Canada legalises recreational cannabis use

The Parliament of Canada has voted to pass a law which legalises the use of recreational cannabis across the country. It passed in the senate by 52 to 29.

Canada becomes only the second country in the world to legalise the recreational use of marijuana. By September this year Canadians may be able to buy consume or buy cannabis.

The PM of Canada, Justin Trudeau, said on Twitter “It’s been too easy for our kids to get marijuana – and for criminals to reap the profits. Today, we change that. Our plan to legalize & regulate marijuana just passed the Senate. #PromiseKept”

According to some estimates, around US$4.5 billion was spent on cannabis in 2015.

Under the new rules, adults will be allowed to have up to 30g of dried cannabis in public. The government will set out regulations about foods that have cannabis in it.

However, it will still be illegal to have more than 30g, buy from an unlicensed cannabis dealer or be growing more than four cannabis plants for households.

This will generate a lot of tax dollars as well as give individuals more freedom.

There are a number of medicinal cannabis companies that are trading on the ASX which may react positively or negatively to this news. My colleague, James Mickleboro, has already discussed how this might affect AusCann Group Holdings Ltd (ASX: AC8).

I wouldn’t be surprised to see excited traders send the share prices of many the medicinal companies higher like Cann Group Ltd (ASX: CAN), MMJ Phytotech Ltd (ASX: MMJ), Creso Pharma Ltd(ASX: CPH), Hydroponics Company Ltd (ASX: THC), Zelda Therapeutics Ltd (ASX: ZLD) and MGC Pharmaceuticals Ltd (ASX: MXC)

Investors may believe that Canada legalising cannabis makes Australia legalising it one step closer.

Foolish takeaway

However, despite the growing excitement surrounding the cannabis industry readers must remember that there is very little revenue and zero profit being generated across the industry.

Many of the above companies have valuations worth tens (or more) of millions of dollars. Right now, using standard valuation methods, they are not worth that. Perhaps in the long-term they will be profitable but that’s a long time away.

Instead, I’d say it would probably be better for you to put your investing money into these growing businesses that are generating real profits.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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