While the past couple of months have been quite well for cannabis companies as many saw significant gains as they approach their pre-October decline highs, this week ended up being somewhat of a departure from this trend. Cannabis stocks across the board ended the week in the red as the Dow Jones dropped 400 points among concerns over a potential recession.
“It looks like a pause after a massive run in valuations,” said Mark Noble, senior vice president for ETF strategy at Horizons ETFs Management, which manages the Horizons Marijuana Life Sciences. “Surprisingly strong sales numbers,” were reported by the largest cannabis companies, mainly Canopy, Aurora and Tilray. Yet despite this, they still saw declines in stock prices. “This looks like some profit-taking after those numbers really drove increased enthusiasm into the market.”
“As earnings continue to trickle out, people are waiting to see what the next movement is — there has been strong revenue growth,” he added. “There’s been a lot of back-and-forth questions about whether valuations are getting lofty again. Last week we had some good, positive movement. And when we get these upward spikes, we tend to see some pullback.”
One exception to this was MedMen Enterprises (CNSX: MMEN), which increased around 6 percent as the company announced an agreement with a major private-equity firm and cannabis investor Gotham Green Partners, which gave MedMen around $250 million.
Another company, Curaleaf Holdings Inc (CNSX: CURA), also bucked this downward trend as it’s shares spiked 7.2 percent. Overall, the company’s shares have increased around 30 percent since the company announced an agreement that would see their CBD products retailed in over 800 drug stores across the United States.
Additionally, the world’s largest asset manager, BlackRock Inc (NYSE: BLK), announced that they would also be investing $11 million into Curaleaf. Although a relatively small sun in comparison to BlackRock’s $6 trillion assets under its management, it is a significant vote of confidence in a sector that still has very few large, mainstream institutional investors.
Taking aside these two big movers in the cannabis sector, the general decline in prices is largely linked to the falling of most other indexes, such as the Dow Jones which dropped 400 points. While there are a variety of reasons this happened, the main push for this was when on Friday short-dated yields rose above their longer-dated cousins, something which has consistently heralded an upcoming downturn in the stock markets.
Economists have kept a close eye on potential yield inversions, which has accurately predicted recessions since 1960 although there often is a delay between these two events. While taking a contrarian, bearish outlook on the economy is steadily becoming more fashionable as of late, the consensus is that such a decline will likely take place in 2020 or 2021, as opposed to this year.
Overall, most major cannabis companies saw significant declines on Friday, including Aphria (NYSE: APHA), Tilray Inc (NASDAQ: TLRY), Canopy Growth Corp (TSE: WEED)(NYSE: CGC) all dropping between 3.5 to 6 percent that day. Cronos Group (NASDAQ: CRON)(TSE: CRON) dropped around 6.4 percent as shares fell ahead of the scheduled quarterly earnings announcements, which most analysts expect to see the company report an operating loss.
However, these stocks are expected to see a bounce back on Monday as the markets recover from these bearish worries, unless other news affects the markets.