Cannabis Stocks Show Record Fall as Legalization Prospects Dim

A worker inspects cannabis plants inside the grow room at the Aphria Inc. Diamond facility in Leamington, Ontario, Canada, on Wednesday, January 13, 2021. Tilray Inc. and Aphria Inc. have agreed to combine their operations, forming a new giant in the fast-growing cannabis industry.

Annie Sakkab | Bloomberg | fake images

For stocks with names like Curaleaf Holdings, GrowGeneration, and Aurora Cannabis, the buzz seems to be fading.

As part of the market sell-off that hit technology and other growth areas over the past two weeks, investors also abandoned cannabis producers and distributors, who had performed well during the months of the pandemic.

The AdvisorShares Pure Cannabis ETF, which consists of growers and developers of cannabinoid-based drugs, fell 8.5%, following a 9.4% decline last week. The Amplify Seymour Cannabis ETF is down 20% in the past two weeks, its biggest drop since March last year.

Most of the major cannabis companies are based in Canada, where the plant has been legal for recreational ingestion since 2018. The United States has nearly 10 times as many people as Canada, and distributors eagerly await their opportunity to expand south. .

For a time, things looked good.

Marijuana stocks rallied after Joe Biden was elected president in November, and then again in January after Democrats secured a Senate majority with two second-round victories in the Georgia election. Investors applauded the results, believing that Democrats would take steps to legalize cannabis at the federal level, following November’s votes to allow recreational weed in Arizona, Montana, New Jersey and South Dakota. They joined 11 other states that had already legalized marijuana.

Senate Democrats promised sweeping legislation that would end federal marijuana prohibition and end the war on drugs.

“Ending federal marijuana prohibition is necessary to correct the mistakes of this failed war and end decades of harm inflicted on communities of color across the country,” wrote Senate Majority Leader Chuck Schumer of New York, along with Senator Cory Booker of New Jersey. and Ron Wyden of Oregon, in a February 1 statement.

Where are the Republicans?

But working across the aisle won’t be easy, and Democrats need some Republican counterparts to pass any meaningful legislation. If the Covid-19 relief bill is any indication, the outlook for bipartisanship is bleak. Not a single Senate Republican has signed the $ 1.9 trillion package.

Matt Bottomley, an analyst covering the cannabis sector at Canaccord Genuity, highlighted the political challenges in a report last month on Canopy Growth, which owns marijuana retailers and brands that produce cannabis-based products. It downgraded its rating to sell after the company’s quarterly results, primarily due to “significant valuation appreciation” since October.

“The industry continues to see value appreciation based on positive macro headlines coming out of the US (Biden presidency; Senate Democratic control; commitment to push for cannabis reform in the US at the federal level) “Bottomley wrote. “We do not anticipate federal legalization of cannabis in the US in the near term and we believe that CGC’s appreciation in value of late is likely not meeting a corresponding fundamental rise at this time.”

Canopy Growth has fallen 19% in the last two weeks.

Among those that declined the most this week was Aphria, which agreed in December to merge with Tilray in what will be the largest cannabis company by revenue. Aphria, which produces recreational and medical cannabis, plunged 13% after falling 11% last week. It’s the worst two-week performance for the stock since a four-week slide between February and March last year.

Aphria CEO Irwin Simon told CNBC last month that he expects marijuana to be legalized in the United States in the next few years, but said it could happen sooner in places like Germany and Portugal.

“There are many unknowns about what will happen in the US, but we will have the balance, we will have the knowledge, we will have the brands, we will have the technology to be able to make a big impact once legalization happens,” Simon said on 24 February in “Closing Bell”. “I say full legalization in the next two or three years.”

Shares of Tilray, a research, cultivation and distribution company, fell 12% this week after falling 17% last week.

The drop has affected the entire industry.

Curaleaf, a provider of health and wellness products, fell 12% in two weeks, while GrowGeneration, an online store for growing supplies, plunged 31% and cannabinoid supplier Aurora Cannabis fell more than 20%. .

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