Marijuana News Today: 2019’s First Real Challenge for Pot Stocks

Marijuana News Today
iStock.com/OlegMalyshev

Marijuana News Today

The marijuana news today is largely the massive drop we’re seeing across the board among pot stocks. Many shares were down by over five percent to start the week, signaling the first real pullback in the marijuana stock market since the beginning of 2019.

While there have been ups and downs, this is by far the first real challenge that the marijuana industry has faced since this year. What we’re seeing, then, is likely the first marijuana correction of 2019.

It’s important to understand how we got here, by having several months of extreme gains in the industry. Ever since the new year hit, pot stocks have been generating huge value for investors, with many doubling over the first half of 2019.

Some marijuana stocks, like Cronos Group Inc (NASDAQ:CRON), were well on their way to tripling before today’s roadblock was thrown up.

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Right now we’re seeing the sector hit a snag, and that is almost certainly a response to the heretofore unfettered gains.

Just a few days ago, I wrote that the cannabis industry was, essentially, reaching the point where it would be correction-proof. That argument still stands: the industry is in a far better place to weather the current storm than it has ever been.

Whereas in the past we’d have to wait for outside deals or investor sentiment to jolt marijuana stocks out of a funk, nowadays there is one crucial mechanism that could see the current situation turn around in a brief second: quarterly reports.

With hard numbers now in play, it’s possible that a huge surge in sales or a beating of analyst expectations could quickly help mend any damage that has been done in the pot stock market.

And with sales likely to continue growing as legal markets expand, that means the next few years should be protected against long-term corrections (for the most part).

Massive swings in investor sentiment, however, could still debilitate pot company shares. And that’s likely what we’re seeing today (or at least, some version of that scenario). What we need to do now is figure out just how bad the downturn is.

It could be a flash in the pan, a brief pullback before the market gets back to its winning ways. In fact, if I had to bet, I’d say this won’t last more than a month or so tops.

The long-term projection remains the same: the marijuana industry is destined for gains. But the coming days and weeks may not be so fortuitous.

CGC Stock

Almost all marijuana stocks were hurt in the marijuana news today. Some worse than others, of course. Canopy Growth Corp’s (NYSE:CGC) fall was about average among pot stocks, with a loss of five percent in early-morning trading.

Over the past five days, Canopy Growth stock fell by more than eight percent.

Again, this is an entire industry downturn at the moment and not specifically a referendum on CGC stock. But the company does have a few trouble spots ahead.

The biggest and most recent trouble comes by way of Marcato Capital Management LP. The activist investment firm has come out against Canopy Growth’s proposed acquisition of Acreage Holdings Inc (OTCMKTS:ACRGF, CNSX:ACRG.U).

In an open letter to the Acreage board, Marcato Capital Management wrote: “We believe Acreage’s strategic value, as one of the few multi-state operators of scale in the U.S., with leading positions in the most valuable markets merits a significant premium to any stand-alone cash-flow derived valuation.” (Source: “Marcato To Vote Against Acreage Holdings’ Value-Destroying Proposed Transaction With Canopy Growth Corporation,” Cision, May 6, 2019.)

Marcato continued:

Furthermore, we believe enterprise values of cannabis companies will skyrocket upon the relaxation of current Federal restrictions. Accordingly, Marcato believes it is highly imprudent for Acreage to sell itself today at the proposed valuation, with so much unlocked growth and value embedded in the Company.

I actually agree with Marcato Capital Management that it was a bad deal for Acreage, but the rumblings are beginning to wear on Canopy Growth stock.

While I don’t think it’s enough to sink the deal or cause long-term damage, the move is coming at an inopportune time for CGC stock.

TLRY Stock

Among the biggest losers in the pot sector, on this day full of them, is Tilray Inc (NASDAQ:TLRY). Long one of my most frowned-upon marijuana stocks, TLRY stock dropped by over seven percent in early-morning trading.

The stock has been by far one of the worst performers in 2019 in an industry full of winners. With a downturn potentially on the way, Tilray stock is that much more unattractive.

The next big thing on the horizon for TLRY stock is the company’s earnings report, which will be released tomorrow. If the numbers are positive, maybe we’ll see a quick turnaround for the stock. But I wouldn’t count on it.

Many analysts are still unimpressed by Tilray stock, even after its significant fall in value. I agree. The stock has a long way to go from the absurd heights it reached immediately following its initial public offering (IPO) before I begin to consider the stock to be a strong opportunity.

CRON Stock

Another company on the downswing today is Cronos Group. CRON stock fell by seven percent in early-morning trading and it’s down by double-digits over the past five days.

Cronos stock is hemorrhaging right now, following the release of the company’s quarterly report, which was mediocre, leading to wild swings.

In any case, two stocks that are among the worst hurt in the marijuana sector today are CRON stock and TLRY stock, both of which are on the Nasdaq. I’ve long said that the comfort with emerging industries and volatility on that stock exchange would lead to bigger swings for these two pot stocks, and I’m being proven right today.

Cronos stock has been one of the biggest winners in 2019, which leads me to believe that it will likely be the worst hit by any sort of marijuana correction.

As such, I’d be wary of CRON stock, at least for the immediate future.

CGC, TLRY, and CRON Stock Performances

The performances of CGC stock (black line), CRON stock (blue line), and TLRY stock (red line) over the past week are seen on the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today is definitely a downer. We saw marijuana stocks plunge this morning, and that’s not what we want to see as proponents of the industry.

Still, I don’t think this will come close to wiping out the gains that pot stocks have earned in 2019.

Furthermore, if this is a marijuana correction (this month and parts of April weren’t exactly great for the industry), I believe that it will be shorter and gentler compared to the downturns of the past.

Overall, the marijuana industry is still poised for gains, even if potentially rough waters lay ahead before it can get back to smooth travels.