Cannabis Stocks Largely Down On Canada's First Day Of Legal Leaf

Recreational marijuana became legal in Canada on Wednesday, but cannabis stock investors don’t have much to celebrate. A sell-off in weed stocks that began Tuesday carried over to Wednesday as enthusiasm for Canadian legalization gave way to concerns over supply and market valuations.

Sell The News

One of the major reasons for Wednesday’s weakness in marijuana stocks is that investors have been anticipating Canadian legalization for months. Here’s a look at how some popular cannabis stocks have performed in the three months leading up to Wednesday: 

• GW Pharmaceuticals PLC-ADR GWPH is down 2 percent.
• Cronos Group Inc CRON is up 61.2 percent.
• ETFMG Alternative Harvest ETF MJ is up 42.6 percent.
• Canopy Growth Corp CGC is up 85 percent.
• Tilray Inc TLRY is up 562.8 percent.

With investors sitting on short-term gains this large and the next major marijuana market catalyst an unknown, it’s understandable that traders are selling the news and locking in profits. 

Looking Ahead

Now that cannabis is legal in Canada, the reality of the uphill battle for Canadian producers may also be starting to sink in. Executives from Canopy, Aurora Cannabis Inc. ACBFF and Aphria Inc. APHQF are among those who have warned that there will be significant shortages in cannabis supply in Canada starting on day one.

420 Investor author Alan Brochstein has also told Benzinga that the initial retail marijuana rollout in Canada is disappointing.

“In Ontario, the largest province, you can only buy online," Brochstein said Wednesday. "In the other provinces, there’s only like one store or a few stores — 17 stores in Alberta — so it’s not a great experience.”

Buying Support

While marijuana stocks have experienced heavy selling pressure related to the Canadian event, some marijuana bulls took comfort in what appeared to be a sizable recovery in many top names within the first 30 minutes of trading Wednesday. The bounce suggests there could be some deep-pocketed buyers who were waiting to buy the sell-the-news event.

Todays short drop of the #MJ sector, recovering within a couple of hours, tells me two things. 1. Big $ is ready to gobble up these drops. 2. Retail $ is getting smarter. They didn't knee jerk/sell. They had cash on the side/were prepared. @WolfOfWeedST lessons have helped them

— Dave Feener (@DCFeener) October 17, 2018

The buyers seem willing to stomach extreme near-term valuations in weed stocks in the hope that they will eventually be able to grow into their valuations down the line. The Canadian cannabis industry could approach $6.5 billion in retail sales by 2020, according to CIBC.

Related Links:

Cannabis Is Now Legal In Canada: Industry Insiders Discuss What It Means For Stocks, International Market

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