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The Canadian Weed Market – Why Did The Weed Market Fail? - Blog | Hopium

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The Canadian Weed Market – Why Did The Weed Market Fail?

Macro Factors

There are many reasons why the Canadian weed market was surprisingly disappointing for many investors after the legalization of weed in 2018. Firstly, before legalization, one of the early issues that arose is the focus on scale of the industry. There was a focal point on raising capital in anticipation of the legalization that resulted in ignoring other key considerations. The lack of quality was the unfortunate outcome as large conglomerates got large supply agreements; they can have a huge piece of the market early on. Another reason why the weed market sunk in 2019 was the lack of access with weed dispensaries. The industry suffered profits that led to the decline in many different stocks as there weren’t as many dispensaries in the Canadian market. As a result, consumers had to face an inconvenience and travel far just to acquire legalized weed. In 2019, a year after legalization, Ontario itself had 25 dispensaries and was the highest amount in Canada. As you can see this might have contributed to the fall in the market and stocks as there were very few options and consumers turning to the black market instead. The price also turned away a lot of consumers as it was $10.23/g compared to $5.59/g on the black market. Although the price difference is high, consumers are not as price sensitive but only to those that are generally new to the industry. Lastly, Canadian laws played a significant factor that led to the drop in stock prices as Health Canada regulations and health standards are strict. Hundreds of applicants were filled out before legalization but very few have been pre-approved.

There are many delays in the process of getting a license and makes it very inconvenient. Only 29% of users consume legal products while 42.7% consume from illegal sources. Additionally, Canadians can grow their own weed farms, and many ignore getting a license since it takes too long.

Financial Side

In terms of the financial side of the Canadian weed market, a lot of the stocks grew exponentially since the pandemic has started and might grow even higher in anticipation the players that might thrive are Aprhia and Canopy.

There are other companies that might do well too as the legalized American weed industry might take off but these 2 are the major players. Aphria fell 61% during the time but rose 216% between August and September. Canopy experienced extreme volatility but still rose 13%. They also rose 130% between August and October. Aphria`s stock price rose from $6.29 to $24 from 2018 – 2020. Canopy stock price dropped slightly from $43.27 to $42.21 from 2018 – 2020 however, from 2019 – 2020 it rose by 72.43%. After the legalization of weed in the US, the potential growth for Aphria and Canopy are poised to grow 71% and 27% respectively. Investing early might pay dividends after the legalization has been passed for weed stocks such as Aphria and Canopy.

Overall, the amount of sales generated over the 3 years have steadily climbed despite all the factors that have dropped stock prices. This means that it is ideal that Other weed stocks that can be potential players in the US market are Cronos and Tilray. Both of these stocks are at very low values from 2018 and are ideal to invest low and sell high when Biden does decide to legalize weed. Cronos Group stock at 2018 was $10.54 and now it is $8.84 as of 2021. It has gained quite a bit of traction and rose to $13.31 in early 2021. Tilray growth over the 3 years fairs differently as in 2018 the price was $29.77. It rose immensely $148.30 later in 2018 but has since fell significantly $25.89 in 2021.

Will the US legalized weed market succeed?

So how does the Canadian story affect how the US will do? It does set a precedent on what to look out for. Based on the findings, the US might favor better than its friends north of the border. Mainly the market in the US is large and very high potential to have a higher demand as 12% of adults smoke cannabis that is recorded. There are many that turn to the black market in America. Laws and regulations are very relaxed in the US for instance you can buy a firearm in a Walmart which may seem very foreign to Canadians. The US might integrate a very easy system where consumers can purchase legal cannabis at pharmacies or even at a local convenience store. Obviously, a lot can change, and the US might see a sudden downfall. The US just must follow these factors such as:

  • Scaling
  • Increasing access to dispensaries
  • Lenient restrictions and less delays
  • Lenient restrictions and less delays
  • Relative cheap prices
  • Convenience
  •  Quality

These are some of the factors that caused the Canadians market downfall but the US is a different animal that might pay dividends for investors seeking to cash in for the weed market to rise.

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