Cannabis stocks have staged a triumphant return in 2019, shooting up significantly in January and regaining most of their value lost from the post-legalization tumble.
Going into Q2, however, cannabis stocks seemed to have taken a turn for the worse as share prices have fallen overall across the board, with American marijuana stocks falling 13.1 percent in May.
According to the American Cannabis Operator Index, a collection of the top marijuana companies in the U.S. compiled by New Cannabis Ventures, the overall value of cannabis stocks fell by 13.1 percent.
A collection of 27 businesses, with 21 of them being multi-state operators while six remain solely focused on CBD extraction from industrial hemp, the index closely follows where the cannabis market is headed.
Out of all the companies included in the index, only two saw double-digit returns for the month, a significant reduction from previous months. At the same time, 17 posted double-digit losses, while three of those saw their stock prices fall by over 30 percent.
The biggest winners of the month were Body and Mind Inc (OTC: BMMJ) and United Cannabis Corp (OTCMKTS: CNAB), both extremely small cannabis companies. At the same time, the biggest loser listed on the index was MJardin Group (CNSX: MJAR), another cannabis company with a market cap of below $100 million. The company plummeted by over 50 percent in the month of May.
Looking outside these small-cap companies, even some larger, well-known businesses saw significant declines in the month.
Harvest Health & Recreation (CNSX: HARV) and Acreage Holdings (CNSX: ACRG.U), two companies with a $600 million and $2.1 billion market cap respectively, also saw significant losses in the month, despite positive news coverage in Acreage Holdings’ case.
It might seem curious as to why cannabis stocks, which have been on an upswing since the beginning of the year and have been backed by plenty of good news (such as the legalization of hemp in the U.S.), would suddenly fall now. Much of this comes down to a shift in investor preferences.
In the past, cannabis stocks awed investors by posting significant increases in revenues. Due to how young the market was at the time, this was enough to impress more speculative investors looking for growth.
Now that cannabis has become more mainstream over the past few months, with many more listings on major exchanges, investors have become a bit more demanding in their tastes.
No longer willing to accept just strong revenue figures, investors are looking for substantive profits, like any other real business.
This is especially true for retail-focused companies, who have plenty of dispensaries or sell their products in 3rd-party retail chains such as drug stores. The fact that most cannabis companies, when reporting their Q1 2019 figures, still were reporting net losses was a disappointment to Wall Street.
This is expected to turn around later in the year, however, as a significant portion of those losses came from one-time investments and expenses that aren’t long term.
In comparison to the American index, the Canadian Cannabis Index fell by a slightly smaller amount, dipping only 9.75 percent in comparison.