The stock market is notoriously fickle, and cannabis stocks are no exception.
Few things are more unpredictable than the endless spikes and plummets of the stock market. But being a publicly traded company has long been a benchmark of success and relative stability, which is why the availability of cannabis company stocks is viewed by many as a key element of normalizing canna-businesses and securing a future for a national regulated market.
However, because of the conflict between federal and state law when it comes to cannabis in the United States, the only U.S. cannabis stocks available are offered by ancillary cannabis companies as Pink Sheets, also known as “penny stocks,” meaning they are not traded on a major exchange. These stocks must be purchased “over the counter,” and are a much riskier investment.
In Canada, however, where national legalization is already a reality, cannabis stocks are available for companies that deal directly with the plant and the shares are traded on major exchanges. And because California is the largest cannabis market on planet Earth, so what happens in the Golden State has an impact on the entire cannabis market, including Canada. So when California cut the ribbon on its adult-use regulatory framework on Jan. 1, Canadian cannabis stocks rallied at the news.
“Cannabis producers Canopy Growth Corp WEED.TO and Aphria Inc APH.TO were among the biggest gainers on the Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE, surging as much as 11.9 percent and 8.8 percent respectively… Aurora Cannabis ACB.TO, Canada’s second-biggest listed producer, closed up 20 percent. All hit record highs… Canada’s Horizons Marijuana Life Sciences ETF HMMJ.TO gained 10 percent. The U.S.-listed ETFMG Alternative Harvest ETF MJX.P, which began trading on Dec. 26, has risen to $164 million in net assets from $6 million in one week.”
But California isn’t an island, so that market — irrespective of size — is also vulnerable to fluctuations.
So just as Canadian pot stocks spiked on the roll-out of the Golden State’s legalization, they tanked after news broke that committed drug warrior Attorney General Jeff Sessions had rescinded the Cole Memo.
Although the immediate impacts of this dramatic move by the AG are still unknown — at press time there has been no enforcement action based on the new guidance — there was still an undeniable ripple of panic caused by the announcement.
Some market observers are urging caution, saying the best cannabis stocks don’t even exist yet. The main issue is the one that’s been dogging cannabis entrepreneurs since the 30s; prohibition. From the lack of traditional banking solutions for cannabis companies to their inability to write off basic business expenses because of IRS Code Section 280E, there are still many financial obstacles facing the emerging legal industry.
Chart of the Week: Marijuana stock investors are wagering that Jeff Sessions’ bark is louder than his bite. https://t.co/c8qqs0mIsk pic.twitter.com/Nvj6ogtU8m
— Marijuana Biz Daily (@MJBizDaily) January 8, 2018
That said, many cannabis-oriented investors are eyeing the slump in stocks as an opportunity. The bet is that, as is generally the case, they will rise again. Mark Tepper, president and CEO of Strategic Wealth Partners, told CNBC that now is an ideal time to get in the game for those seeking a high-risk opportunity.
“In 2017, these stocks were up 250 percent, and in light of the news [re: Cole Memo], these same stocks are down 10 to 40 percent… There’s just a lot of tax revenue that states would be missing out on, and it just seems really unlikely that Sessions wins here,” he said. “It’s a high-risk, high-reward play. For our clients, probably a little too high risk, but if you are interested in having some high-risk opportunities in your portfolio, this is probably a good buying opportunity.”
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