A combination of fiscal news from Canada's largest province and the results of a new marijuana legalization poll in the U.S. drove the prices of marijuana stocks upward on Wednesday.
Companies on both sides of the border saw nice share price pops. SNDL(NASDAQ: SNDL) gained nearly 12%, and fellow Canadian weedie Canopy Growth(NASDAQ: CGC) surged ahead by 32%. U.S.-headquartered cannabidiol (CBD) products specialist Charlotte's Web(OTC: CWBHF) also had a good day, with its stock closing up by almost 8%.
A solid budget contributor
The big tailwind for the Canadian stocks was the release of the 2024-2025 fiscal year budget for Ontario, by far the most populous of the country's 10 provinces. The document revealed that the provincial government anticipates earning 604 million Canadian dollars ($445 million) from taxes on cannabis sales. That forecast slightly exceeds the CA$586 million ($432 million) tally of the previous fiscal year.
Ontario earns 75% of a federal tax on the drug, and also draws revenue by operating the Ontario Cannabis Store, which has a monopoly in online sales of recreational cannabis in the province.
Although marijuana taxes don't provide a huge part of the province's anticipated CA$206 billion ($152 billion) in total revenue, they are on track to be more than the CA$576 million ($424 million) it expects to collect in taxes on beer, wine, and liquor.
That makes pot a solid source of government funding, and positions it as an important industry requiring some degree of support from the province. It also theoretically gives Ontario marijuana growers and retailers some power and influence over how their business is regulated.
Meanwhile, a poll conducted by the well-respected Pew Research Center indicated extremely strong support for pot legalization in America: Among those surveyed, 88% favored legalization to some degree. A majority of the respondents -- 57% -- said that both recreational and medical use should be sanctioned, while just 11% said that use of the drug should be prohibited.
The weed business is stronger than some might think
The marijuana business has been notoriously challenging, especially in Canada. Black market competition, an oversupply of product, and a fairly aggressive tax regime are among the factors making the sector chronically unprofitable. Yet as these latest pieces of news indicate, the sector more than pulls its weight economically and enjoys broad public support. That's a combination any industry can benefit from if it plays its cards right.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Charlotte's Web and SNDL. The Motley Fool has a disclosure policy.
