2019 has been a bust for most Canadian marijuana stocks. But it shouldn't have been. This year marked the first full year of sales in Canada's adult-use recreational market. The country finalized regulations for the sale of cannabis derivatives. And yet, there's been a flood of bad news for the Canadian cannabis industry.
Just in time for the holidays, though, something positive is happening that should benefit nearly every player in the industry. Here's the best news for Canadian marijuana stocks this year.
Ontario's major move
The government of Ontario announced last week that it's moving ahead with plans to dramatically expand the number of retail cannabis stores in the province. Ontario previously placed a cap on the number of privately owned retail cannabis stores allowed in the province. That cap is going away. In addition, Ontario is eliminating pre-qualification requirements for cannabis retailers.
Ontario is also allowing licensed producers to open a retail store at one of their facilities. The province expects that this move will pave the way for more stores to open more quickly.
It won't be a free-for-all, though. Ontario plans to phase in limits on how many stores each licensed entity will be able to operate. Operators will be able to own no more than 10 stores until Aug. 31, 2020. That number will increase to 30 in September 2020 and then to 75 in September 2021. Retailers will also have to comply with the province's strict rules related to child safety and criminal background of employees.
Ontario Attorney General Doug Downey framed the decision to expand the province's retail environment as a way to limit sales of cannabis in the black market. He said that "opening more legal stores is the most effective way to combat the illicit market" and that Ontario's government "is determined to open the cannabis market as responsibly as possible."
Better late than never
Ontario has become something of a whipping boy for Canada's cannabis industry. Many of the biggest Canadian cannabis producers have pointed their fingers squarely at the province as the key reason for the cannabis industry's woes in 2019.
Aurora Cannabis (NYSE:ACB), for example, brought up Ontario 10 times in the company's fiscal 2020 second-quarter conference call. Canopy Growth's(NASDAQ:CGC) outgoing CEO Mark Zekulin said in his company's latest quarterly call that "the inability of the Ontario government to license retail stores right off the bat has resulted in half of the expected market in Canada simply not existing."
Their criticism was on point. Prior to this month, Ontario claimed only 24 retail cannabis stores in operation -- one store for every 600,000 residents. That's not nearly enough to support a thriving recreational marijuana market.
But Canadian cannabis operators are cheering Ontario's announced efforts to increase its number of retail stores. Even before last week's announcement of the details of its plans, Canopy Growth's Zekulin expressed his company's sense of relief that the province was committed to opening more retail stores.
Setting up a better 2020
Ontario's decision to expand its retail infrastructure is the best news for the Canadian cannabis industry in 2019. However, the real impact won't be felt until next year.
Some of the 42 cannabis stores in the initial wave of expansion will open for business in December, but not all of them. More importantly, there are many more store openings on the way in 2020. Ontario announced that it will begin accepting operator license applications from prospective retailers on Jan. 6, 2020. These retailers will be able to submit store authorization applications beginning on March 2, 2020. The province expects to issue around 20 retail licenses per month initially.
While Canadian cannabis operators would like for the number of stores to increase by greater numbers and at a faster speed, Ontario's plan is certainly better than the status quo. And as a result, 2020 is much less likely to be a bust like 2019 has been for the Canadian cannabis industry.