Legal Cannabis Delay: Does it Make Any Difference for Pot Stocks?

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Reports surfaced in late 2017 that indicated that members of the Canadian senate, which currently boasts a Conservative majority, could potentially delay cannabis legalization beyond its targeted July 2018 date. On February 16, we learned that the Senate will hold a final vote on June 7, which would mean that recreational cannabis will take another two to three months following the vote to be rolled out. Legal cannabis is unlikely to be available to consumers until late August at the very earliest.

Cannabis stocks have already tapered off somewhat in 2018 after the stocks of the major producers rolled off triple-digit gains in the latter half of 2017.

Aurora Cannabis Inc. (TSX:ACB), the largest producer in the country, dropped 2.19% on February 21 and has declined 20% month over month.

On Wednesday, February 20 Aurora announced that it had signed a letter of intent (LOI) with the Société des Alcools du Québec (SAQ) to supply at least 5,000 kilograms of cannabis per annum to the Quebec market. The supply agreement will be contingent upon the month-to-month demand flow. This comes weeks after Aurora had acquired a 19% stake in Liquor Stores N.A. Ltd., which will give Aurora access to its sizable retail footprint in Western Canada. Aurora will have the opportunity to boost its stake to 40% at a later date.

Canopy Growth Corp. (TSX:WEED) stock fell 2.91% on February 21. Shares of Canopy Growth, Canada’s second-largest cannabis producer, have now dropped 3.3% in 2018 thus far. The company released its fiscal 2018 third quarter results on February 14.

It posted record quarterly revenue of $21.7 million, representing the highest total reported in the Canadian cannabis sector up until now. Quarterly sales hit $1 million in Germany, which was also a record. The company has secured multi-year supply agreements with four provincial entities totaling up to 25,000 kg annually. Kilograms harvested surged 91% from the second quarter and 51% year over year.

On February 21, Canopy Growth announced it had signed a supply and sales agreement with Sunniva Medical Inc., a sister company of Natural Health Services. Canopy Growth will purchase up to 90,000 kg of dried cannabis from Sunniva.

MedReleaf Corp. (TSX:LEAF) dropped 5.48% on February 21. Shares have declined 9.1% in 2018 thus far. The company announced its fiscal 2018 third-quarter results on February 13.

MedReleaf sold a record 1.26 million kilograms of cannabis products – a 27% increase from the prior year. The company reported record sales of $11.4 million, with sales of cannabis-based extract products making up 21% of total sales. In December MedReleaf announced an agreement to supply medical cannabis to Shoppers Drug Mart, a subsidiary of Loblaw Companies Ltd.

On February 14, MedReleaf announced that it had also signed a LOI with SAQ to supply 8,000 kilograms of cannabis product annually for recreational use.

What about the delay?

The delay is more likely to frustrate consumers rather than investors. If anything, this may buy more time for producers to gear up for the expected sky-high demand from buyers. Expect further consolidation over the next several months.

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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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