Reasons Why Cannabis Stocks are down Today. We explore the most common explanations for why this is the case and offer some solutions.
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The Basics of Cannabis Stocks
Cannabis stocks have been down today due to a variety of reasons. The most common reason is that the major exchanges have not yet listed them. This lack of liquidity makes it difficult for investors to buy and sell the stocks. Additionally, the Canadian government has not yet finalized the regulations around the legal cultivation and sale of cannabis. These regulatory uncertainties have caused some investors to hesitate before investing in these stocks.
What are cannabis stocks?
Cannabis stocks are stocks of companies that are directly or indirectly involved in the legal cannabis industry. The legal cannabis industry includes the cultivation, manufacture, distribution, and sale of cannabis products.
Cannabis stocks have been under pressure in recent months. A number of factors have contributed to this weak performance, including concerns about over-valuation, regulatory uncertainty, and slowing growth in the U.S. legal cannabis market.
Despite these challenges, the legal cannabis industry continues to expand and attract significant investment capital. With Canada legalizing recreational cannabis in October 2018 and several U.S. states expected to follow suit in the coming years, the potential for further growth in the legal cannabis market is significant.
How do cannabis stocks work?
The cannabis industry is growing rapidly as more and more states legalize marijuana for medicinal and recreational purposes. This growth has led to an increase in the number of publicly traded companies that are involved in some aspect of the cannabis industry.
Cannabis stocks are similar to any other kind of stock in that they represent a ownership stake in a company. When you buy a cannabis stock, you are buying a piece of that company and its future profits.
However, there are some key differences between cannabis stocks and other kinds of stocks. For one thing, the cannabis industry is still largely unregulated, which means that companies operating in this space may have less financial transparency than companies in other industries. Additionally, the legal status of marijuana at the federal level means that banks and other financial institutions may be less willing to work with companies in the cannabis industry. These factors make investing in cannabis stocks a bit riskier than investing in other types of stocks.
Despite these risks, many investors are interested in cannabis stocks because they believe that the industry will continue to grow at a rapid pace. If you’re thinking about buying cannabis stocks, it’s important to do your research and understand the risks involved before making any investment decisions.
The History of Cannabis Stocks
The early days of cannabis stocks
The early days of cannabis stocks were dominated by Canadian companies. In the United States, meanwhile, the industry was constrained by federal prohibition. As a result, early investors in the U.S. cannabis industry tended to be wealthy individuals and risk-tolerant institutional investors.
The first public company to offer cannabis-related products was Medical Marijuana Inc (OTC: MJNA), which was founded in 2009. MJNA’s flagship product is Cannabidiol (CBD) oil, which is derived from hemp and is legal in all 50 states. The company also has a portfolio of international hemp-based businesses.
Despite being the first mover in the U.S. cannabis industry, MJNA has been a lackluster performer. The stock is down more than 60% from its 52-week high set in mid-2018.
A number of other Canadian companies have also gone public in recent years, including Aurora Cannabis (NYSE: ACB), Canopy Growth (NYSE: CGC), and Tilray (NASDAQ: TLRY). These companies have been much more successful than Medical Marijuana Inc, with Aurora Cannabis and Canopy Growth both more than doubling since their respective IPOs. Tilray has also been a big winner, albeit on a more volatile basis.
The Canadian companies were followed by a wave of U.S.-based IPOs in 2018 and 2019, as investor interest in the cannabis industry reached new highs. Notable IPOs during this period included Acreage Holdings (OTC: ACRGF), Green Thumb Industries (OTC: GTBIF), and Cresco Labs (OTC: CRLBF).
However, the U.S.-based cannabis companies have largely been disappointing so far as public companies. Acreage Holdings is down more than 30% from its 52-week high set last year, while Green Thumb Industries is down nearly 20%. Cresco Labs has fared better relative to its peers, but it’s still down about 10% from its 52-week high reached in March 2019.
The rise and fall of cannabis stocks
The rise and fall of cannabis stocks has been one of the biggest stories in the investing world over the past few years.
Cannabis stocks started to take off in early 2014, as investors began to anticipate the legalization of recreational marijuana in Canada. By the end of 2016, the stock prices of some of the biggest players in the industry had gone parabolic, as investors poured billions of dollars into the sector.
However, since peaking in late 2018, cannabis stocks have been in steady decline, as investors have become increasingly worried about over-valuation and regulatory risks. In 2019, Cannabis stocks lost a total of $34 billion in value, and 2020 is shaping up to be another tough year for the sector.
The Future of Cannabis Stocks
It’s no secret that the cannabis industry has been struggling as of late. Stocks have been down and investors are becoming nervous. So, what does the future hold for cannabis stocks? Let’s take a look at some of the factors that could affect the future of these stocks.
The potential of cannabis stocks
Despite the potential of the cannabis industry, investors have been fleeing from these stocks recently. In the last month, some of the biggest names in cannabis have seen their stock prices drop significantly. So, what’s going on?
There are a few factors that seem to be contributing to the recent sell-off. First, there’s been a general cooling off of the “pot stock” craze that took hold last year. As more and more states decriminalize or legalize marijuana, investors began bidding up the stock prices of companies that were even remotely connected to the industry.
Now that the initial excitement has worn off, investors are starting to realize that many of these companies are not well-positioned to take advantage of the growing legal marijuana market. They’re also starting to worry about over-regulation, as the Trump administration has hinted at cracking down on states that have legalized marijuana.
All of this has led to a more cautious approach to investing in cannabis stocks, which is likely contributing to the recent sell-off.
The risks of investing in cannabis stocks
The risks of investing in cannabis stocks are largely related to the regulatory environment surrounding the industry. Cannabis is still illegal at the federal level in the United States, which creates a number of challenges for companies operating in the space.
For one, banks are often reluctant to work with cannabis companies due to the risk of running afoul of federal money laundering laws. This can make it difficult for companies to access capital, which can hamper growth.
Additionally, the U.S. market for cannabis is currently fragmented due to state-level legalization, which makes it difficult for companies to scale their operations. And finally, there is always the risk that the federal government could crack down on the industry, which would likely have a negative impact on stock prices.