What happened
Canadian cannabis stocks are under pressure yet again today. As of 1:12 p.m. ET Friday, Tilray (TLRY) stock was down by 5.4%, Canopy Growth's (CGC 20.65%) equity was in the red by 7.3%, and Aurora Cannabis' (ACB 12.87%) shares were lower by 7%.
What's weighing on these pot stocks today? Yesterday, Democratic Sen. Ron Wyden admitted in comments to public policy magazine The American Prospect that the Cannabis Administration and Opportunity Act (CAOA) is unlikely to have the 60 votes required to pass.
Image source: Getty Images.
So what
Wyden is a co-sponsor of the CAOA, along with fellow Democrats Senate Majority Leader Chuck Schumer and Sen. Cory Booker. CAOA is a comprehensive reform bill aimed at removing cannabis from the Controlled Substances Act, setting up a regulatory framework for cannabis at the federal level, and prioritizing restorative and economic justice for those with prior marijuana convictions.
Unfortunately, the all-encompassing nature of this massive bill is likely be its downfall. The long and short of it is that the CAOA contains elements that are deeply unpopular with key political groups. Due to this discord, Wyden thinks the bill will ultimately be broken apart in order to pass the measures with the most support, such as cannabis banking reform, research provisions, and veterans' health.
Why is this political setback impacting shares of Tilray, Canopy Growth, and Aurora Cannabis today? In brief, these three top Canadian cannabis cultivators desperately need access to larger international markets such as the U.S.
The peak commercial potential of Canada's legal cannabis industry has been estimated at about one-tenth that of the U.S. This limited playing field is a key reason why Tilray, Canopy Growth, and Aurora Cannabis have all struggled to consistently turn a profit since their inception.
So, as federal prohibition in the U.S. seems likely to continue for the foreseeable future, it's not surprising that investors are moving to the sidelines today.
Now what
Tilray, Canopy Growth, and Aurora Cannabis may have no other choice than to expand beyond cannabis until the U.S. market finally opens up. Aurora, in fact, is already making moves to go this route. Yesterday, the cannabis company announced a deal to acquire the vegetable propagation and ornamental flowers business Bevo Agtech.
What's more, SNDL, another top-notch Canadian cannabis company, jumped into the liquor retail business earlier this year with its acquisition of Alcanna. It's a fairly safe bet that Tilray and Canopy Growth are probably also looking for ways to boost revenue through non-cannabis ventures.
