Cannabis stocks slide on first day of legalization
The excitement that saw lines form outside retailers’ doors on day one of legalized cannabis in Canada wasn’t matched in the market as the country’s major pot companies saw their shares slide on Wednesday.
The biggest decliner was B.C.based Tilray Inc., which saw its shares fall 6.39 per cent to close at US$148.25 in New York.
Others that slid included Canopy Growth Corp., which fell 4.27 per cent to close at $65.76 and Aurora Cannabis, which dived 2.93 per cent to finish the day at $13.57, both in Toronto. Aphria Inc. appeared to be the one outlier of the group as its share prices rose by 3.79 per cent to close at $19.40, also in Toronto.
While some had speculated that legalization might bring a new boom for share prices, Stuart Rolfe, an investment analyst at Veritas Investment Research, said that was never going to happen.
“I don’t think there was any doubt that legalization was going to occur and so therefore it’s not really what we call a catalyst for further upside,” Rolfe said.
The weak performance Wednesday comes after shares in pot firms had already slumped on the eve of legalization. On Tuesday, Canopy, Aphria and Aurora each saw their stocks dip by more than six per cent.
While most analysts still maintain buy recommendations for pot stocks, Rolfe wrote a report last week calling for an end to the “cannabis rainbow.”
“The market still lacks perspective when it comes to the size, shape and sustainability of Canada’s proverbial pot of gold,” Rolfe wrote in his report.
He wrote that several factors such as uncertain pricing, the need to crowd out a hyper-competitive black market and “inordinately high expectations” for profit led him to put sell recommendations on shares of Aphria, Aurora, Canopy and Cronos Group Inc.
The sector has boomed in the past year, attracting investor interest. On Oct. 17, 2017, the Canadian Horizons Marijuana Life Sciences Index was trading for $9.86. On Tuesday, it reached a high of $27, a 173.8-percent increase in one year.
Jesse Pytlak, an investment analyst with Cormark Securities, said investors who are disappointed with the poor results will only get a real idea of how these stocks will perform after looking at earnings reports over the next few quarters. Some of them, Pytlak said, have likely already reached their highs for the year. Pytlak suggests that investors dial down their exposure to the Canadian pot market, noting that they ’ll find better entry points over the coming months.