Cannabis Sector Down After Pepsi’s Statement

On October 2, PepsiCo stated that it doesn’t have any plans for cannabis-infused drinks. This news comes at a time when veteran companies such as Coca-Cola, Constellation Brands, and Molson Coors have all expressed interest or formed partnerships with major cannabis companies to develop cannabis-infused drinks.

 

Cannabis Stocks and ETFs October 2 2018-10-02

Cannabis stocks react
As a result of PepsiCo’s comments, the overall cannabis sector ended in the red. Tilray (TLRY) lost ~16% during the day, while Aphria (APHQF) lost 9.8%. Canopy Growth (WEED) (CGC) was down by 6.4%, while Cronos Group (CRON) was down 5.3% during the day. The overall cannabis sector, which is represented by the Horizons Marijuana Life Sciences ETF (HMMJ), was down 6.2%.

Analysis
The cannabis sector has attracted many investors in the recent month. Unexpected moves in cannabis stock prices indicate concerns over how they are priced in the current market environment. When a stock drops following a negative news event, it usually means that the market had priced in a high likelihood of that event happening. But the question of market pricing in PepsiCo’s partnership with a cannabis company, while highly likely, is purely speculative in our opinion. We recently published a series on cannabis stock valuations, in which we discussed how valuations look stretched.