The Ontario government’s plan to delay the roll-out of brick-and-mortar recreational marijuana stores in the province weighed on shares of Canada’s pot companies in early trading on Tuesday, but one long-time Wall Street observer believes investors should be fired up about the decision.
Vivien Azer, a managing director and senior research analyst at Cowen and Company, said “less sophisticated investors” are not grasping the long-term implications of privatized marijuana sales in a province that will account to 40 per cent of the Canadian market.
“I think there is a lack of understanding,” she said on Tuesday. “Private retail will allow for a higher quality consumer experience at point-of-sale.”
On Monday afternoon, Ontario’s Progressive Conservative government, which took power at the end of June, announced its plan to roll out online pot sales once the drug becomes legal on Oct. 17. A privately-run retail model will follow on April 1, 2019.
The plan is a marked departure from the previous Liberal government’s preference for government-run pot sales, both online and in physical stores.
Shares of Horizons Marijuana Life Sciences ETF (HMMJ.TO), which tracks an array of cannabis companies, fell as much as 3.7 per cent in Thursday’s session. Shares of Canopy Growth Corp., Canada’s largest cannabis company, dropped as much as 7.6 per cent.
“There is a disconnect between investor sentiment and the fundamentals,” Azer said.
She said many publicly-traded cannabis companies welcome a smaller role for provincial governments when it comes to recreational sales, pointing specifically to British Columbia-based Tilray Inc.
“We hosted a conference call with Tilray’s management team yesterday, and Brendan Kennedy (the company’s president) offered that sentiment,” Azer said. “His view is that long-term, it is positive.”
Azer said Cowen and Company stands by its “outperform” rating on both Canopy Growth Corp. and Tilray Inc., and suggest investors may be wise to take advantage of Tuesday’s pot stock downturn.
“I do view weakness as a buying opportunity. That being said, I would just caution that these stocks are not for the faint of heart.”