Ontario Is Ready to Light Up: Here’s How to Prep Your Portfolio

Ontario has determined how and where recreational marijuana sales will take place, signalling a boon for companies such as Canopy Growth Corp. (TSX:WEED).

| More on:

The recreational marijuana industry passed another big milestone last week as Ontario announced the how and where questions of purchasing legal marijuana in Ontario. The current timeline for legalization is still considered to be next July at a federal level, but provincial governments still need their own legislation to fill in many of the blanks left by Ottawa. Among those many voids is pricing.

Ontario is the first province to announce a framework for recreational marijuana use, and other provinces are no doubt working on their own versions that could offer a very different approach to what Ontario has proposed.

Specifically, Ontario premier Kathleen Wynne announced that the government-run outlets, operated by the LCBO, will be the sole path to purchasing recreational marijuana, apart from a government-run website. The Ontario plan also noted that recreational marijuana will be limited to private residences, with public places, cars, and workplaces all explicitly banned.

With respect to those government-run outlets, the province plans to have 40 stores ready next summer, with that number growing to 80 the following year and then to 150 in total by 2020. Despite the LCBO acting as the seller, the new stores will be standalone locations and not linked directly to existing LCBO stores, which has drawn considerable criticism from a variety of different sources.

The LCBO was already seen as being too restrictive, which led to a recent softening of regulations that made it legal to sell beer in some grocery stores, but now it will apply the same, if not stricter, control over marijuana products, which already have a massive distribution network.

What does this mean for your portfolio?

Canopy Growth Corp. (TSX:WEED) came into the spotlight last fall as the first marijuana stock to hit the market, garnering a massive amount of interest. The stock took off, hitting a $2 billion market cap in a relatively short amount of time, despite not having the revenue to back up that valuation.

Canopy continued to grow through much of the year, making all of the right decisions to set up a massive distribution network and increase production for what could be an annual $5 billion market.

Canopy’s acquisition of Mettrum Health was key to the company acquiring additional brands, additional patients, and an increase production base. An equally mastered acquisition was also made last year for Germany-based distributor MedCann. Germany does not yet allow companies to grow product locally, yet Canopy is a licensed supplier to the German market.

Looking back over the past year, much of the roller-coaster ride that the stock had last year has come to an end with the stock holding below $10. This has led some investors to deduce that the opportunity has passed and others to shy away from Canopy altogether, believing the stock was overvalued because of a bandwagon effect.

There is some value to this; Canopy was the first and only marijuana stock on the market at the time. Since then, both Aphria Inc. (TSX:APH) and Aurora Cannabis Inc. (TSX:ACB) have emerged and even offer similar promising growth without that roller-coaster ride.

Should you invest in marijuana stocks?

Marijuana is still a very new segment of the economy that holds plenty of potential. Pundits have often equated the opportunity presented as being similar to investing in liquor companies at the end of prohibition.

There’s also the legal question of marijuana. The federal government has long decreed that next July is the legalization date, but there are still more provinces without plans for legalization than there are with one. In other words, that July 2018 date, which is aggressive, could be pushed out even further.

In my opinion, a small investment in a marijuana stock is warranted, but investors should be looking more at the long-term potential of the market rather than the short-term roller-coaster ride.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.  

More on Investing

Question marks in a pile
Stocks for Beginners

New Investors: Do You Need Bonds in Your Investment Portfolio?

The traditional investment portfolio would have a bond and equity component. Do you really need bonds in your investment portfolio? …

Read more »

Top view of people having party, gathering, celebrating together

Plant-Based Foods Growth: Why I’m Buying This TSX Stock on the Dip

SunOpta (TSX:SOY) is a Minneapolis-based company that manufactures and sells plant-based and fruit-based food and beverage products to a variety …

Read more »

Coronavirus written newspaper close up shot to the text.
Tech Stocks

The 2 Best Tech Stocks to Buy Today for Low-Risk Investors

Overvalued tech stocks are undergoing a major correction after inflating on the back of high liquidity from fiscal stimulus packages. …

Read more »

crypto blockchain

How Cheap Can Crypto Mining Stocks Get Before They Are Worth a Buy?

Over the last two years, during the significant rallies in the crypto industry, some of the biggest gainers and best …

Read more »

Aircraft wing plane

Air Canada (TSX:AC): Is $22/Share Cheap or Expensive?

The TSX Composite Index corrected 2.3% since December 30, 2021, as tech stocks saw a huge selloff over the anticipation …

Read more »

exchange traded funds
Energy Stocks

3 Sector-Specific ETFs to Consider

Exposure to a specific sector doesn’t make sense from a diversification perspective, but it is often a good way to …

Read more »

silver metal
Metals and Mining Stocks

1 Reeling Silver Stock to Consider Today

Aya Gold & Silver (TSX:AYA) is a Montreal-based company that is engaged in the acquisition, exploration, evaluation, and development of …

Read more »

Dividend Stocks

3 Dividend Stocks I’d Buy and Never Sell

Canadian National Railway (TSX:CNR)(NYSE:CNI) has many things going for it — the least of which is its history as an …

Read more »