The black market continues to wreak havoc on Canadian LPs and Canadian retail cannabis stocks. While obvious to some, consumers are staying loyal to their dealers and in the process, paying less. Cannabis stock values are rebounding after one of the worst crashes in any sector since the Great Recession. Even south of the border, when it comes to weak revenue for legal growers and sellers, the culprit is the same: high taxes.
The second contributing factor is the delay in opening bricks and mortar stores. These setbacks have dashed revenue projections and left consumers with little options. While retail cannabis stores do exist, both in the U.S. and Canada, easily accessible particularly on First Nations reservations in Canada, consumer participation has not been there. Brands are still not established and high taxes relate to high prices per gram.
Entourage Effect Capital CEO Breaks Down Cannabis Valuations in 2020
Matt Hawkins from Entourage Effect Capital talks about the correction in the industry and what is holding back cannabis stock valuations. More specifically, he discusses the tax environment in the U.S. Hawkins believes “more effective regulatory efforts along with reduced taxation on the companies that are doing this the right way… will lead to a tamping down of the black market.”
“But, until that happens, the black market is going to thrive.”
Hawkins singles out California, noting “taxation is the main problem.”
Lawmakers, specifically Democratic lawmakers in recent years, tend to forget this key factor. Population declines in New York and Illinois top the nation, according to usnews.com.
“New York had the third-largest outflows of any state, with 452,580 people moving out within the past year.”
An aging US population is another likely factor as retiring baby boomers back their bags and head south.
The hosts asks the Entourage Effect Capital CEO if investors are being too impatient?
Hawkins comments that,
“Without institutional investors in the public game, you’ve got a lot of retail investors that don’t have that patience.”
“More institutional players are starting to realize that this is an undeniable industry. It’s not going away. It’s just taking a longer time to convert the illicit market into a legalized one.”
Excited to be Investing in Cannabis Stocks?
He concludes the interview by exclaiming,
“We are excited as we’ve ever been about investing in the industry, as are our limited partners. And we think 2020 going to be a fantastic year to take advantage of the opportunities…”
The Canadian Marijuana Index is up from near 200 earlier this month to above 240 in recent days. One thing we know for sure, cannabis stock valuations will remain volatile for the foreseeable future.