Cannabis in the news October 2, 2019

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News on cannabis stocks and on developments in the industry haven’t let up in today’s volatile markets. Here are this week’s stories that we believe will mean the most to you as a Canadian investor.

1. Canada’s cannabis sector contributed $8.26 billion to the country’s gross domestic product in July, according to new stats.

That contribution represents a steady increase from the $7.02 billion the business contributed last October when recreational cannabis was legalized, according to new data published by Statistics Canada on Tuesday.

The StatsCan figures also show Canada’s legal cannabis industry grew a whopping 185% in the first 10 months since legalization.

That has significantly cut into the illicit trade of marijuana.

StatsCan points to a 21% drop in the black market’s cannabis output since October 2018.

2. The province of Ontario is exploring the possibility of handing off responsibility for wholesale cannabis distribution to another entity, according to several people familiar with the matter.

That move could substantially lower prices of legal pot in the province, say some industry insiders.

Ontario, which is Canada’s biggest market for legal pot, will begin consultations with various industry members to pursue a Saskatchewan-like distribution model. Under that scheme, licensed cannabis producers ship directly to retailers. An announcement could come as early as next week, the sources added.

Currently in Ontario, the province’s Cannabis Retail Corporation acts as the middleman. It operates the Ontario Cannabis Store’s online retail business and sells wholesale cannabis to the province’s private retail stores.

However, the corporation lost $42 million in the last fiscal year, a shortfall attributed to outsized costs in establishing the province’s new pot business.

Any decision to stop distributing cannabis in Ontario would likely be linked to the province’s warehouse. It is reportedly running out of space ahead of the launch of next-generation cannabis products later this year, say sources.

3. A panel of judges have now dismissed a claim launched by a group of 11 disqualified pot shop applicants in Ontario.

Lawyers representing the disqualified applicants argued that their clients didn’t receive fair process when they were notified that they won the lottery.

The three judges overseeing the notice for judicial review ruled to dismiss the application brought forward by the disqualified applicants.

Each of the disqualified candidates stated in court filings that notification from the Alcohol and Gaming Commission of Ontario (AGCO) was received at least one day after a date-stamped notice was submitted to them via email, couriered letter or through a phone call.

A stay on Ontario’s licensing process for the latest round of cannabis stores has also been lifted, the judges said Friday. Earlier this month, Justice Corbett had paused the process until the case was resolved.

4. The U.S. House of Representatives has now advanced legislation that would let banks do business with cannabis companies in states that permit marijuana sales.

That key step could pave the way for nationwide legalization, say some advocates.

The Secure and Fair Enforcement Banking Act, which passed on a 321-103 vote on Wednesday, would protect lenders from federal punishment for doing business with firms in the burgeoning industry. The bill won bipartisan support in the House amid calls to help cannabis companies move away from being all-cash operations.

The legislation co-sponsored by Democrats Ed Perlmutter of Colorado and Denny Heck of Washington is meant to allay national banks’ fear of doing business with cannabis companies because federal law makes it illegal for them to accept cash deposits, process credit-card payments, clear checks or make loans.

With House passage, the next move is up to the Senate, where the measure would need to overcome Republican resistance. Even if it passes there and is signed into law President Donald Trump, the new safeguards aren’t likely to draw big banks into pot banking, according to Cowen analyst Jaret Seiberg.

5. A U.S. recommendation that consumers avoid vaping products that contain cannabis compounds may frustrate hopes in Canada for higher-profit-margin sales.

The U.S. Centers for Disease Control and Prevention (CDC) said Friday that an investigation into 805 confirmed or probable cases of vaping-related respiratory illnesses suggested that products containing THC, the psychoactive element in cannabis, likely played a role.

At the same time, Canadian cannabis companies continue to invest millions of dollars into marijuana derivatives, including vape products.

While keeping a wary eye on U.S. developments, they are betting that already-strict Canadian regulations will ensure the safety of their products.

The vaping concerns have contributed to recent industry stock price declines and will continue to hurt shares, said Bruce Campbell, portfolio manager at Stonecastle Investment Management.

“It’s a case of ‘shoot first, ask questions later,'” he said. “[Investors] probably do some quick back-of-the-envelope math and say, ‘We’re not going to see the sales we expected, so we’re out.'”


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