Cannabis Stocks: The Decline Begins Again

At the end of August, the U.S. Department of Health & Human Services recommended to the Drug Enforcement Administration that they reclassify marijuana's drug status to that of a Schedule III (i.e. lower-risk) substance based on a recent Food and Drug Administration review. If implemented it would allow major U.S. stock exchanges to list MSOs on their exchanges, substantially ease banking requirements for MSO companies, and, potentially, allow Canadian cannabis LPs (as well as other foreign domiciled companies) to begin selling their products in the United States.

Investors' reaction was initially enthusiastic, with the industry's average stock price going:

  • up 13.8% by the end of the first week of September and
  • up another 8.2% by the end of the second week.

However, soon enough they came back to earth:

  • down 15.3% by the end of the third week and
  • down 1.6% this past week
  • and now is only up 2.7% since the announcement at the end of August.

In a previous article on the reaction of investors to the possible passing of legislation to improve conditions and increase opportunities for companies in the industry, I asked the question "Is it déjà vu all over again?"  That hearkens back to the volatility that took place back in May when the industry's average stock price reacted enthusiastically (up 13% the first week of May) to the reintroduction of the Secure and Fair Enforcement (SAFE) Banking Act. Enthusiasts hoped that passage of the reintroduced bill would  provide a clear route for the SAFE Banking Act to make its way through the Senate Banking Committee and, ultimately,be voted on in the Senate. Investor enthusiasm was short-lived then, however, with the industry's average stock price going down 11% the following week to end up marginally below their prices at the end of April. I concluded that "Yes, unfortunately, it is it déjà vu all over again!" and this week's continuing decline confirms that conclusion. Caution (or risk aversion?) tends to reassert itself quickly in this category.

Below are the performances of the 5 stocks in munKNEE's Canadian Cannabis LPs Index and in the 7 stocks in munKNEE's American Cannabis MSOs Index for this week, in descending order, and for the month of September. [Ed.note: This article includes penny stocks and/or microcaps; such stocks are easily manipulated, do your own careful due diligence.]

munKNEE's Canadian Cannabis LPs Index

  1. Tilray Brands (TLRY): down 0.4% this week; down 19.3% in September
  2. Cronos Group (CRON): down 3.8% this week; down 2.4% in September
  3. Canopy Growth (CGC): down 7.1% this week; up 36.8% in September
  4. Organigram Holdings (OGI): down 13.6% this week; down 19.5% in September
  5. Aurora Cannabis (ACB): down 21.1% this week; up 22.9% in September

Average: down 6.5% this week; down 8.1% MTD.

munKNEE's American Cannabis MSOs Index

  1. Curaleaf Holdings (CURLF): up 5.1% this week; up 18.9% in September
  2. Green Thumb (GTBIF): up 3.2% this week; up 18.2% in September
  3. Trulieve Cannabis (TCNNF): down 1.6 % this week; up 7.0% in September
  4. TerrAscend Corp. (TSNDF): down 2.8% this week; +/- 0% in September
  5. Cresco Labs (CRLBF): down 2.9% this week; up 26.5% in September
  6. Verano Holdings (VRNOF): down 3.2% this week; up 29.3% in September
  7. The Cannabist Company - formally called Columbia Care - (CBSTF): down 25.6% this week; up 21.6% in September

Average: down 0.2% this week; up 16.7% in September

Conclusion

As mentioned above, this week's continuing decline confirms the conclusion that "Yes, unfortunately, it is it déjà vu all over again!" Both in May and again in September, the flash spike from the "announcement effect" did not hold up to price discovery.

If you are interested in the cannabis category, consider:

  • the AdvisorShares Pure US Cannabis ETF (MSOS) which was down 1.2% this week and went up 17.6% in September and/or
  • the Global X Cannabis ETF (POTX), which consists of the above 5 highlighted Canadian stocks plus another 12 cannabis or cannabis-related (i.e. auxiliary) stocks, was down 1.9% this week and was down 10.9% in September.

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Disclosure: None TLRY CRON CGC OGI ACB CURLF GTBIF VRNOF MSOS POTX

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