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Cannabis stocks have been on a roller coaster ride over the past few months, and today they took another dip. So why are cannabis stocks down today? Let’s take a look at some of the possible reasons.
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The Canadian Market
The Canadian Cannabis market has been down today, following a string of bad news. First, Aurora Cannabis announced that it would be writing down the value of its inventory by C$190 million. Second, Hexo Corp announced that it would be delaying the release of its much-anticipated Cannabis 2.0 products.
The Cannabis Act
In June 2018, the Cannabis Act came into force, making it legal to sell and possess cannabis in Canada. The act also created new offences for selling or possessing cannabis without a licence, and for selling or giving cannabis to someone under the age of 18.
The Cannabis Act is just one element of the government’s approach to legalizing and regulating cannabis. The act is complemented by the Cannabis Regulations, which set out rules around display, packaging and promotion of cannabis products; and by the Good Production Practices requirements for licensed growers and processors.
The government’s goal is to keep cannabis out of the hands of children and youth, and to stop criminals from profiting from its sale. Legalization will also help keep our communities safe by making it easier to track cannabis products from seed to sale and by reducing the illegal market.
Supply and demand
In the Canadian market, it is currently a buyers’ market. This oversupply of cannabis has driven down prices and profits for Canadian cannabis growers. In order to try and regain some control of the market, some growers have begun to cut back on production. While this may reduce the oversupply in the short-term, it could also lead to shortages down the road.
The Canadian government has also been slow to issue licenses for new cannabis producers. This has further restricted the supply of legal cannabis in Canada, driving up prices even more. The black market for cannabis is still thriving in Canada due to the high taxes on legal weed. Until the government can get a handle on the supply and demand of cannabis, prices are likely to remain high.
The U.S. Market
Cannabis stocks have been down today due to the U.S. market. The U.S. market is down today due to the U.S. government shutdown. The U.S. government shutdown is affecting the stock market .
The Farm Bill
The farm bill was a major reason why the cannabis industry was optimistic heading into 2019. The bill, which was passed in December 2018, removed hemp from the list of controlled substances. This allowed farmers to grow and sell hemp without fear of federal prosecution. The farm bill also gave states the option to create their own hemp programs.
The passage of the farm bill was a major victory for the cannabis industry, but it also created some challenges. First, it’s still unclear how the federal government will regulate hemp. Second, it’s not clear how states will choose to regulate hemp. Some states might choose to ban it altogether. And third, the farm bill didn’t do anything to change the status of marijuana. Marijuana is still illegal at the federal level, which creates a number of challenges for businesses operating in this space.
State-level legalization
Many investors are wondering why cannabis stocks are down today. There are a few possible reasons, but one major factor is state-level legalization.
The U.S. market for cannabis is currently worth an estimated $8 billion, but it could grow to $22 billion by 2022. However, state-level legalization has been slow to roll out. Only a handful of states have fully legalized cannabis, and many more have only decriminalized possession or approved medical use. This slow rollout has been a major disappointment for investors who were hoping for a quick boom in the industry.
Another possibility is that investors are concerned about the upcoming federal election in the United States. If a new administration comes into power that is opposed to legalization, it could set the industry back significantly. For now, investor confidence in the cannabis industry appears to be shaky at best.
The International Market
The UN Drug Convention
The United Nations Convention on Psychotropic Substances of 1971 is an international treaty to control psychoactive drugs. The Convention, signed in Vienna on 21 February 1971, requires its members to regulate and control a list of substances, including cannabis and cannabis resin. As of July 2018, 168 nations are party to the Convention.
The UN Drug Convention was not designed to prohibit the use of drugs, but rather to restrict their supply and trade in order to protect public health and prevent abuse. However, the Convention does place some restrictions on cannabis. For example, Article 3 requires parties to “limit the production, manufacture, export, import, distribution of, trade in and use” of cannabis “exclusively to medical and scientific purposes.”
The UN Drug Convention is not the only international agreement that has an impact on the global cannabis market. The International Narcotics Control Board (INCB), which is tasked with monitoring compliance with the UN Drug Convention, has also taken a position against the legalization of cannabis. In a 2016 report, the INCB stated that “the board is concerned about developments that could lead to the liberalization of the non-medical use of cannabis.”
While the UN Drug Convention does not outright prohibit the legalization of cannabis, it does place some restrictions on the drug which could impact the international market for legal cannabis.
The WHO Recommendations
The World Health Organization (WHO) released a report today with their recommendations for the classification of cannabis and cannabis related products. They have suggested that all Member States consider reclassifying cannabis and cannabinoid use disorders as well as removing CBD from the list of controlled substances. The statement also went on to say that WHO does not consider CBD to be a high risk substance and there is evidence that it may be used for therapeutic purposes.
This news has sent shockwaves through the industry as it is a complete 180 from the previous stance of WHO. This could mean that we see a change in policy from many countries around the world who have been reluctant to change their stance on cannabis. It is still too early to tell what the full ramifications of this report will be, but it is undoubtedly good news for the industry.
The Bottom Line
It’s no secret that the cannabis industry has been going through a tough time lately. After a period of explosive growth, the industry has come up against a number of challenges, including oversupply, regulatory headwinds, and slowing demand.
This has led to a sharp decline in share prices for many cannabis companies, and today is no exception. So far in trading, the Horizons Marijuana Life Sciences Index ETF (HMMJ.TO), which tracks the performance of the leading cannabis companies, is down about 5%.
However, it’s not all doom and gloom for the industry. While there are certainly challenges that need to be addressed, there are also reasons to be optimistic about the long-term prospects for the sector. For example, the global legal cannabis market is expected to grow from $10.9 billion in 2018 to $39.3 billion by 2027, according to Grand View Research.
So, while it may be a difficult time for investors in cannabis stocks today, there are still reasons to believe that the industry has bright future ahead.
