The legal marijuana sector has gotten a massive boost since Trudeau’s Liberals won a majority in Monday’s national election. Licensed marijuana producers are rushing to meet future demand.
A group of TSX Venture marijuana-related stocks have exploded in anticipation of new laws that would legalize recreational marijuana use in Canada.
Licensed marijuana producers rally on Liberal Majority
The licensed producers, such as Canopy Growth, have received the greatest support as volume and valuations have risen.
Canopy Growth, who’s wholly owned subsidiaries consist of: Tweed Inc., Tweed Farms Inc., and Bedrocan Cannabis Corp. was Canada’s first publicly traded medical marijuana company. Being first to market has its benefits, particularly when you can also boast being the first geographically diversified producer with dual licenses under the Marihuana for Medical Purposes Regulations.
Canopy Growth has been basking in the limelight after a surge of liquidity took its share price to new multi-month highs. The company wasted little time, following the positive press due to a Liberal victory, and announced a $12.5 million bought deal this morning.
It was reported that the offering will be done at a price per Share of $2.05, for total gross proceeds of $12,500,900. Canopy Growth’s market cap is up over $50 million since early October and traded around $203 million Friday morning.
Canopy traded for just $1.58 per share on October 2nd.
In a National Post article, titled Canada’s budding marijuana industry could blossom into a $5-billion market if Liberals make recreational pot legal, from October 20th the potential of this sector was highlighted:
“The opportunity is obvious. There are currently about 35,000 to 40,000 patients enrolled in Health Canada’s medical marijuana program. The total market is worth perhaps $80 million to $100 million. If recreational pot becomes legal, the potential customer base suddenly runs in the millions. Dundee Capital Markets analyst Aaron Salz figures the market would then be worth up to $5 billion.”
source: http://business.financialpost.com/news/agriculture/canadian-marijuana-st…
As investors, it is important to understand the impact political policies can have on certain sectors. This is particularly true since the financial crisis of 2008, as many sectors have become more politicized than ever before.
The lumber industry, for example, will be closely watched in the coming weeks as the soft wood lumber agreement plays out. With the expiry of the 2006 Softwood Lumber Agreement and associated export measures, you can feel tensions rising in stocks like Canfor and Western Forest Products. Given the rally in both stocks, over the past few weeks, it seems investors are betting on a renewed agreement coming to fruition in short order.
In our latest EBook we reveal 50 leaders who took small-cap stocks to stunning multimillion dollar buyouts. The companies these leaders run today are also described in this one of a kind rolodex of some of the top entrepreneurs and business minds, operating in North America’s small cap public markets.
Back to marijuana stocks and Canopy Growth’s share price which began gaining momentum alongside the Liberals; and, actually could have been used as an indicator the Liberals were poised for victory.
Canopy Growth – 1 Month Chart
Even prior to Justin’s win, the volume in Canopy began increasing in anticipation… The Liberals winning majority has sent many marijuana stocks to new multi-month highs.
Canopy Growth is not the only marijuana stock benefiting, as deals like Aphria and OrganiGram exploded this week.
Aphria hit a low of $0.85 on October 6th and came to within 3 cents of its 52-week high this morning – $1.25per share. These are big moves in an otherwise depressed small-cap sector.
The TSX Venture traded over 230 million shares in 3 days, between the 20th and 22nd of October. In the last three days of September, the TSX Venture exchange traded less than 150 million shares as a quick reference.
While Justin and the Liberals have yet to take power, it will be interesting to see if and when they follow through on promises to legalize recreational marijuana and the potential impact this may have on Canada’s small-cap sector.
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