Industry stakeholders are looking for answers to critical questions
The honeymoon period for marijuana may be over. Following a blip in gains in April, pot stocks have been on a continuing slide.
The Los Angeles-based Marijuana Index, which tracks the 12 top-performing cannabis stocks, has shown that January and February share-price gains have largely been wiped out due to declines in recent months, according to the Calgary Herald.
Since reaching an all-time high of $3.29 on April 10, when the entire sector peaked three days prior to the Liberal government’s announcement of its legalization bill, Aurora Cannabis stock prices have fallen by more than a third.
Khurram Malik, an analyst at Jacob Capital Management, said the cannabis industry outlook won’t get much better until rules for a recreational market are clarified. These include details such as permissible potencies, packaging rules, and which retailers will be responsible for selling the substance.
“The longer it takes for the feds and provincial governments to provide more explicit guidance, [stocks] are going to keep moving down,” Malik told the Herald. He explained that government decisions remain the biggest driver for the cannabis industry, which is in its infancy and is highly regulated. Wider events such as elections and government announcements, rather than company performance, seem to be driving share prices.
The Alberta government is currently engaging the public, and is planning to release a draft framework for pot legalization this fall. Retail sales are expected to start in July 2018 across the country. In the meantime, nausea-inducing price peaks and valleys have many asking whether the industry is in bubble territory.
Cannabis share prices ticked upward in April due to optimism surrounding Ottawa’s legalization statement, but the gains were immediately shed in a subsequent selloff. In May, all 12 stocks tracked by the Marijuana index declined, with nine sustaining double-digit losses. Trading activity also took a nosedive: the average amount of Aurora stock traded per day, for instance, decreased from US$11.5 million in April to US$2.9 million in May — a 75% decline.
Dramatic share price surges have lured many first-time investors who wanted to cash in on what appeared to be a lush sector. “[Trading] volume drove the price spikes at the end of March, early April, and since then it has really dropped off,” Dan Nicholls, vice-president of the Marijuana Index, told the Herald.
While Nicholls agreed lack of clarity on legalization has likely dragged down share prices, he said that the pattern of buying and selling among investors listening to rumours and news may have also been a factor. He also cited investor fatigue as a possible contributor, with more licensed growers entering the market with plans to cash in.
“We’ve seen four or five new [licensed growers] go public in the last month,” he said. “For some investors, this is a brand new market; some of these companies aren’t producing revenue, so it can be difficult for investors to differentiate between the different [growers] as more and more are coming online.”
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