On April 14, 2017, Canadian Prime Minister Justin Trudeau’s government tabled legislation to legalize recreational marijuana. The government has committed to having the legislation passed by July 1, 2018. Although many Canadian investors have been closely monitoring publicly-traded Canadian Licensed Producers (“LPs”) since the release of the Task Force Report back in November, 2016, the first reading of Canada’s new Cannabis Act served as a major catalyst for increased investment in the cannabis industry.
A week before the legislation was tabled the Canadian media leaked that the tabling of legislation was imminent. As a result of this leak shares in Canopy Growth Corp., Canada’s largest medical cannabis company, jumped nine per cent to $10.84 on the Toronto Stock Exchange the day after the leak. Similarly, Aurora Cannabis Inc.’s shares jumped nine per cent to $2.48 per share and OrganiGram Holdings Inc. to $2.42 from $2.16.
Some have said that the stock prices of publicly-traded LPs will not grow in any further significant fashion until the recreational market comes online in 2018. Analysts’ valuations and existing share prices have already factored in the recreational market’s future potential for earnings, or so the argument goes.
However, over the next 12 – 16 months there are still many variables that could see more volatility in the market and result in considerable growth of the LPs’ share value. In particular, the explosion of new medical marijuana patients registered under the Access to Cannabis for Medical Purposes Regulations could have a significant positive impact on share prices.
The number of medical marijuana patients in Canada is already growing at a rapid clip. The most recent Health Canada figures show that at the end of 2016 there had been a 32 per cent jump from 98,000 to almost 130,000 registered patients in Canada who had signed up with the country’s then-38 LPs as at December 31, 20161. At the time of writing, Canada now has 43 LPs, who are relying on this surge in demand in the market. There is no reason to think that this will slow down and indeed almost every major analysist predicts that the medical market will continue to grow.
1Health Canada, Drugs and Health Products “Market Data” http://www.hc-sc.gc.ca/dhp-mps/marihuana/info/market-marche-eng.php
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