Cannabis stocks slide on first day of le­gal­iza­tion

Calgary Herald - - FP CALGARY - VIC­TOR FER­REIRA

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.

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