This Unexpected Problem Could Kill Marijuana Stocks

marijuana stocksGrowing Marijuana Stocks Face Another Hurdle

The use of pesticides on certain medicinal marijuana lots caused Organigram Holdings Inc (CVE:OGI) to voluntarily recall some of its products, forcing a five-percent dip in OGI stock on Tuesday. But with 2017 set to herald a new age for marijuana stocks as Canada looks to legalize the drug for recreational use, investors who see green shouldn’t forget about the “crop” part in “cash crop.”

The product recalled was produced by Organigram between August and December 2016 and contained an unapproved pesticide not registered for use on marijuana under the Pest Control Products Act, according to a press release by the company. (Source: “OrganiGram Announces Voluntary Product Recall,” Marketwired, December 30, 2016.)

What’s important here for investors hot on marijuana stocks is that, while the business may seem novel, it is ultimately one of the oldest industries in history: farming. Crops need to be tended to and reaped in a sustainable fashion. Deviation from that process could result in huge batches being trashed, or worse yet, damage to the consumer’s health. All of which could be dangerous for any budding marijuana stocks that elect to either cut a corner or just have a string of bad luck.

As for the Organigram recall, it has been deemed a Type III after discussions between the company and Health Canada, meaning that exposure to the compromised batch is unlikely to have any adverse health effects.

There’s an element of mystery here as well. Organigram—as the name would imply—is a certified organic grower and does not use compounds like this pesticide in its production processes. The company is working with Health Canada officials to determine how the substance came to land on their marijuana crop.

OGI stock leveled out on Wednesday, gaining about one percent by early afternoon trading.

Not exactly the spark that marijuana stocks were looking for in the new year, but this was a small incident and may serve as a cautionary tale for investors. Marijuana or not, the business is still at its most basic level farming, and it carries the same accompanying risks that industry has battled for decades.