By Eric Vengroff, Cannabis Daily
In a sure twist of irony that in all fairness was probably expected somewhat, it appears that the legalization of cannabis for recreational use in Canada on October 17th has had precisely the counter-intuitive effect of cutting the stock prices of many of today’s leading publicly-traded cannabis stocks. Canadian investors in particular have no doubt been left in a state of confusion and are suffering from a cannabis-induced hangover. This effect was amplified by run-up of the major cannabis stocks from mid-August where index stocks added almost a third to their values, only to see those gains and more evaporate within two weeks of legalization. These stocks rebounded briefly mid-November only to hover around 550 on the Index. All things considered, dismal earnings reports from Canopy Growth and others notwithstanding, it could have been worse, as the decline from 618 on August 22nd was just 11%. Given the downward momentum of stocks in general through much of October and November in Canada, cannabis held its ground relatively well. One thing appears to be clear – Canadian investors bailed on weed stocks almost right after October 17th and kept right on going, despite reason for optimism relating to the product’s legal sale beyond the medical use community. A combination of profit taking by early investors, short selling and insider sales, along with a more sober review of enterprise values was enough to turn the tide into a 38% correction by October 29th that even today sits at -36%.
The Marijuana Index – Canada –Past 3 Months
Courtesy of the Marijuanaindex.com
By comparison, the US Marijuana Index has performed much better. Although mirroring most the same trends as the Canadian Index in terms of run-up and run-down, its constituent stocks are only down 6%, or roughly half the Canadian decline.
The Marijuana Index – U.S. –Past 3 Months
Courtesy of the Marijuanaindex.com
Although subject to the same market forces and influences as the Canadian market, it has proven to be more robust at weathering the volatile stock market gyrations of October and coming out the other side.
The Market is Changing and So is the Mindset
As evidenced by the strong presence of Canadians at #MJBizCon in Las Vegas last week, the attention of cannabis investors and entrepreneurs on both sides of the Canada/US border is turning southward. With the expected passing of the States Act, and a pro-business President, there is great optimism in the United States regarding the cannabis market. With Michigan being the 10th state voting to legalize cannabis recreationally and Massachusetts opening their first legal cannabis stores, they may have a point. Would you rather be a retailer in nearby New Brunswick, Canada or Massachusetts with 10 times the population and a quarter of its land mass? Would you rather grow in Canada, or Michigan, with a population a quarter that of Canada and 2% of its area? In time, the economics of greater population density, one official language, and a greater ability to market and display products may eat away at Canada’s early adopter advantage.
The information and opinions presented here are that of the author and do not represent the thoughts and opinions of this website. The analyst does not own and does not represent any of the companies listed in this article. Readers are urged to do their own research and due diligence and should seek advice from an independent financial advisor before making any financial investment.