Goalkeeper1 wrote: Marijuana
The last couple of months haven't been kind to marijuana stocks, with the largest marijuana ETF, the Horizons Marijuana Life Sciences ETF (TSX: HMMJ) down over 19% YTD and down over 37% from its 2018 highs.
But why?
Last month, the Canadian Senate gave approval in principle to the legalization of recreational marijuana.
Bill C-45 passed at second reading by a vote of 44-29.
While this is mostly good news, the thin margin of victory is amplifying the risks of marijuana stocks for now.
As
Global News reports:
"Conservative opposition to the proposal to legalize marijuana has been fierce and senators from the caucus are expected to hammer the bill and attempt to introduce significant amendments as it moves through examination by committee."
And since the deadline for the Senate to pass the legislation is June 7, we may see further volatility until we get a clearer picture of where legalization in Canada stands.
Given the amount of capital invested in the sector and the progress already made by the provinces, it's not so much a question of "if" but "when."
If the deadline is met and legislation is passed on June 7, then I have little doubt marijuana stocks will soar - which means the last few down weeks may represent a great buying opportunity.
However, if it doesn't go as planned, we'll likely see additional pressure on marijuana stocks since the road to profitability will be stretched out.
Which is why not all marijuana stocks should be treated equally.
A rising tide lifts all boats, but smaller boats may not be able to withstand the volatile waves.
Funding is becoming more difficult for new entrants, which is precisely why companies that have tons of cash will stand out.
Many will claim to have a massive land package, but without funding, they're just land.
But companies with tens of millions of dollars, even hundreds, will be able to withstand and potentially even benefit (via acquisitions) from a delay in legalization in Canada.
If you expect legalization to be finalized on June 7, then the last few weeks of the marijuana downturn could prove to be very rewarding for value investors looking at the right companies.
Furthermore, this downturn may fuel additional interest from bigger entrants in the marketplace such as Big Alcohol or Big Tobacco, who now have the opportunity to buy-in at lower prices.