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Canadian Cannabis Stocks Down on Legalization Day

Canadian Cannabis Stocks Down on Legalization Day
Green Rush Daily

World

Canadian Cannabis Stocks Down on Legalization Day

The long-awaited day has finally arrived, and Canada’s cannabis consumers are in high spirits while the industry’s share prices drop.

After months of skyrocketing share prices and blooming market caps, Canada’s major cannabis producers are watching their stocks drop in value this week. On Tuesday, the eve of Canada’s historic, nationwide legalization of cannabis, all of the country’s largest producers, Canopy Growth, Tilray, Cronos and Aurora, closed trading down 2 to 7 percent. And today, as the Cannabis Act takes effect across Canada, those companies are still down, anywhere from 2.5 to 6 percent.

Did Anticipation Over Legalization Inflate Canadian Cannabis Stocks?

The big day has finally arrived. Canada is now the second country in the world and just the first G7 nation to legalize cannabis for adults. As of today, it’s completely legal for adults in Canada to buy, possess and consume cannabis. Individual provinces set up (and are continuing to tweak) specific restrictions and regulations for their jurisdictions, as are many municipalities. But none can deny Canadian residents their legal right to cannabis.

The full implementation of the Cannabis Act comes with many changes that will affect consumers and the industry. But all of those changes improve and expand safe and legal access for retail customers and medical cannabis patients alike. Already one of the world’s largest producers and consumers of cannabis, experts and analysts across the board expected Canada’s industry to surge in value once legalization became a reality. Understandably, then, investor anticipation over October 17 grew to a fevered pitch. In the months leading up to legalization, investors poured cash into Canada’s cannabis industry, buying up stock in Tilray, Canopy Growth, Cronos and Aurora.

Share price charts for all four companies show very similar trends. Prices are relatively stable through the spring and summer months, but begin to increase sharply in early August, just over a month after the Cannabis Act received Royal Assent. For example, over the past year Canopy Growth’s value has gained more than 400 percent. But most of that growth began in late July.

But it was when share prices started their steep ascent that industry and market analysts started murmuring about the overvaluation of Canadian cannabis stocks. That share prices had been inflated by the overwhelming hype and enthusiasm over legalization, and by the fear of missing out.

Investors Watch Carefully As Canadian Cannabis Stocks Adjust Themselves

Now, that opinion is quickly becoming consensus. Even CNBC’s Jim Cramer is warning investors away from “everything related to the Canadian cannabis space,” saying major companies “aren’t even worth speculating on.”

The truth, however, is likely somewhere in the middle. Canadian cannabis stocks are down. But they aren’t plummeting. As of this writing, Cronos is down 5.4 percent, Tilray –6.3 percent, Canopy Growth –4.1 percent and Aurora –2.8 percent. While not great, those numbers aren’t devastating. And they’re likely more indicative of a simple market adjustment to an overhyped industry than of a looming crash. Indeed, many expected just such a slide would occur as legalization came into effect.

Canadian regulators have made clear that they’re taking the long view on legalization. And that might be a sound approach for investors in Canadian cannabis stocks, too, according to Benchmark analyst Mike Hickey. Cannabis is immensely popular. But that isn’t going to immediately translate into ballooning stock prices. Canada’s cannabis companies are well-financed juggernauts. And many of them have secured billion-dollar investments from major multinationals. In about six months, investors will have a much clearer picture of what the Canadian cannabis industry is capable of.

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