70% to its current price of $0.05, while Next Gen Metals Inc. (CSE: N) has retreated by 68% to its recent price of $0.23. Even licensed producer Tweed Marijuana Inc. (TSXV: TWD) has seen a 35% haircut from its all-time high reached just a little more than a month ago.
While it’s too soon to tell whether the shine has permanently come off of this sector, investors and speculators are likely becoming more discriminant as to where they place their bets.
Please continue to follow SmallCapPower.com for more insights into the investment environment for Canadian medical marijuana stocks.
