As predicted by many, the major marijuana stocks were in the red yesterday, legalization day in Canada. The Canadian Marijuana Index, which tracks the leading marijuana stocks in Canada, was down 2.76 percent. The pullback was not as horrific as some had predicted, as was evident from before the bell even rang.
Aphria weathered the storm
Throughout yesterday’s pot stock softening, however, Aphria Inc. (TSX: APH.TO) remained mostly in the green, closing up $0.71 CAD to $19.40. The stock closed up another $0.05 today to $19.45. And it’s CEO Vic Neufeld sees only green on the horizon.
Get ready for over-supply
Aphria Inc., according to him, will be ready for a new reality in the cannabis space. He believes the consumer market will go from under-supply to over-supply in a year.
If Neufeld is correct, licensed pot producers in Canada will supply 3 times the Canadian pot-consumer demand in a year. Such an over-supply will decrease the price of cannabis to consumers.
“There will be an over-supply in 12 months from today,” said Neufeld.
Technology will drive prices down
Furthermore, Ontario Canada’s Aphria is already a low-cost producer in the space, with the ability to squeeze their margins down. The increasingly automated operations at their Leamington facility will only further reduce the price of marijuana.
Neufeld continued, “if licensed producers don’t have their house in order today in terms of cost per gram, how are they ever going to get it together to meet price compression a year from now.”
More catalysts to come
And there are sector-wide catalysts on the horizon for producers who can evolve quickly and execute precisely. Cannabis-infused foods and beverages, for example, will be a huge earnings boost for companies who form strategic partnerships. Topical sprays for chronic pain management and medication to fight cognitive illness are also in the cannabis industry’s future.
“There will be an evolution of different forms of product intake of cannabis, we are not there yet, but we are not that far away. I’m talking two or three years from now there will be some blockbusters out there,” Neufeld said.
Scientific studies of the effects of cannabis on patients with a wide range of ailments are underway. The scope of these studies includes opioid withdrawal symptoms, epileptic seizures, Alzheimer’s, lupus and arthritis.
Now that marijuana is legal in Canada, the market for recreational cannabis will likely grow as well.
Aphria is also ready for changing regulations internationally. Like its major competitors such as Canopy, the company has medicinal marijuana shipping to other countries where recreational use isn’t yet legal. Aphria’s medicinal marijuana is currently available in 10 countries already.
If you’re new to investing in cannabis stocks, check out our Introduction to Cannabis Investing.