2019 likely wasn’t the type of year most cannabis investors had been expecting. Coming off a major downturn in Q4 2018, many had been optimistic that the market would rebound in the following year, which is exactly what happened for the first quarter. The first couple of months saw pot stocks stage a triumphant return, with many companies gaining 20%, 30%, or even 50% in a single month. However, this wasn’t to last, and the rest of the year saw the vast majority of pot stocks lose most of their market value.
When looking at the year as a whole, investors can see that 2019 was a pretty dismal year in comparison to major indexes such as the NASDAQ or S&P500, which outperformed the pot market handily. According to the Canadian Cannabis Licensed Producer Index, a collection of stocks run by New Cannabis Ventures and cannabis analyst Alan Brochstein, Canadian pot stocks on average lost 44% of their value in 2019.
Although December was one of the better months in recent memory, with stocks sliding down only 2.8%, it still marks the ninth consecutive monthly loss for the industry. However, there still is a little bit of enthusiasm surrounding Cannabis 2.0, Canada’s second wave of legalization which now permits CBD-edibles such as beverages and edibles. With companies now able to sell these products, some investors are hoping that pot stocks will see a resurgence thanks to this newfound revenue stream. Overall enthusiasm, however, still seems rather muted.
Large-cap cannabis stocks, in particular, were some of the biggest casualties this year. Aurora Cannabis (NYSE: ACB) and Canopy Growth (NYSE: CGC), which used to be among the most trusted and secure-seeming companies in the market, lost a lot of their investor confidence as they reported massive, and in some cases completely unexpected, quarterly losses. Other developments, such as the loss of key management figures (such as Bruce Linton, Canopy’s iconic CEO) has led to both Aurora and Canopy losing the majority of their market values in the second half of the year.
Some analysts are now arguing that cannabis stocks now fall under the value investment category considering how they are now trading at bargain bin valuations, something that no investor had expected would happen just one year earlier. The general consensus was the pot stocks would recover and then see the explosive gains that everyone had been expecting.
Interestingly enough, just before New Year’s Day, many pot stocks saw a sudden surge. Aurora and Canopy both saw double-digit increases, 12.3% and 12.1% respectively. Tilray (NASDAQ: TLRY) and Cronos Group (NASDAQ: CRON) jumped up 10.6% and 16.8% as well, while the biggest winner on Tuesday was a small little cannabis company known as Sundial Growers (NASDAQ: SNDL), whose shares jumped over 22.6%.
While it’s a surprising jump with little news to back it up, it seems like there was a surge in investor optimism going into the new year, again, likely due to Cannabis 2.0 and the new revenue streams that pot stocks will be seeing now. While it’s anyone’s guess as to how the industry will perform going into 2020, investors should stay cautious going forward.
