Are Cannabis Stocks Poised for a Pre-Legalization Run?

The swoon in cannabis stocks may be coming to an end, which could be great news for Canopy Growth Corp. (TSX:WEED) and others.

| More on:

The top Canadian cannabis producers surged upward on March 5, as we look ahead to one more season before legal recreational cannabis becomes a reality. In February, we learned that legalization would be delayed until the late summer, which allows more time for investors to survey the current market as we look ahead to the roll out.

On February 28, Beacon Securities Limited, a Toronto-based investment banking firm, released an update to clients in which it predicted that the recent retreat in cannabis stocks could be reaching an end. The note goes on to state, “… the fact that the average stock is down 35% (median down 36%) in the 49 days since the sector peaked suggests to us that we are likely much closer to the end of this pullback than the beginning.”

In the medium term, Beacon Securities has projected “a broad-based run up” in cannabis stocks in the lead up to recreational legalization, which is slated for August at the earliest. However, it has projected that regulatory movement in the United States will shine more light on the sector going forward. In the long term, the firm has raised concerns about “the quantity of planned supply,” as the race for supply agreements continues.

Aurora Cannabis Inc. (TSX:ACB), now the largest producer in Canada, rose 5.93% on March 5. On February 28, Aurora Cannabis announced final regulatory approval for its acquisition of CanniMed Therapeutics Inc., which completed a busy string of weeks for the company. It also signed a medical cannabis supply agreement with Shoppers Drug Mart and acquired a nearly 20% stake in Liquor Stores N.A. Ltd, which gives Aurora a sizable footprint to sell its product in Albertan stores. Aurora stock is up 17.3% in 2018 thus far.

Canopy Growth Corp. (TSX:WEED) surged 11.6% on March 5, which put its stock into the black for 2018. Canopy recently announced that it had looked into possibly dual-listing on the NASDAQ stock exchange.

After settling a record amount of supply agreements and branching into U.S. distribution channels, Canopy is eyeing greater U.S. visibility. Interest from U.S. investors, which is steadily increasing, even as the country wrestles with its regulatory issues on a state and national level, could have a marked impact on Canopy’s stock price. The listing could happen as soon as the second quarter of 2018.

MedReleaf Corp. (TSX:LEAF) stock rose 3.02% on March 5. Shares are still down 3.4% in 2018 thus far. MedReleaf recently announced that it had signed an agreement to purchase one million square feet of greenhouse facilities in Exeter, Ontario, in addition to 95 acres of neighbouring land. The company projects that this will provide production capacity of up to 105,000 kilograms of cannabis per year and should begin harvesting by late 2018.

Of these three, Canopy is likely to generate the most interest, considering its ambitions to list south of the border. Investors that took profits in January following the late 2017 surge may want to consider re-entry in the coming weeks as we look ahead to legalization.

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

More on Investing

edit Women wearing red sweater shopping online and using credit card at home office
Dividend Stocks

Safe Stocks to Buy in Canada for December 2023

A Big Bank and an iconic retailer are the safe Canadian stocks to buy in December 2023.

Read more »

gas station, convenience store, gas pumps
Investing

Better Buy: Couche-Tard Stock or Parkland Fuel Stock?

Alimentation Couche-Tard (TSX:ATD) and Parkland Fuel (TSX:PKI) are retailing greats that have really gotten hot in recent months!

Read more »

Businessman holding AI cloud
Tech Stocks

1 AI Stock I’d Buy Over Nvidia for 2024

Nvidia (NASDAQ:NVDA) stock isn't the only AI play to put atop your shopping list this December.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Got $1,000? 3 Top Canadian Stocks to Buy in December

Given their high growth prospects and attractive valuations, these three growth stocks could deliver superior returns over the next three…

Read more »

A bull outlined against a field
Investing

3 Cheap TSX Stocks I’d Buy Before the Bull Market Arrives

Undervalued TSX stocks such as Savaria and BRP trade at a significant discount to consensus price target estimates.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

2023 TFSA Contribution Time: 2 Dividend Stocks to Buy with $6,500

Earn tax-free dividend income by investing in these top Canadian stocks via your TFSA.

Read more »

grow dividends
Tech Stocks

3 Ways to Find Momentum Stocks That Won’t Drop

Look for momentum stocks that have been climbing steadily for years and can give you a boost from time to…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Investing

Down 34% in 8 Months, Is Bombardier Stock a Buy Today? 

Is the stock a buy at less than $50 a share?

Read more »