Since legalization of cannabis in Canada last year, the stocks have dropped drastically. In the previous year, the stock was trading $12.52 per share. The stocks are now trading at around $4.16 which is a third of the initial price.
For investors, this might be seen as the best time to purchase the stocks; however, chances are that the stocks may drop further.
Let’s see what is leading to the failure of cannabis stocks in Canada.
- Cannabis Low Sales
Most cannabis companies in Canada have experienced drop in sales. This is because the industry is still in its early stages of growth.
The earlier rise was probably contributed to the promises of growth in the industry and potential capability in the market.
However, it is worth noting that Canadian market only had an estimate of $5.2 for a period of five years.
May be increase of retail pot shops will increase the sales in cannabis and hence increase the share value of cannabis stocks.
Due to legalization of the cannabis and high expectations of demand and growth in the industry, the supply has increased.
Due to legalization of cannabis in Canada, there was high expectation of drastic growth in the industry. However, the industry is still young and hence the demand is not as expected.
Oversupply and low demand of the products have also contributed to the failure of cannabis stock in Canada.
- High taxation
Expected high taxation of the cannabis has also contributed to failure in cannabis stock in Canada. Though the government has legalized cannabis, there might be high taxation and this fact is pushing investors away from the industry.
Heavy tax on the product is likely to promote the black market rather than promoting the legal industry.
With all those factors that led to failure of cannabis stocks in Canada, what are key takeaways for investors?
- One of the biggest challenges in the industry has been sales estimation of cannabis. It is likely for the demand to rise after legalization and hence this might be the best time to purchase the stocks.
- There are high chances of growth in the industry as Canada is planning to expand their market to overseas.
- Canadian government acknowledged the fact that there are only a few retail shops available and they are willing to facilitate more retail shops to boost the cannabis sales.
- Domestic demand is likely to increase hence rise in cannabis
- The Canadian government is aware that high taxation of the product can only decrease the sales in the legal market and hence they are likely to reduce the tax. Reduction of tax will promote the legal market while increase in tax will promote the black market.
- For investors who are focused on long term projects, this is the best time to venture into cannabis stocks as even though the stock value might continue to decrease, the stocks will eventually rise.
With all the reasons identified that has caused failure of cannabis stocks in Canada, It all depends on the long term investors to revive the value of stocks in the sector.