Why Aurora Cannabis, Canopy Growth and Tilray shares fell today

What happened

Here in the United States, legalization of marijuana always seems to be right around the corner … until you turn the corner and then it’s there again and disappears down the end of the block. Despite growing bipartisan support for legalization, as the calendar moves to December, it is becoming clear to investors that legalization – although it seems inevitable – will not happen this year.

Maybe that’s why today, on a rather “green” day for the stock market in general, shares in cannabis stars Tilray (NASDAQ: TLRY), Aurora Cannabis (NASDAQ: ACB), and Canopy growth (NASDAQ: CGC) all fall by 4.7%, 5.5% and 5.6% respectively from kl. 11:40 ET.

Mexican flag adorned with a marijuana leaf and the words

Image Source: Getty Images.

So what

But wait: There is well also news on the legalization front! (It just does not happen in the United States.) Down south of the border in Mexico, it turns out that there is is an outside chance investors could see marijuana legalized before the end of the year.

As Marijuana moment reported over the weekend, Mexican lawmakers have a draft bill legalizing marijuana ready right now, and although it has not yet been officially introduced for consideration, things are moving fast and a vote could take place as early as December 15th. “First legislators [plan] to prioritize legislation to regulate cannabis, “reports the marijuana news aggregator.

This new law, if enacted, will allow adults 18 years and older to legally buy and possess up to 28 grams of marijuana. On the business side, the law will require that permits to sell marijuana be issued within 18 months of a dealer’s application.

What now

Contrary to US legalization efforts, Mexico’s law on the legalization of marijuana has already been passed, by separate votes last year on separate versions of the law, by both chambers of that country’s Congress. Although there may still be disagreements about specific peculiarities of the law, legalization there seems certain, and it may even happen before New Year. When that happens, a new market for legal weeds will open up – 129 million potential customers strong.

The question investors need to ask, though, is whether that is all it takes to gain access to new customers marijuana companies as Tilray, Aurora Cannabis and Canopy Growth profitable. After all, cannabis has been legal in (the admittedly much smaller market in) Canada for three years now. Since then, Aurora Cannabis’ sales have nearly quintupled, but instead of being profitable, the company’s losses have quadrupled.

The story is the same for Canopy Growth, with sales up 650% but operating losses up almost 440%, and for Tilray too, with its sales up 20 times but losses up almost 19 times, according to data from S&P Global Market Intelligence. Perhaps the real reason marijuana stocks are falling today is this: Just because marijuana companies can grow after legalization does not necessarily mean their business models get better.

This article represents the opinion of the author, who may disagree with the “official” recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps us all think critically about investing and make decisions that help us become wiser, happier and richer.

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