Volatile year for cannabis stocks

As Darren Winters reflects, it has been a volatile year for cannabis stocks.

The spectacular rise in cannabis stocks in 2019 was primarily driven by the legalization of cannabis across a growing number of US states. The entire liberal-leaning east coasts States have already legalized medical marijuana for recreational or medical use. Meanwhile, the midwest and west coast still have no broad laws legalizing cannabis.

The North American Marijuana Index shows how the trend to legalization marijuana for recreational or medical purposes has fuelled a volatile year for cannabis stocks. 

The euphoria over cannabis stocks started back in late 2017 with two major markets California and Canada moving towards legalization. Then came the “green rush” with investors scrambling to buy cannabis stocks. Spectaculars were also jumping on the green wagon in the hope of making a fast buck in the new era of cannabis legalization. So the index’s low (105.31 on June 27th, 2017) shot up almost three times to 358.93 by January 8th, 2018. A euphoric bubble had been created courtesy of pro-cannabis legislation and no doubt massive liquidity due to the central bank’s easing policy. 

The volatile year for cannabis stocks has moved through the stealth phase where the smart money buys, then the awareness phase with institutional investors entering the market

Volatile year for cannabis stocks

So 2019 was the media phase where buying is driven by public enthusiasm greed, delusion and then comes reality.

Post euphoric stage came for cannabis stocks in the second quarter of 2019, as the expectations for cannabis company stocks encountered a harsh reality post-legalization.

The North American Marijuana Index is now hovering around its 52 weeks low at 111.5 (at the time of writing this piece). The Index slide to its all-time low of 108.5 on December 5, 2019. 

So it has been a volatile year for cannabis stocks, to say the least

Darren Winters (Wealth Training Company) asks where next for pot stocks?

The cannabis industry is experiencing significant hurdles. In the US, legal cannabis will be hit with high taxes. California will see an 80% mark-up on their cannabis at checkout, which is expected to push prices up by 60% in 2020.

North of the border, in Canada federal legalization led to massive consumer demand for Canadian cannabis, but supply can’t keep up. Moreover, add to the supply problem retail stores are slow to respond to the new demand, which means Canada is feeling the crunch. So the steep rise in Cannabis prices and difficulty purchasing products post-legalization means the black market is thriving with many legitimate cannabis companies taking a big hit as a result.

One portfolio manager sums up the volatile year for cannabis stocks

A psychological shift has taken place from everyone wanting to own (cannabis) to everyone involved now feeling burned. I think many investors are now over it.

“Investors aren’t calling it quits quite yet” said Chris Kerlow, portfolio manager at Richardson GMP. 

Indeed, the US House committee approved last month, November, a landmark bill legalizing marijuana at the federal level.

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