PRISM Stocks to Watch: Puff Puff Pass-ing Legislation for Canadian Cannabis Tax Reform Talks

As cannabis becomes formally recognized as a non-narcotic in Germany next week, other countries have been considering some legislative initiatives that may positively impact the industry and related stocks.

The Canadian government has been considering revising its excise tax framework. This revision would lessen the tax burden for cannabis companies with Canadian exposure . As the current excise tax model stands, producers of dried cannabis are taxed either 1 Canadian dollar per gram or 10% of the value of the gram, whichever is greater. In 2018 when this tax model was established, the average price of dried cannabis was dramatically higher than it is today. This has resulted in Canadian companies’ gross domestic revenues being taxed between 30%-40%, due to fixed Canadian dollar tax rates at lower price points.

As positive cannabis legislation passes, public cannabis companies have been starting to see translation in their stock movements. Last week, Canopy Growth saw a 75% increase in its share price as news circulated upon the German legislation. Canopy is currently up almost 90% YTD and its green streak may continue further if the Canadian cannabis tax reform is successful as CGC is headquartered, in the Great White North. Other companies with exposure to Canada may also be worth watching as further legislative talks continue.

The PRISM Cannabis Index tracks some of these emerging stocks who have experienced recent puffworthy upwards movement.

Tilray Brands

While Tilray Brands, Inc. (TLRY) is headquartered in the United States, it also has operations in Canada as well as Australia, New Zealand and Latin America. Although Canadian tax reform talks are on the rise, investors should additionally pay attention to companies with US exposure as the DEA is considering rescheduling cannabis. Tilray has been budding with recently launched products in the last two weeks as its Redecan brand launched a new spring line up, Tilray Wellness introduced a new hemp superfood product and announced a naturally flavored CBG infused cannabis beverage. The stock is up 12% YTD and a dollar short of its 52-week high.

SNDL, Inc.

Formerly known as Sundial Growers, SNDL, Inc. (SNDL) is a producer, distributor and seller of cannabis products in Canada. It also has a liquor retail segment that sells wines, beers, and spirits through wholly-owned liquor stores. Last week the company announced its Q4 and FY 2023 financial results that reported record net revenue and gross profit for the year, achieving positive cash flow in the second half of 2023. Q4 adjusted EBITDA was C$3.5M which smoked its previous years Q4 adjusted EBITDA of (C$7.5M). The stock has been on a tear in the past year, up 40%.

Village Farms International

Canadian company, Village Farms International, Inc. (VFF) grows more than just tomatoes, bell peppers and cucumbers. It also operates in the cannabis and hemp business as well as energy, converting landfill gas into clean energy to produce heat and electric for its Vancouver greenhouse. The company revamped its Pure Sunfarms design as it now touts higher quality, bigger and better buds. The company also announced Q4 and FY 2023 earnings this month reclaiming its #2 National market share position. Additionally, they reported a 14% year over year Q4 sales increase on its Canadian cannabis and positive adjusted EBITDA as well as cash flow, on its US cannabis segment.

As the cannabis industry lights up again on everyone’s screens, we suggest you don’t get smoked out on this budding opportunity. Do your research and harvest some names to get your portfolio in the green.

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PRISM Stocks to Watch: Puff Puff Pass-ing Legislation for Canadian Cannabis Tax Reform Talks

Ashlee Vogenthaler

Markets Editor