Pot Stocks Decline As Market Volatility Becomes New Normal Under Trump

Photo Credit: Evan Vucci

The North American Marijuana Index fell last week as pot stock volatility increased on the back of broad market instability, a new defining feature of both 2018 and the Trump administration. Friday saw more bad news for Wall Street as a disappointing jobs report became the catalyst for another down day on the major exchanges. Further sinking numbers was a speech by the head of the Federal Reserve Jerome Powell that many interpreted as a guarantee of future interest rate hikes. The Index fell 5.60 points on Friday, a decline of 2.38 percent to end the day at 229.20. In total, The North American Marijuana Index shed 5.2 percent in what could be considered one of the more volatile weeks on record.

The United States Marijuana Index fell 0.93 points on Friday, a decline of 1.21 percent to end the day at 76.01 while the Canadian Marijuana Index plummeted 18.28 points, a decline of 2.88 percent to close the day at 617.27.

With Wall Street focused on tariffs, tech stocks, and the latest development in the Facebook data-breach scandal, weed stocks took a few hits of their own, most notably from an article in Barron’s questioning the valuation of some of Canada’s most significant Licensed Producers.

“Still, the price of Canada’s marijuana stocks might trigger vertigo,” stated Barron’s piece. “These companies trade for more than 100 times their 2017 sales, and several hundred times that year’s cash flows. Some have market values that are larger than estimated sales for Canada’s entire recreational marijuana market.”

The article continued to say, “If Canada’s retail market can reach $9 billion in annual sales in a few years—as one bull estimates it will—that would yield only a couple of billion dollars in cash flow to wholesale producers like Canopy. So today’s investors are effectively paying 15 times the industry’s cash flow five years from now, a generous multiple. Moreover, there’s reason to believe these revenue forecasts are overly optimistic.”

The Dow Jones Industrial Average fell 2.34 percent on Friday to end the day at 23,932.76, while the S&P 500 Index dropped 2.19 percent to close out the day at 2,604.47. Meanwhile, the Nasdaq Composite Index fell 2.28 percent to close out Friday at 6,915.11.

This week looks to be important to investors of both cannabis stocks and the broader markets as a number of economic indicators are set to be announced, including initial jobless claims and the consumer price index.

Horizons Marijuana Life Sciences ETF fell CAD$0.58 per share on Friday, or 3.66 percent to close the day at CAD$15.26 Similarly, the Evolve Marijuana ETF fell $0.66 per share to close the day at CAD$15.69.

Quick Hits

Isodiol International Inc. signed a Letter of Intent with Agrima Botanicals Corp… Marapharm Ventures Inc. provided an update on the Company’s dispensary in Desert Hot Springs, California… Cronos Group Inc. announced the closing of a $100 million bought deal.

Illegal Cannabis Imports Dropping Rapidly

New Frontier Data is out with a new graphic this week showing the rapid decline illegal, black-market cannabis coinciding with the rise in state legalization. According to their numbers, U.S. Customs has reported a 66 percent decrease in seizures of illegal cannabis, from 2.53 million pounds in 2011 to 861,231 pounds in 2017. The full graphic can be seen below: