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Canadian marijuana companies are smiling after last night's election stunner

Justin Trudeau
Justin Trudeau

(REUTERS/Chris Wattie)

Of all the industries across Canada, none could possibly be happier with Monday’s surprising election result than the medical marijuana sector, Peter Koven of Canada's Financial Post reports.

Justin Trudeau — who won in a landslide — has a plan to legalize marijuana. He promises to bring massive opportunity to an industry that only came into existence last year.

Marijuana equities moved higher on Tuesday as investors absorbed the news.

Shares of Canopy Growth Corp. (formerly Tweed Marijuana) climbed 2.75% while Aphria Inc.’s shares climbed 5% as of 1:20 ET.

The federal government birthed the marijuana sector in April 2014, when it introduced rules that required medical pot patients to buy their product from licensed producers.

That created a market frenzy as dozens of companies popped up out of nowhere to get into the sector. Those firms are slowly being whittled down to a much smaller group of capable long-term producers.

But while the medical marijuana patient list is growing, it is still below 30,000 people across the country.

That is a tiny number, and it limits the amount of money these companies can possibly make. As of now, none of the major producers are cash flow positive.

Legalization, if it indeed happens, will transform the business because the potential customer base is enormous.

Assuming Canada follows the path of U.S. states like Colorado and Oregon that have legalized, pot will become huge business literally overnight.

But that will also bring big challenges to the marijuana producers. Higher production could drive prices down, which would force plenty of companies out of business if they cannot establish enough scale to drive down their costs. Consolidation, which is already happening, will likely become a must.

The regulatory environment under legalization is completely uncertain. And a legalized marijuana industry could also draw interest from the global tobacco and pharmaceutical industries. If they bring their scale and know-how to pot, it may become impossible for the small Canadian firms to hold their ground.

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