Cannabis Stocks Drop on Legalization Date

LEGALIZATION COVERAGE

Canada’s decision to legalize the recreational use of cannabis has allowed the rise of an emerging investment market. The cannabis public sector has become one of the most followed industries for investors. 

As such, the Investing News Network brings investors a collection of stories on the critical transition and its impact on the public markets.

Cannabis stocks took a dive on Wednesday (October 17), the same day for official legalization of adult-use marijuana in Canada.

Canadian producers such as Canopy Growth (NYSE:CGC,TSX:WEED), HEXO (TSX:HEXO), and Aurora Cannabis (TSX:ACB) all noticed declines in value on Wednesday. Respectively, each stock declined 4.38, 5.95 and 2.93 percent in value.

The Horizons Marijuana Life Science Index ETF (TSX:HMMJ), started the day with a drop and reached a day-low of C$22.79.

The index, which holds nearly 40 pot stocks, picked up the rest of the day to finish with a 2.10 percent drop and a closing price of C$24.30.

The Evolve Marijuana ETF (TSX:SEED) also dropped in value on Wednesday, seeing a 1.98 percent loss and a closing price of C$1.98. This index counts with 20 holdings in the cannabis space.

An alternative ETF from Horizons, the Horizons Emerging Marijuana Growers Index ETF (AQN:HMJR), which exclusively holds cannabis companies with a market capitalization between C$50 million and C$500 million, declined 2.33 percent to a price of C$9.21.

A couple of outliers in Wednesday’s drop among leading cannabis companies were Aphria (TSX:APH) and CannTrust Holdings (TSX:TRST) which, despite the losses around the market, actually saw increases throughout the day.

Aphria closed the trading session with a 3.80 gain and a price of C$19.40, while CannTrust took a marginal 1.26 percent gain to finish with a closing price of C$13.67.

“The Cannabis Act, which comes into effect today, cements Canada’s global leadership in this rapidly expanding industry,” Vic Neufeld, CEO of Aphria, said in a statement. This is an historic moment as we march into the future of cannabis.”

Performance of US stocks from Canadian companies

The move from Canadian cannabis companies launching stocks on US premier exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ, has attracted investors below the border to gain exposure into the space.

Tilray (NASDAQ:TLRY), which garnered the attention of the market with the company reaching a market cap of over US$10 billion, joined in with the overall sector and faced a 6.40 percent drop to its stock to US$148.25 per share.

Shares of Cronos Group (NASDAQ:CRON,TSX:CRON) fell 4.38 percent, representing a loss of US$2.32. The stock closed the trading session with a price per share of US$50.69.

Canopy’s NYSE stock, similar to its Toronto stock, dropped in value as the investor sentiment gravitated towards sales on Wednesday.

The stock opened the day with a US$2.76 decline in value. During the trading session, the stock went down 4.38 percent and held a value of US$50.69 during after hours trading.

Investor takeaway

Wednesday’s losses had been predicted, albeit not a total crash, but a potential decline for cannabis stocks instead of a catalyst leading to gains in the public market.

Everett Knight, portfolio manager with Matco Financial, told the Investing News Network (INN) he expected to see a lot of retail money selling.

Knight said the cannabis play remains an early one and expects the next few quarters to deliver more answers on the entire sector.

“Cannabis investors will have to become more sophisticated and not paint the whole industry with same brush to make better returns.”

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.