Marijuana Stocks Surge as Canadian Senate Approves Legal Pot

(Bloomberg) -- Canadian pot stocks surged Wednesday after a bill to legalize recreational marijuana passed one of the last major hurdles in the country’s parliament.

The Senate approved a bill from Prime Minister Justin Trudeau’s government to legalize cannabis, setting the stage for sales to begin on Oct. 17. Canopy Growth Corp., the nation’s largest marijuana producer with a market value of C$8.9 billion ($6.7 billion), soared as much as 6 percent to C$45.10, a record high. Aurora Cannabis Inc. rallied 3.8 percent at 3:26 p.m., Cronos Group Inc. gained 6.2 percent and Aphria Inc. rose 3.6 percent. The pot stock rally pushed the S&P/TSX Composite Index to a record high in Toronto.

The move “paves the way for legal sales to begin,” Bloomberg Intelligence analyst Kenneth Shea said Wednesday in a report. “We expect investment flows into the nation’s legal cannabis sector to jump, deal activity and consolidation to rise.”

The move may lift marijuana stocks and spur more investment as Canada becomes the first Group of Seven nation to legalize recreational pot. The bill’s passage is likely to be the “catalyst the industry has been waiting for” for several years and legalization will increase the potential market for Canadian producers by 10 times the existing medical market, GMP Securities analyst Martin Landry said in a June 5 note.

The nation’s legal cannabis market may exceed C$5 billion in 2020, up from C$600 million in 2017, Shea said. Significant market disruption is likely in the country’s alcoholic beverage and tobacco industries as well, he said.

More Turbulence

The cannabis market will probably be turbulent in the coming months, said Canaccord Genuity analyst Matt Bottomley. Provinces such as Ontario still need to execute on a large number of retail stores and many major producers are still nine to 12 months away from finishing large-scale expansion plans, he said.

The companies that emerge as sector winners will likely be the ones that have international exposure, scale and are able to secure initial purchase orders from government, he said. Others that are “late to the game” and unable to secure orders or wholesale contracts with other producers may be in serious trouble, he said.

The BI Canada Cannabis Index had tumbled 33 percent this year through yesterday as some marijuana stocks have fallen from previous highs amid concerns they’re overvalued.

“I think there’s companies very well suited to back up what they’re saying, and I think there are some that are just hoping for the best,” Bottomley said by phone. “There are some in this market that are not going to be long-term participants.”

To contact the reporter on this story: Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, David Scanlan, Chris Fournier

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