What You Need to Know About the Current Marijuana Market Correction

marijuana market correction
iStock.com/Vera Tikhonova

The Marijuana Correction Will Pass

In what was not exactly a surprise, we saw a pullback this week following the massive gains made on the back of Canadian marijuana legalization. What was surprising, however, was the severity of that marijuana correction.

While the industry’s ebb and flow of gains and losses is well-documented (it’s par for the course for most industries, especially ones with high volatility) what I didn’t expect to see was a total wipeout of last week’s impressive run.

You see, the industry very much works on hype and fervor at the moment, with momentous news items like Canadian marijuana legalization sending stocks into a frenzy.

By the time investors sober up, stock value has often jumped by double digits in a few short days, leading many to believe that the shares are overvalued or too based on hype, so they pull out.

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It’s a practiced dance at this point that we’ve had front row seats to for years.

But the upshot is that, usually, some gains remain despite the marijuana correction.

In this case, however, we’re seeing those gains near totally undone.

If the downward trend continues, I don’t think it will last for very long. Within two weeks, I believe we’ll see marijuana stocks in the positive again.

The troubling part is what will happen the next time we see another industry-wide gain take effect. Will the subsequent marijuana correction once again cancel it out?

We’ll have to watch closely this summer to determine whether marijuana stocks will be able to make short-term gains last, but I think that the question is ultimately irrelevant for buy-and-hold investors.

The true potential of the marijuana market is in the long-term, global projections. Canadian marijuana legalization is going to create a lot of booms—and a lot of busts—but the overall outlook for the industry is fantastic as countries around the world, from Germany to the U.S., continue to inch toward marijuana acceptance.

For day traders looking to make a quick buck, this summer will likely hold a lot of potential—and risk—for those willing to play that game. While I often don’t recommend retail investors try and compete on that stage, there is no doubt money to be made in those deals.

But long-term investors who are able to withstand the blows would be wise to fight through the corrections and not be blinded by the gains, instead seeing that the future of the marijuana industry is just as bright as it ever was.

Analyst Take 

We’ll have to watch the corrections in the coming months closely to see if they’re all going to be as severe as this one, or if this marijuana correction is just a one-off thing.

In any case, my long-term bullish perspective on marijuana remains unchanged, even if my enthusiasm for this summer’s gains has become a little bit more muted.