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:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

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

money cash dividends
Dividend Stocks

2 Passive-Income ETFs to Buy in 2022

Unlike stocks, distribution-focused ETFs may not offer an equally healthy capital-appreciation potential, but they might still be worth buying.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Investors: 2 Top Total-Return Stocks to Build Retirement Wealth

These top TSX dividend stocks offer high yields and currently trade at discounted prices.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

The 3 Best TSX Dividend Stocks That Pay Cash Monthly

Looking to earn monthly passive income from top dividend stocks? Here are three fresh ideas for July 2022.

Read more »

Cogs turning against each other
Dividend Stocks

2 Resilient Value Stocks That Could Weather the Storm

The resilient businesses of two value stocks can help you endure recessionary pressures and deliver superior returns in 2022.

Read more »

exchange traded funds

3 Must-Buy Bank of Montreal ETFs to Ride Out a Recession

Passive investors may wish to buy BMO Covered Call Canadian Banks ETF (TSX:ZWB) and two other incredible ETFs that right…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: Fortify Your Portfolio by Building a 2nd Pension

One of the best ways to utilize your retirement savings without depleting them is to invest them in dividend stocks.…

Read more »

Man holding magnifying glass over a document
Stocks for Beginners

The Valuation Conundrum: P/E Ratio vs. P/S Ratio

Did you buy a stock with low P/S ratio and make a loss? Most investors fall prey to the valuation…

Read more »

growing plant shoots on stacked coins
Energy Stocks

Buy the Dip? 2 TSX Energy Stocks With Fast-Growing Dividends

TSX energy stocks have seen a double-digit decline in June. Here are two stocks with incredibly fast-growing dividends to consider…

Read more »