There’s a lot of excitement in the cannabis industry about what a possible election win by Joe Biden might mean for pot stocks. Under President Trump, there hasn’t been any significant movement on marijuana legalization. But if Biden wins the Oval, there is potential for — at least — the decriminalization of marijuana. His running mate, Kamala Harris, said that her ticket would decriminalize the Schedule 1 drug in a debate earlier this month, causing marijuana stocks to rally as much as 10% on the day.
However, if decriminalization happens, it won’t have the same effects as outright legalization. There would still be plenty of restrictions facing industry players in a decriminalization scenario. And until legalization happens, two of the largest Canadian pot stocks, Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC), will struggle to grow with limited access to the U.S. market. At the end of the day, it probably won’t matter who wins the U.S. presidential election, and both will face tough roads ahead.
1. Aurora Cannabis
In December 2018, the U.S. Senate passed the Farm Bill, which made hemp-derived cannabidiol (CBD) products legal at the federal level. It presented a legal way for Canadian pot stocks to enter the U.S. cannabis market. In May, Aurora Cannabis announced that it closed on its $40 million acquisition of Reliva, which sells hemp-based CBD products in the U.S. While the acquisition is an opportunity for Aurora to tap into a new and exciting market, it’s not going to lead to explosive growth.
Research company Brightfield Group recently slashed its forecast for the entire U.S. CBD market, which includes more than just hemp-based products. Previously, the company was projecting the market to be worth $20 billion by 2023. But now, demand isn’t looking as strong, and Brightfield expects that number to be just $12.4 billion. For 2020, it’s estimating the market will reach $4.7 billion in sales.
Aurora faces a crowded field of competitors in the U.S. in the form of companies like Charlotte’s Web and Green Thumb Industries. Battling for market share in what’s not a large segment to begin with may not lead to the sales growth that Aurora (and its anxious investors) is clamoring for.
When Aurora released its fourth-quarter results on Sept. 24, its net sales for the period ended June 30 totaled 72.1 million Canadian dollars ($54.86 million), which was a 5% decline from the previous period. And for its next quarter, Aurora is projecting its cannabis net sales (which is separate from total net sales but makes up the vast majority of it) to come in no higher than CA$64 million — they were CA$67.5 million in Q4. For the…