Consumer Products

Pot Stocks on the Move After New Ontario Licensing Deal

Pot stocks were a little higher on Friday after the Ontario government announced that it will abandon the current lottery system for cannabis retail. As a result, it will move toward an open licensing system beginning in January 2020. While that may not hold much ring for U.S. people, that is close to 40% of Canada’s population, and it includes Toronto and its capital city of Ottawa.

Ontario had used this lottery system to award the first 67 licenses, with eight licenses allocated to First Nations groups. The lottery process had myriad issues and even prompted a lawsuit filed against the Alcohol and Gaming Commission of Ontario (AGCO) by 11 people who were disqualified from the process.

Because of the limited number of licenses, the lottery process generated a feeding frenzy of sorts, with big name licensed producers and retail chains rushing to craft deals — sometimes worth millions — with lottery winners in order to enter Ontario’s retail market in some way.

So the timeline for this new governmental process looks something like this: companies apply for licenses beginning in January 2020, AGCO will then review applications and let companies know their status by March, and companies approved will be able to open stores beginning in April 2020.

Going forward, the new rules will limit retail operators to own a maximum of 10 stores currently, a cap that will increase to 30 by September 2020 and 75 by September 2021.

This could be huge for marijuana stocks looking to expand in Canada. Bank of Montreal analyst Tamy Chen forecast that current industry sales volumes could increase by 35%. This prediction is based on a scenario in which Ontario opens a total of 325 stores throughout 2020.

Chen detailed in her note:

While more stores in Ontario would drive revenue growth for the industry, we believe some of the larger LPs could benefit more, particularly ones with significant inventory and recent top-line deceleration like Canopy, Aurora and Organigram.

Shares of Aurora Cannabis Inc. (NYSE: ACB) were last seen up 2% on Friday, at $2.66 in a 52-week range of $2.14 to $10.32.

Aphria Inc. (NYSE: APHA) shares were up about 4% to $5.47, with a 52-week range of $3.76 to $10.95.

Canopy Growth Corp. (NYSE: CGC) was up 1.5% to $21.44 a share, in a 52-week range of $13.81 to $52.74.

Shares of Tilray Inc. (NASDAQ: TLRY) were down 1% to $18.76. The 52-week range is $18.00 to $106.00.

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