The ‘Pot Party’ is Over, As it All Comes Down to Supply and Demand

The ‘Pot Party’ is Over, As it All Comes Down to Supply and Demand

$CGC, $ACB, $AAPL,

This chart shows how pot inventories are growing and growing just like certain crop inventories did in the 1930’s:

In just a year after Canada’s historic marijuana legalization, producers built up a massive surplus of the drug.

In fact, just 4% of it produced in Canada in July has been sold.

The rest is being stored in warehouses, just as crops during the Great Depression were.

For much of the past 100 yrs, laws held back marijuana production.

But Canada opened the gates, and the market was flooded with millions of kilos of marijuana.

Now there is more of the drug in Canada than people will probably ever need, it’s getting worse. And growers are talking about is “increasing production capacity.”

The Big Q: Is growing more the answer?

The Big A: When there is too much product on the market, you want to offer the best price, so buyers choose to do business with you instead of other sellers, because producers have pushed costs and prices down.

Aurora Cannabis (NYSE:ACB) plans to expand its production capacity from 150,000 to 500,000 kilos/year by mid-2020.

Canopy Growth (NYSE:CGC) is also on track to produce 500,000 kilos of pot per year.

Think about it… you could roll over 4-B joints with the pot from these 2 companies alone.

And many more pot producers will have the capacity to produce millions of kilos of of marijuana in a year from now.

The market does not need millions of kilos of pot. Pot producers are already making more of it than can ever be smoked.

Aurora Cannabis is Canada’s largest cannabis producer and 1 of the most popular marijuana stocks on Earth.

In fact, this stock has recently topped Apple (NASDAQ:AAPL) as the favorite stock among American Millennials, according to Business Insider.

Like most marijuana stocks, Aurora Cannabis has taken a beating and crashed over 50% since the beginning of the year:

Many participants most see this is a good buying opportunity, not me, not now. We may well see it cut in half again.

The data shows that Aurora Cannabis is losing huge amount of money, and the losses are growing daily. In Q-3 Y 2019, the company lost $160-M, and that is 8X more than a year ago.

The company is investing millions into new farms and greenhouses spanning millions of sqms, most of which are simply unused.

In Q-3 Y 2019, Aurora Cannabis grew only 15,600 kilos of marijuana, which means it utilizes just 33% of its facilities, and it plans to expand 7X by Y 2020.

So, looking at Aurora Cannabis’s most recent financial report, we see its revenue grew 52% in the last Fiscal Quarter, compared to the prior Quarter.

But, Aurora is really dumping part of its harvest “wholesale,” which means it is selling it for cheap, that according to a line deep in the company’s Q-4 financials.

In fact, the last F-Q, the company sold $20-M worth, a 869% increase from the prior Quarter, as there is not enough demand from consumers.

I expect this trend to grow as these companies continue to ramp up production and flood the market with more product.

Experts recommend: Stay away from Aurora Cannabis and other big marijuana producers.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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