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Jun 20, 2018

Marijuana stocks surge as Canadian Senate clears way for legal pot

Too many unknowns to properly value cannabis stocks: Equium Capital's Cameron Hurst

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Canadian pot stocks surged Wednesday after a bill to legalize recreational marijuana passed one of the last major hurdles in the country’s parliament.

The Senate approved a bill from Prime Minister Justin Trudeau’s government to legalize cannabis, which Trudeau said would occur on Oct. 17. Canopy Growth Corp., the nation’s largest marijuana producer with a market value of $8.9 billion, soared as much as 6 per cent to $45.10, a record high. Aurora Cannabis Inc. rallied 2 per cent ar 10:38 a.m., Cronos Group Inc. gained 1.7 per cent and Aphria Inc. rose 2.2 per cent. The pot stock rally pushed the S&P/TSX Composite Index to a record high in Toronto.

The move “paves the way for legal sales to begin,” Bloomberg Intelligence analyst Kenneth Shea said Wednesday in a report. “We expect investment flows into the nation’s legal cannabis sector to jump, deal activity and consolidation to rise.”

The move may lift marijuana stocks and spur more investment as Canada becomes the first Group of Seven nation to legalize recreational pot. The bill’s passage is likely to be the “catalyst the industry has been waiting for” for several years and legalization will increase the potential market for Canadian producers by 10 times the existing medical market, GMP Securities analyst Martin Landry said in a June 5 note.

Sales are likely to begin in eight to 12 weeks after the bill receives final ceremonial approval, and the nation’s legal cannabis market may exceed $5 billion in 2020, up from $600 million in 2017, Shea said. Significant market disruption is likely in the country’s alcoholic beverage and tobacco industries as well, he said.

The BI Canada Cannabis Index had tumbled 33 per cent this year through yesterday as some marijuana stocks have fallen from previous highs amid concerns they’re overvalued.