Did legalisation boost Canadian Cannabis stocks?

Liz Filmer
01 Nov 2021

Canada has been examined very closely as the only G-7 country to have legalised cannabis for adult use by cannabis investors worldwide. Many Canadian cannabis companies offer stocks and have done since before legalisation in 2018.

It's a commonly held belief that national legalisation gave a substantial boost to cannabis stock prices. However, it's an opinion that has gone largely uninvestigated until now. A team of Canadian and Chinese researchers recently teamed up to examine if legalisation affected cannabis stock prices in Canada and, if so, how?

The study explored the price data for ten cannabis stocks in Canada between 2015-2020. Before 2018 the companies were focused on medical cannabis, and following legalisation, they began to transition towards the recreational industry.

The researchers discovered through comparative analysis that the performance of the matched pairs correlated mainly over time. Also, they found that the performance of cannabis companies pre-legalisation was better than their performance post-legalisation.

Given that those cannabis companies did not outperform their matched pair, the study confirmed that legalisation did not significantly affect the industry. Additionally, it also reported that from a stock market perspective, recreational legalisation has so far been an unsuccessful endeavour, at least in the case of the companies who have participated in the study.

However, this is perhaps the smallest measurement regarding the overall success or failure of legalisation in Canada. Cannabis legalisation has been a tremendous success for patients and consumers who were previously at risk of harsh penalties for using cannabis.

Cannabis reform can also be considered a triumph from the perspective of taxpayers and local governments, who are no longer witnessing public resources being wasted on a broken public policy.

Cannabis legalisation in Canada may not be perfect. There is always room for improvement as the industry evolves and matures. However, there is no doubt that whatever it looks like is a far better situation than it's far better than complete prohibition.

Liz Filmer