The Cannabis industry operates in a grey area of sorts – about 13 U.S. states have legalized cannabis for recreational use, medical marijuana is legalized in 33 U.S states but being in possession of marijuana is still a Federal crime.
The criminalization of marijuana at the federal level makes it hard for marijuana companies to do business because traditional financial institutions are reluctant to bank them.
The lack of access to robust financial services means that many of their operations such as payroll, sales, and bulk purchases tend to rely on cash. By implication, the stocks of public marijuana companies haven’t had a chance to take off and to deliver value to investors in the $52B global industry. This piece explores the factors bedevilling marijuana stocks and how those same factors may be the reason marijuana crypto tokens are set to thrive.
Many people had thought that 2019 was the year marijuana stocks will go mainstream and the first quarter of 2019 supported that assumption. However, the industry ended up having to fight many battles on many fronts and it soon gave up the early gains.
In the year-to-date period, the share price of Canopy Growth Corporation was flat with 0.38% gains. Understandably, Oppenheimer analyst Rupesh Parikh in a research note to investors observed that “We continue to maintain shorter-term cautious views toward CGC’s prospects given continued headwinds in the Canadian market, regulatory challenges (CBD in the U.S., vapes in Canada), and internal delays in launching beverages.”
While Canopy Growth is practically flat, Aurora Cannabis Inc.’s stock is down 7.35%, Cronos Group Inc. has declined by 8.61% and the share price of Aphria Inc.’s stock has plummeted by more than 15%. In contrast, the NASDAQ Composite index is up 3.56% and the S&P 500 has gained 6.68% in the year-to-date period as seen in the chart below.
One of the headwinds that marijuana stocks faced last year was that financing business operations are challenging in almost all of North America. Secondly, the high U.S. tax on marijuana companies such as the state tax, local tax, wholesale tax, and an additional 15% excise tax in California makes it somewhat challenging for legal marijuana businesses to stay competitive relative to black market products.
In Canada, Health Canada which had the regulatory role to help Canadians maintain and improve their health failed in its bid to review and approve licenses for the cultivation and processing of marijuana products in good time. Also, the regulatory body delayed the release of the regulatory framework for marijuana derivatives until October 2019 even though it had revealed the plans almost one year earlier.
Hence, it was not surprising that in the last one-year marijuana stocks have underperformed the broad S&P 500 with about 50% loss in trading price relative to the 13% gain that the broad S&P 500 recorded.
The cryptocurrency and marijuana industries are both in the legal grey area and they are challenging conservative ideas to usher new paradigms in the socio-economic sphere. Cryptocurrencies provide an alternative store of value and measure of trade beyond fiat currencies. 62% of Americans believe the use of marijuana should be legalized and former Vice President Joe Biden has publicly supported the decriminalization of marijuana and the expunging of criminal records for those convicted of its possession.
Now, a new breed of cryptocurrency tokens called marijuana coins is setting up shop to succeed where traditional stocks have failed investors. Marijuana crypto refers to a specialized type of cryptocurrencies designed to help businesses and people to quickly, safely, and securely spend money within the cannabis industry without having to worry about banking limitations.