October was seen by many eager investors as one of the most anticipated months in Cannabis history. With the looming Canadian marijuana legalization coming soon, it was anyone’s guess as to how the markets would respond, but most figured that the excitement and optimism would result in soaring stock prices.
Instead, October has been one of the worst months for cannabis stocks in their entire history, with global marijuana stocks declining just over 22 percent in this month alone, according to New Cannabis Ventures.
As measured by the Global Cannabis Stock Index, the October slump eradicated any gains that came from the previous bullish months of September and August. The index, which includes 61 qualifying members after rebalancing in September, declined by 37.2% overall in 2018 despite relatively strong fundamentals in Canadian producers. It remains well above 2017 levels, still up 56.9% in comparison to the same time last October.
Five companies in the index showed gains. Medmen (CSE: MMEN) and Marimed (OTC: MRMD) both led the index with 29.3 and 18.9 percent respectively over the past 12 months. The former made news multiple times, including the announcement of a $682 million acquisition of PharmaCann.
On the other hand, there were 14 stocks that lost over a third of their value during that same time period. Some of the worst cases were Canadian producers. Green Organic Dutchman (TSC: TGOD) and Isodiol (CSE: ISOL) lost over 50 percent of their stock value as they quickly entered 52-week lows. Other notable loses includes Tilray (NASDAQ: TLRY) and Cronos Group (TSE: CRON), both suffering losses in the low thirties. Although Tilray still ended up at $94.79, significantly above it’s initial $17 IPO price in July, it is a major downfall from it’s September prices in the $300’s.
Ever since October 17th, stock prices took a downturn, quite the opposite of what was originally anticipated. With the general public realizing quickly that Canadian suppliers were largely incapable of keeping up with the overwhelming demand, a bearish reversal followed. With many analysts concluding that the hype behind legalization was overdone, coupled with the fact that some companies were rather expensive when looking at conventional financial metrics, this created the perfect backdrop for a major price correction.
However, the last couple of days have been positive ones for the market. The ETFMG Alternative Harvest ETF rose 2.2% today, rising for three straight days – something that hasn’t happened since the 5-day win streak in September. The other major ETF, The Horizons Marijuana Life Sciences fund, rose 1.6% today, bringing its value up 8.8 percent over the past two trading sessions.
The markets comeback comes partially in response to news from the Colorado Department of Public Safety, which issued a report showing that DUI cases fell significantly during the same time period that recreational cannabis was legal. Additionally, the percentage of drivers in fatal crashes who tested positive for Delta-9 THC fell from 11.6% in 2016 to 7.5% in 2017. On the other hand, the report does indicate that the black-market activity for cannabis has increased over the past couple of years.
Overall, October has been a difficult month for cannabis investors that entered the market hopeful about the sector. While it’s not surprising to some that these declines were a possibility, the long term prognosis for the cannabis industry remains optimistic.
