What do you get when a still-nascent industry that’s been experiencing growing pains encounters the quickest descent into bear market territory in history for the stock market? The answer is an absolute rout for cannabis stocks.
To be fair, no industry has been immune to the concerns created by coronavirus disease 2019 or the subsequent haircut all of the major U.S. indexes have endured. But the marijuana industry has been particularly vulnerable for a variety of reasons.
This bear market comes at a terrible time for the pot industry
For starters, Canada has been contending with supply problems since day one of legalization, all the way back on Oct. 17, 2018. Regulatory agency Health Canada was particularly slow in approving cultivation and licensing applications for pot growers, and it also wound up delaying the launch of high-margin derivatives (e.g., edibles, infused beverages, vapes, topicals, and concentrates) by two months.
Additionally, provincial regulators haven’t exactly been helpful. Until the end of 2019, Canada’s most-populous province, Ontario, had been working with a lottery system to assign licenses to dispensaries. This resulted in a meager 24 retail stores being open as of Oct. 17, 2019, the one-year anniversary of cannabis product sales commencing. For context, this is a province of 14.5 million people that could reasonably house 1,000 dispensaries.
In the United States, taxation has been the real threat to legal-channel sales growth. In states like California, consumers are being hit with already high state and local taxes, along with a 15% excise tax and a wholesale tax. Inclusive of other costs that may not be as visible, such as quality control testing, it’s not inconceivable that Californians are paying an extra 50% on legal pot products. This makes it virtually impossible to compete against black-market producers.
Lastly, we’re seeing financing concerns throughout North America. In the U.S., where marijuana remains a federally illegal substance, banks and credit unions continue to worry about the prospect of financial or criminal penalties for aiding pot companies. Meanwhile, in Canada, financial institutions have become leery about lending to cannabis companies given the rash of regulatory problems the industry has dealt with since sales began 17 months ago.
Read more at https://www.fool.com/investing/2020/03/18/start-the-clock-the-cannabis-stock-delisting-count.aspx
