Cannabis Stocks Down On The Eve Of Canadian Legalization

In less than 24 hours, recreational marijuana becomes legal across Canada, but cannabis stocks that have been on fire for much of the year were seeing a pullback Tuesday. 

The ETFMG Alternative Harvest ETF MJ — which tracks stocks of cannabis companies, biotech companies developing drugs with cannabinoids as active ingredients, tobacco and cigarette companies as well as companies providing support services for cannabis cultivation — had gained about 31.08 percent year-to-date ahead of Tuesday's session. 

Aurora Cannabis Inc ACBFF, Tilray Inc TLRY, Canopy Growth Corp CGC, Cronos Group Inc CRON and CannTrust Holdings Inc CNTTF are among the ETF's top holdings.

Deals, Tie-Ups Order Of The Day

As cannabis companies prepare for the unlocking of more potential markets, they have been vigorously pursuing acquisitions and tie-ups. Canopy Growth announced a deal Monday to acquire the assets of Colorado-based hemp researcher ebbu, Inc. for the U.S. dollar equivalent of $19.3 million and 6.221 million shares. The move sent Canopy's stock soaring by about 14 percent.

CanniMed Therapeutics and Aphria Inc APHQF have also stitched up deals both major and minor.

A Runaway Year

The ETFMG Alternative Harvest ETF index has rallied about 69 percent from a low of $25.1679 on Aug. 14.

Shares of Tilray, a medical marijuana producer, have gained a whopping 630 percent since their July 2018 listing on the Nasdaq.

Canopy Growth shares have more than doubled since their Jan. 12 debut on the NYSE, advancing 119 percent.

Cronos has tacked on about 54 percent so far this year after closing its Feb. 27 debut session at $7.62. 

Here's how the stocks have fared in the thid quarter/month-to-date in October:

• Tilray: Up 542 percent from July 19 debut session/up 15.3 percent. 
• Canopy Growth: Up by 66 percent/higher by 17 percent.
• Cronos: Up 71 percent/16 percent higher. 

Some OTC-listed marijuana stocks have also been on a tear. From trading under 70 cents at year-end 2017, Marimed Inc MRMD has galloped around 604 percent. Medmen Enterprises Inc MMNFF shares have also more than doubled.

Outlook

The pullback seen Tuesday could be a breather after a strong year-to-date run in cannabis stocks. As the market is forward-looking, much of the optimism generated by the promising Canadian opportunity could have already been factored into the stocks' investment thesis.

"Worldwide spending on legal cannabis should hit $32 billion by 2022," according to Tom Adams, editor-in-chief at Arcview Market Research and managing director of BDS Analytics' Industry Intelligence Division.

Canada and California are expected to capture 41 percent of the world weed market by 2022, Adams said. 

Related Links:

4 Major Market Opportunities For The Cannabis Industry

Why Small Cannabis Stocks Matter – And Which Ones Deserve A Closer Look