Weed Week: Authorities in California — where pot is legal — have still confiscated $US1.5bn in illegal crops
Health & Biotech
Health & Biotech
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California is one of 11 US states where cannabis is legal.
But that doesn’t mean the black market for illegal crop production has been phased out just yet.
Reports show that law enforcement conducted raids on no less than 345 illegal grow sites during the 2019 fiscal year seizing more than 950,000 plants — each with an estimated wholesale price of $US1,600 ($2,322).
That amounts to more than $1.5 billion worth of stock, or around double that if applying calculations based on estimated street value.
So while many analysts and industry participants continue to assess the outlook for legalised production, the numbers indicate that the growth of the sector hasn’t yet eaten into the lucrative margins still on offer in the black market.
According to NPR, a report from industry analysts suggested that legal cannabis operations are still hamstrung by regulatory constraints and prohibitive tax costs, which in turn provides a market opportunity for illegal growers.
Turning now to cannabis-friendly jurisdiction Canada, where THC products are legalised at the federal level. But that hasn’t stopped a rout in Canadian pot stocks this year — a downturn which has fed into other listed cannabis sectors (including Australia).
While new stores and distribution networks continue to increase, investors have grown impatient with the inability of listed companies in the space to turn a profit.
And recent analysis from ABC News suggests that like California, many Canadian users are purchasing their cannabis from illegal sources.
However, with valuations at two-year lows, investment firm Cantor Fitzgerald thinks the market may finally have bottomed out.
The analysts cited the December introduction of a cannabis derivatives market as a potential catalyst for the sector, MarketWatch reports.
It’s been a slightly more positive week for Australia’s listed cannabis sector.
Of the 33 companies tracked by Stockhead that are either directly involved or cannabis-adjacent, 13 posted a weekly gain while seven were unchanged, and 15 were in the red.
Of the weekly winners though, only three have posted a 12-month gain, with nine other stocks down for the year with an average decline of 50 per cent (the 13th stock, Ecofibre, listed in March and is up 9 per cent).
Cultivation company Roto-Gro (ASX:RGI), whose products include rotational hydroponic garden systems, found some demand to close at 17c — a weekly gain of 16 per cent.
The stock began climbing from around 14c after Roto-Gro’s Canadian subsidiary announced it had received patent approval for its stackable modular rotatable gardening system, to accompany the US patent that was approved in July.
On the flip-side, it was a rough week for THC Global (ASX:THC), which owns and operates Australia’s largest cannabis production facility in Southport, Victoria.
Despite a rebound over the past two trading sessions, the stock lost momentum after releasing its quarterly 4C filing last Wednesday, where THC reiterated that it still expected to receive Good Manufacturing Practice (GMP) certification at the Southport facility by December this year.
Here’s Stockhead’s latest summary of weekly and annual price performance for ASX-listed cannabis stocks.
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