Marijuana Stocks Leave Investors Cold in the New Year

Pot stocks have cost exchange-traded fund (ETF) holders 40 percent since Canadian legalization leading to a down-turn in sentiment from investors, new research says.

Horizons ETFs Management, the company behind one of the most popular cannabis ETFs in Canada, published its quarterly survey results of advisors and investors on Monday (January 21).

The survey shows the decline of cannabis stocks has caused losses taking an impact on the bullish sentiment for these securities.

On the overall Canadian markets, the report indicates “advisor and investor bullishness has declined on nearly all asset classes heading into the new year.”

Steve Hawkins, president and CEO of Horizons ETFs, said the post-legalization correction had caused a “more reserved attitude” towards marijuana investing moving into 2019.

Horizons asks for input from advisors and investors of the public markets and shares the results on a primary way with bullish, bearish or neutral sentiment expression.

“Marijuana equities, as represented by the North American Marijuana Index, lost more than 40 [percent] after recreational legalization in Canada,” Horizons indicated in its report.

Horizons portfolio holds two cannabis ETFs, the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) and the Horizons Emerging Marijuana Growers Index ETF (NEO:HMJR)

According to the survey results, both advisors and investors of the public space have expressed a “steep loss of positive expectation” for the cannabis sector.

Only 31 percent of respondents indicated a positive or bullish outlook on pot stocks.

Despite the gloomy outlook, Hawkins expects the growth of the industry to continue as companies show financial stability.

“As more of these Cannabis-sector companies begin to demonstrate their fundamentals through financial reporting, there will be a solid footing for analysts upon which to base their expectations for the industry – ensuring a measured outlook on growth,” Hawkins said.

Despite sentiment slowing down, projections continue to show massive industry

Earlier in January Vivien Azer, managing director and senior research analyst specializing in the beverage, tobacco, and cannabis sectors for financial institution Cowen (NASDAQ:COWN), raised her outlook on the value of the space.

The analyst wrote she expects the US cannabis market to represent sales of US$80 billion by 2030.

Similarly, a new study from the Arcview Group and BDS Analytics projected the global recreational sales of cannabis will amount to US$16.9 billion in 2019.

Beyond 2019, the Arcview Group is calling for recreational cannabis sales only to hit US$31.3 billion in 2022.

Investor takeaway

While those surveyed for the Horizons report demonstrate a bleak outlook on pot stocks right now, long-term projections show substantial returns awaiting investors.

Many factors played into the decline of stocks across the board in the public space.

However, the cannabis space is suffering some hits as Canadian companies continue to deploy assets for the adult-use market and eagerly await the entrance of edibles in the country, scheduled later this year.

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