Here Is Why Private Cannabis Retail in Ontario Is Great News for Investors

Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) and other producers spiked on the news that Ontario would move into private cannabis retail.

| More on:

Last week it was reported that the new PC government of Ontario would allow private cannabis retail sales once recreational use is legalized on October 17. The government is still expected to control distribution and will manage online sales. This move represents a sharp turn from the liberal government’s plan to hand over control to the Liquor Control Board of Ontario (LCBO).

Premier Doug Ford seemed to be open to private sales on the campaign trail, but pulled back somewhat when challenged. The PC party has been split on the issue, which made this decision hard to predict. However, now that investors have a clearer picture of how cannabis retail works in Ontario, they should be happy. Let’s find out why.

Top representatives of the fledgling recreational cannabis industry have been open about their support for private control. In September 2017, Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) released a statement that said the company was hoping that it would be able to continue control of e-commerce sales when recreational legalization hit. Canopy Growth didn’t get its wish, but shares rose along with its peers on the day the report was released. The stock climbed 2.32% on July 27.

Aurora Cannabis Inc. (TSX:ACB) has a substantial footprint in its home province of Alberta, which chose to hand over control of sales and distribution to the private sector. Aurora CCO Cam Battley was original critical of the choices made by the governments of Ontario and Quebec. “The restrictive approach in Ontario and Quebec isn’t going to be successful in achieving the central objective of legalization in terms of migrating people’s purchases from the black market over to the legal market,” he said. “The monopoly approach is wrong-headed.” Aurora stock rose 1.9% on July 27.

The decision to turn to the private sector in Alberta has been met with praise from industry leaders.

Aurora acquired a significant stake in Alcanna Inc. (TSX:CLIQ) in February. Alcanna has committed to repurposing some of its liquor store operations to cannabis stores that will offer Aurora’s product. According to The Globe and Mail, sources within the company claim that Alcanna has been scouting potential business in Ontario since Doug Ford’s win. Shares of Alcanna rose 6.1% on July 27.

Hiku Brands Company Ltd., which agreed to be acquired by Canopy Growth earlier this year, originally predicted that the Ontario government would opt for the “mixed” model like the one in British Columbia. Hiku Brands Vice President Will Stewart said that there are many steps the government will have to take as municipalities tackle the rollout.

The positive response from industry leaders should make investors happy. The rollout will not be without its bumps as municipalities race to respond to private control, but overall, this will provide a much more fertile ground for growth in Canada’s most populous province. This is one more reason to buy-low on some of the largest producers after cannabis stocks have suffered a retreat in the month of July.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Paper Canadian currency of various denominations
Investing

The Best Stocks to Invest $2,000 in Right Now

Do you have some extra cash to spare? Here are three Canadian stocks to add to your watch list today.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, November 22

Continued gains in gold, oil, and natural gas prices could give the commodity-focused TSX benchmark a boost at the opening…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »