Could Conservative Senators Trigger a Marijuana Stock Meltdown?

Tory senators are stalling two important bills needed for nationwide legalization. What would another legalization delay mean for cannabis producers like Canopy Growth Corp. (TSX:WEED)?

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Just when you thought nationwide marijuana legalization was a sure thing, Conservative senators have been made it clear that they’re pushing for further delays, so they can have “enough time to properly do their jobs.”

There have already been delays in the past, so Justin Trudeau made it clear that the hard deadline would be set for Canada Day 2018. If these Tory senators don’t pass these bills (C-45 and C-46), then legalization day may be delayed past the hard deadline, which would leave a lot of cannabis producers in a haze of their own smoke.

These negative developments are coming at a time when many provinces are beginning to accept the fact that legalization day is imminent. Many provinces have already shed light on their plans for cannabis distribution and regulation, and some even signed the dotted line with a supplier.

More recently, Newfoundland and Labrador made a non-exclusive deal with Canopy Growth Corp. (TSX:WEED), which is slated to supply eight tonnes of cannabis to the province per year. Canopy also mentioned its plans to invest $40 million in a Newfoundland-based facility that will hire many locals.

If legalization is pushed back, to late 2018 or later, cannabis stocks could experience a mild correction, as investors throw in the towel, while political uncertainty bleeds back into an industry that has enjoyed many positive developments of late.

Canopy and Aurora Cannabis Inc. (TSX:ACB) have both been aggressively ramping up production to meet the sky-high demands that many experts project will overwhelm supply in the first few years following legalization day.

If the Tory senators have their way, many nearer-term analyst projections will go out the window, and we may witness many cannabis investors rushing to the exits since the explosive post-legalization growth numbers may be postponed for a later date.

Another legalization delay adds more uncertainty to the equation, and that’ll likely slow the rate of positive developments that have been fueling the recent rally in marijuana stocks. That means fewer, if any, supply deals getting inked and a lower chance of a high-profile firm announcing an investment in one of Canada’s cannabis companies.

Such political uncertainty could cause another volume dry-up in marijuana stocks that’d likely continue until another “hard deadline” is announced that the resisting Conservatives are willing to abide.

Bottom line

There’s still a chance that the Canada Day 2018 deadline can be reached, but if the Conservative senators continue to stall, another deadline delay may ultimately happen. If that’s the case, it’s likely that many shares of all the pot stocks could pull back, which would create another buying opportunity for long-term growth investors.

The opportunity is still there for marijuana producers, but further delays will likely cause near-term turmoil. With cannabis stocks flirting with all-time highs, the stakes are ridiculously high at current levels, and as political uncertainty grows again, investors should expect the possibility of another industry-wide hangover.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

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