Marijuana stocks slip after legalization in Canada

After Uruguay signed a legislation to approve the sale of recreational cannabis in December 2013, Canada became the second country in the world today to legalize marijuana for recreational purposes. In the US, weed stocks were trading under the pressure for the past few days and it continued on Wednesday also.

The Canadian government said that the legalization will help in studying the health benefits of the medical cannabis and this in turns to be positive news for major pot sector companies like Canopy Growth (CGC), Tilray (TLRY), Cronos Group (CRON), Aphria (APHQF) and Aurora Cannabis (ACBFF).

With Canadians already smoking a lot of weed, this approval will not only benefit the Canadian-based marijuana companies to grow their business in Canada, but also in the rest of the world. The licensed marijuana producers have already expanded their production capabilities ahead of the legalization. But some companies fear that the labor shortage and supply chain issues would be the headwinds for them after October 17.

A report released by Arcview Market Research/BDS Analytics in June 2018 states that the US legal cannabis market is estimated to reach $11 billion in consumer spending in 2018 and $23.4 billion in 2022. The report adds that global spending is expected to hit $32 billion by 2022.

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According to NYU Professor and blogger Aswath Damodaran, the illegal marijuana market will still persist after the legalization. He added in his blog that there will be more growth in the recreational marijuana market, but it will not be exponential.

Smith Falls, Ontario-based Canopy Growth has skyrocketed more than 400% in the past 12 months and about 110% since the beginning of the year. The stock dropped about 4% during Wednesday’s afternoon trading.

Shares of Tilray, which got listed in Nasdaq in July 2018 with an IPO price of $17 per share, today slipped about 7% and halved to less than $150 from its 52-week high of $300 achieved on September 19.

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Cronos Group stock also dropped about 7% today, while it has soared about 300% in the past 12 months and jumped 39% so far this year. While Aurora Cannabis was also bleeding in the red, Aphria was the only pot stock in this group that was trading in the positive territory today, up about 4% during the afternoon trading.

Profit booking and the uncertain performance of the marijuana companies dragged down these stocks for the past two days. Since the fundamentals are not good enough as of now to invest in these pot stocks, it is better to wait and watch and then invest in one or two good stocks in this category so that the risk is spread and reduced.

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