Marijuana Stocks Plunge After Canada Legalizes Cannabis

(warriortradingnews) -While analysts have been optimistic about the future of the Canadian cannabis industry, it appears that the short-term market has undergone a reversal, with many stocks plunging noticeably in value as Canada legalizes recreational cannabis nationwide.

Despite seeing substantial gains in the days and weeks leading up to legalization, cannabis shares of major companies have plunged. Canopy Growth Corp (TSE: WEED), which has seen its market capitalization soar 128% to $12.2 billion, fell 2.9%, Tilray Inc (NASDAQ: TLRY), the largest cannabis company in the world which saw its market value soar by 555%, dropped by 6.4 percent.

Aurora Cannabis Inc (TSE: ACB) stabilized later today after losing over 15 percent around 10:00 am EST before rallying, ending the day with a 3 percent decline.

In spite of this, most analysts consider this bearish swing to be a temporary phenomenon. “We expect Tilray to acquire a meaningful share of the Canadian cannabis market based on initial supply agreements and through its first mover advantage in building production scale and strengthening national brands and products across a broad and expanding category,”said one analyst according to Business Insider.

Today’s decline was a continuation of the previous day’s nosedive, with most cannabis-related companies declining in value yesterday as well.

Horizons Marijuana Life Sciences exchange-traded fund, a composite fund of various cannabis-related positions, fell by 4.8 percent in Toronto, with the U.S. equivalent – ETFMG Alternative Harvest fund – dropping by 3.7 percent.

Canada is the second country in the world to legalize recreational cannabis, followed by Uruguay. It also holds the distinction of being the only G7 country in the world to do so, and as a result, has become the front-runner in the global marijuana industry, with experts expecting the market to reach USD $32 billion in consumer spending by 2022.

The eyes of the world are on Canada and Canadians should feel very proud, because people have been fighting for decades to make this moment a reality,” said Brendan Kennedy, CEO of Tilray, according to Bloomberg.

Some analysts, however, remain skeptically about investing in cannabis stocks, saying that their volatility is due to the fact that this early stage of investors are buying based merely on an optimistic story, rather than the fundamentals.

While it’s not too early to make a judgment about the overall market, especially on the medical side, I think it’s a little too early to decide which of the companies that is out there, if any of them, is going to be the company that benefits from this trend,” said Aswath Damodaran, Business professor at New York University who’s been dubbed as the “dean of valuation.”

He went on to add that “companies are being priced based upon the size of the potential market and incremental information,” as opposed to the fundamentals as is the reason why the sector has seen so much volatility.

Cannabis companies across the country are already experiencing shortages in their retail distributors, with some senior executives expecting supply and demand to stabilize well into 2019.

Until then, the market remains a ripe opportunity for investors and speculators alike to either invest in emerging companies or take advantage of the market’s latent volatility.