After governor J.B. Pritzker signed the Cannabis Regulation and Tax Act on June 25, Illinois legalized adult-use marijuana. Illinois was the eleventh US state to do so. The state is set to allow recreational marijuana sales from January 1, 2020. The act also gave municipalities the right to regulate cannabis stores’ location.
Yesterday, WLS-TV reported that Chicago mayor Lori Lightfoot had introduced an ordinance regulating cannabis stores. The plan is to keep cannabis stores away from Chicago’s central business district. It will split the rest of the city into seven different zones, reported WLS-TV. Each zone would be allowed to have 13 cannabis stores.
Lightfoot stated, “The area along our Mag Mile and our parks is incredibly important to our hotel and tourism business.” She added, “We want to make sure those stay family friendly locations,” reported WLS-TV. Many council members resisted Lightfoot’s move, saying it could lower the city’s tax revenue.
The cannabis industry’s challenges
Black market sales are a major challenge for the cannabis sector. On July 2, the San Francisco Chronical reported that the illicit market has continued to thrive in California two years after recreational cannabis’s legalization. The report stated that higher tax and local bans were the main reasons for the black market’s growth. Cannabis products’ tax rate could rise to 45% in California, reported the San Francisco Chronical.
Currently, tax on cannabis products in Illinois varies from 19.55% to 34.75%. That figure includes the state’s 6.25% sales tax and local tax of up to 3.5%. We think Lightfoot’s move to ban cannabis stores in Chicago’s central business district could encourage black market sales.
Opportunities in cannabis legalization’s second phase
In Canada, cannabis can be sold as dry flowers, oil, or gel. However, in next month’s second phase of legalization, cannabis derivatives such as vapes, mints, gummies, and chocolates will be legal. Major players are getting ready.
During its fourth-quarter earnings call, Aurora Cannabis (ACB) announced it had invested in launching value-added products. The company plans to develop a vape product portfolio, and has partnered with PAX Labs. Aurora intends to use its Aurora Air and Polaris facilities to produce vape pens, mints, gummies, and chocolates. The company’s stock has risen 3.6% year-to-date.
Yesterday, Cronos Group (CRON) announced a two-year manufacturing deal with MediPharm Labs (MEDIF). According to the deal, MediPharm will fill and package Cronos vape devices. CRON stock has fallen 5.4% this year.
Canopy Growth (WEED) (CGC) is also focusing on bringing vapes to the Canadian market. During the Barclays 2019 Global Consumer Staples Conference on September 4, Canopy CFO Mike Lee announced that the company is planning to introduce 15 SKUs (stock-keeping units) by the year’s end. Canopy stock has fallen by 2.0% this year.
The recent vaping-related health concerns could severely dent companies’ plans to expand their vaping business. To learn more, read Vaping-Related Deaths: Anxiety Rises for Cannabis Stocks.