Legalization delays mean added uncertainty for pot stocks, Echelon says

Now we play the waiting game.

The timeline to pot legalization in Canada has been stretched out to late summer and possibly early fall, according to a new statement from the federal government, which plans to introduce an eight-to-12 week transition period after legislation has been passed.

Intended to give industry players as well as provincial and territorial governments enough time to set up shop, the lag won’t hurt plans in the long run, says Echelon Wealth, but stock prices in the ever-fluctuating sector are another story.

Yesterday, Health Minister Ginetter Petitpas Taylor revealed that the passing of Bill C-45 to legalize the recreational use of marijuana — expected to gain Senate approval sometime in May or June —won’t mean that Canadians can right away rush to their nearest dispensary and/or provincial outlet. Instead, the government aims to put in place a two-to- three month buffer after legalization.

“There is going to be a transition period because we have to ensure that provinces and territories have the capacity to get the products in their shops,” Ms. Petitpas Taylor told reporters after appearing in front of a special meeting of the Senate. “They’ll need a period of time of up to eight to 12 weeks in order to properly ensure that their retail sales will be prepared.”

That could mean August or even September before things are up and running, which won’t matter much except, potentially, to the markets, which seem to yo-yo up and down on little or no substantive developments in the sector.

That’s the conclusion of analysts Russell Stanley and Andrew Semple of Echelon Wealth, who today issued a note on the federal government’s news, saying the government’s ongoing lack of clarity on a start date may be bewildering, but so are shifting valuations for weed stocks.

“We have been very conservative on our C2018 estimates, and our valuations for our formal coverage universe are based on estimates for C2019, so we see no need to make revisions at this point,” say the analysts.

“Ultimately, a delay (if there is one) of eight to twelve weeks should not matter to investors, but we concede that the cannabis space is extremely sentiment-driven right now, and would not be surprised if share prices reflect more uncertainty with respect to the timing legalization,” they write.

Marijuana stocks had a dream run in 2017 with the market cooling off in January. But much uncertainty still hovers around the yet-to- be-realized market, as companies continue to jockey for position ahead of legalization. Still, billions of dollars have been poured into Canada’s pot co’s, as investors try to pick the winners.

Yet, the extra wait time could help a number of companies sort out their operations ahead of the start date. On the shifting timeline, Canopy Growth Corp CEO Bruce Linton said, ”In my mind, I’ve been thinking August 1. So if it’s July 10 or 18, I really don’t care,” he told the Globe and Mail. “It’s going to be better if it’s in the summer because people are on vacation. But, other than that, every minute that we have longer just allows us to have more assets available and to negotiate better deals.”