Should Investors Be Excited Over the Prospect of Privatized Cannabis Retail in Ontario?

Canopy Growth Corp. (TSX:WEED) and others will be keen to watch the development of recreational cannabis policy in Ontario as a crucial election nears.

| More on:

In March, the C.D. Howe Institute, a Toronto-based not-for-profit research firm with a focus on public policy, released analysis that was critical of Ontario’s execution of recreational cannabis legalization. The report predicts that publicly controlled cannabis stores will have difficulty phasing out the black market. It also criticized the lack of availability for consumers. The province will open 40 stores initially and is aiming for 150 openings by 2020.

This lack of access, the report says, will drive consumers back to the black market. The report praised Alberta’s provincial plan, which will allow private retailers to operate alongside government retail stores. Aurora Cannabis Inc. (TSX:ACB) recently acquired a 19.9% stake in Liquor Stores N.A. Ltd. (TSX:LIQ), which aims to convert some of its western Canadian locations into retail cannabis stores.

The Ontario election on June 7 has the potential to shake up these projections.

The Ontario PC party currently enjoys a sizable lead in the polls. The most recent poll from Forum Research, which surveyed 1,126 Ontarians, has the PCs at 46%, the NDP at 27%, and the Liberals in third at 21%. Doug Ford, the newly elected Ontario PC leader, has said that he is open to the idea of free market cannabis in the province. In the following days, Ford walked back the statements and vowed to implement the plan for public control.

This indecisiveness illustrates a significant split within the party on the issue of recreational cannabis. That split pits social conservatives, who have been wary of cannabis legislation and accessibility, and the libertarian wing, who are in favour of privatization. A similar battle is playing out in the Republican Party south of the border.

Top cannabis producers have also chimed in on the debate since the plan was announced in 2017. Canopy Growth Corp. (TSX:WEED), which has seen its stock slump alongside its competitors in a choppy 2018, responded to the Ontario retail plan in September 2017. “We encourage the government to consider allowing existing licensed producers to continue their e-commerce sales if this can allow for a more cost-effective, expeditious, and varied sales model for Ontarians.”

National Access Cannabis Corp. is a Toronto-based company which owns cannabis clinics across the country. “We strongly support the privatized retail distribution model,” President Derek Ogden said recently in response to Ford’s first comments. “We think it’s the best model overall to pull people from the black market into the legal regulated market, so we’re strongly in favour of the comments.”

The June 7th election could set in motion an interesting political battle that will undoubtedly impact cannabis investment in Ontario. It remains to be seen whether or not the PC party, already split on the issue, will push for privatization and spark a showdown with a powerful union bureaucracy that has its eyes set on store staffing and cannabis revenue. Ford’s prompt reversal on privatization should probably motivate investors to bet on the latter.

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

Canadian flag
Dividend Stocks

1 Magnificent Canadian Dividend Stock Down 8% to Hold for Decades

Do you want some dividends with those returns? Then buy this stock while it's down.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Suncor Energy: Buy, Sell, or Hold in 2025?

Let's dive into the risks and catalysts underpinning Suncor Energy (TSX:SU) right now and see if this stock is worth…

Read more »

A plant grows from coins.
Stocks for Beginners

Rebalancing Your Portfolio for 2025? 3 Growth Stocks to Consider

There's no shortage of great growth stocks to consider for your portfolio. Here's a look at three that could provide…

Read more »

calculate and analyze stock
Dividend Stocks

2 Stocks That Cut You a Cheque Each Month

These two top Canadian monthly dividend stocks could help you generate reliable passive income for years to come.

Read more »

engineer at wind farm
Dividend Stocks

Fortis Stock: Buy, Sell, or Hold in 2025?

With Fortis now trading just off its 52-week high, is it still one of the best Canadian stocks to buy…

Read more »

Women's fashion boutique Aritzia is a top stock to buy in September 2022.
Investing

From Markdown to Mark-Up, 2 Red-Hot Clothing Stocks Leading the Revival

Aritzia (TSX:ATZ) and another clothing stock could keep soaring through another year!

Read more »

Investor reading the newspaper
Investing

Where to Invest $3,000 in February

Given their solid underlying businesses and healthy growth prospects, the following three TSX stocks would be ideal buys despite the…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

The 3 Best Canadian Stocks to Buy Now and Hold Forever in an RRSP

There's a lot to consider when eyeing up some long-term holds in an RRSP, so let's get into it.

Read more »