Marijuana News Today
The volatility of cannabis stocks was on full display once more in the marijuana news today, with Tilray Inc (NASDAQ:TLRY) seeing a rally (following a drop yesterday) after PepsiCo, Inc. (NASDAQ:PEP) said that it was not exploring the pot industry.
Marijuana stocks fell almost universally yesterday after Pepsi told investors that it was not planning to make a move into the cannabis sector. But that brief fall was counteracted by a number of significant gains in early-morning trading today.
“I think the difficulties in investing in that category, particularly in the U.S., where federally these things are still not legal, are quite a considerable challenge,” said PepsiCo Chief Financial Officer Hugh Johnston. (Source: “Marijuana stock Tilray plunges 16% after PepsiCo CFO says company has no pot plans,” CNBC, October 2, 2018.)
“So we look at everything, but certainly no plans at this point to do anything.”
As is the norm for the marijuana industry, the actions of large beverage companies, in terms of whether they will invest in the industry, can have profound effects on share prices. We saw that yesterday with Pepsi’s statement.
Of course, the marijuana sector is riding too high to be kept down for long, with many major pot stocks rallying this morning.
What This Means for Pot Stocks
The cannabis industry is primarily fueled right now by outside investors, specifically those operating in the drink space.
Which isn’t to say that other factors don’t influence share prices (like signing supply agreements, growing capacity, global expansion, etc.), but nothing spurs growth in the marijuana industry quite like deals with big beverage companies—whether it’s Big Alcohol or the newer entries into the field, like soft drink producers.
There’s a good reason why investors are hot on cannabis-infused beverages.
First, these are multi-billion-dollar companies with the ability to make massive injections of capital into the marijuana sector, as evidenced by Constellation Brands, Inc.‘s (NYSE:STZ) roughly $4.0-billion investment in Canopy Growth Corp (NYSE:CGC). That move sent marijuana stocks soaring for weeks after.
This type of massive investment is unique to these partnerships. That’s because banks and other institutional investors are still wary about getting involved in the marijuana industry, due to the United States’ continued federal prohibition of the drug.
This leaves much of the heavy lifting to partnership deals, in terms of seeing huge bulks of cash enter the market at once. This naturally makes these types of deals among the most sought after within the industry.
There’s an excitement factor around cannabis-infused drinks as a product. Not only are they a whole new way to tap into the marijuana industry—by offering a pot alternative that does not need to be smoked—but they also can skirt the above-mentioned U.S. prohibition on marijuana.
The U.S. has recently given the go-ahead on the federal level for prescription cannabidiol (CBD)-based drugs. The government has reclassified CBD as a Schedule V substance, the lowest possible designation, and a long way from marijuana, which is still labeled as Schedule I—the worst possible designation.
This all combines to make cannabis-infused beverages some of the most intriguing plays in the market. Many pot companies have been eyeing partnerships with Big Alcohol or other large investors. Recently, The Coca-Cola Co (NYSE:KO) expressed interest in cannabis-infused drinks.
As mentioned above, Tilray stock took a big dive yesterday, following the announcement of Pepsi’s lack of interest in the pot sector. In the marijuana news today, however, Tilray has bounced back nicely.
TLRY stock plummeted by over 20% in yesterday’s trading, but rallied by nine percent in early-morning trading today. This again speaks to the volatility of this stock.
While most marijuana stocks felt the hit of Pepsi’s negative statement, none were as dramatically hurt as Tilray. And then, of course, no marijuana stock has rallied quite as high as TLRY stock has in today’s early trading.
As always, Tilray stock remains the best short-term play in the cannabis industry, but it does require investors to have nerves of steel and not be afraid of volatility.
Canopy Growth Stock
An alternative to Tilray can be found in Canopy Growth Corp. Although CGC stock is down about eight percent over the past five days, the company shot up roughly five percent in early-morning trading today.
Furthermore, Canopy Growth stock remains poised to be a winner for years to come. While the wild swings of the marijuana industry still affect this stock, they do so to a much lesser degree and, therefore, Canopy is a less risky venture.
Gains are still ahead for CGC stock, making it a safer and generally better long-term play.
TLRY & CGC Stock Performances
TLRY stock (black line) and CGC stock (blue line) were rallying this morning, as seen in the chart below.
Chart courtesy of StockCharts.com
The marijuana news today is not exactly great, after Pepsi withdrew its name from the rumor mill, but this is ultimately a minor setback.
With marijuana legalization in Canada nearing and Coca-Cola having expressed interest in the pot industry, I expect that things will turn around for pot stocks in the very near future—and will continue upward.