Pot stocks take steep post-legalization plunge
Two major ETFs suffer worst one-day fall in 2018 amid supply shortage concerns
The two major cannabis ETFs tumbled to their worst one-day drop in 2018 on Monday as share prices for most of Canada’s top pot companies plunged by more than 10 per cent each.
The largest U.S. cannabis ETF — the ETFMG Alternative Harvest ETF — fell 9.36 per cent to $33.99. Canada’s Horizons Marijuana Life Sciences ETF saw an even worse drop, plummeting 11.6 per cent to $20.27.
Among the individual cannabis stocks, Aphria Inc. suffered the largest decline on the day — a 13.83 per cent drop to close at $15.77 in Toronto. HEXO and Tilray Inc. weren’t far behind as share prices for each company plunged more than 13 per cent.
Although the drop in share prices was steep, Aphria, Canopy Growth Corp., and CannTrust Holdings had worse one-day declines as recently as Sept. 13.
The plunge comes amid concerns that retailers are facing supply shortages in the early days of legalization — some licensed producers have acknowledged they will not reach full capacity for months.
Paul Rosen, CEO of Tidal Royalty, which invests in U.S. cannabis companies, said the plunge shouldn’t be considered out of the ordinary, given the volatility in the sector.
“The markets were just a little grumpy for macro reasons,” said Rosen, who is the former CEO of Cronos Group. “There’s no new bit of information that would’ve justified this sell-off.”
Any hopes that cannabis legalization would bring stability to share prices have so far not been met.
On day one of legalization, pot stocks, except for Aphria, fell across the board only to continue to see dips and spikes last week.
“It’s only day four,” Rosen said, suggesting stability may not arrive for several more months.
Rosen said this type of volatility should be considered the norm for investors, who will have to accept five- or 10-per-cent dips in hopes of larger gains in the future.
“If the volatility or potential volatility is too stressful — there’s too much anxiety — please do not buy stocks,” Rosen said. “Do not.”