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For many people, investors and companies, the news of the marijuana legalization was a very positive thing, because it means that a new market has opened up and never before exploited: the use of cannabis for recreational purposes.
This new law, which will come into force on October 17th, has opened a large window of opportunity for investors who wish to enter the new legal cannabis market. There are many benefits within this and some of them are that it can help to reduce organized crime, to create new jobs, improve the Canadian stock exchange and open businesses with new approaches.
Big Canadian growers such as FSD Pharma, (OTCPK:FSDDF) (C.HUGE), Aurora Cannabis or Canopy Growth are creating big facilities to create various cannabis products as well as the plant itself. They have different licenses to create products for medical purposes and are improving their facilities to be the first companies to obtain the new licenses and thus create legal cannabis products for recreational purposes.
There is a significant but important risk for some companies that are looking to invest in cannabis industry. Canadian marijuana stocks and its biggest threat is marijuana itself.
To begin with, we can mention the black market and organized crime. These organizations may present a risk – perhaps not so big – to legal growers. A clear example of this situation is the state of California, in the United States. The pot legalization became effective on June 1st, 2018 and sales of legal cannabis were not as high as expected. However, it is important to note that unlike the United States, the Canadian law was made at a federal level, so that cannabis is legal nationwide.
It is not such a big problem. In fact, California reported that a revenue of approximately $185 million dollars is expected in the first half of the year. It’s not bad to be just a state. During the first three months, the state had collected around $34 million dollars.
Now, who is to blame? We could say is the black market. The problem is that companies have a higher price, while distributors within the black market sell the tax-free herb.
Could this be a problem in Canada? Perhaps. There is a chance that this could affect the new emerging market, as Canada already has a substantial black market. In 2017, around 4.5 billion Canadian dollars were spent in non-medical marijuana products. However, many surveys such as the one from Deloitte, reported that many Canadians are willing to buy their pot from legal retailers. This looks promising for the companies interested in producing and selling cannabis legal products.
The legalization of recreational marijuana will not ban the black market nor the organized crime, as they will present a competition to companies like FSD Pharma, Aurora Cannabis and Canopy Growth. Nevertheless, they will not become their primary competitors. It is very likely that illegal retailers will lower their prices so that people could obtain their pot from them, but it will be more accessible to buy from legal retailers.
Another threat that is not so big for companies, is the supply-demand relationship. it is expected that with the legalization they will sell around 900,000 grams per year. The problem is that large producers have restricted the number of lots and sales, because there must be regulation. Now, the government must work to regulate the consumption and these things are a problem that many Canadians are questioning right now.
As in any new market, there are advantages and disadvantages, opportunities and threats but the important thing is that companies know the law, follow it and do not give up before a market that seems to be very promising for anyone who invests in it.
