Why have cannabis stocks been falling for the last 4 months?

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July 26, 2019 12:52pm NYSE:MJ

Cannabis stocks have taken a beating during the past 4 months and this trend can be best explained by two overarching factors: 1) the U.S. regulatory landscape hasn’t become as pro-cannabis as many had hoped or anticipated. 2) A handful of the industry’s major players have recently made some serious missteps.

The U.S. regulatory landscape

With all the exuberance coming into this year, it seemed like the cannabis bandwagon could not be stopped. However, in just the past few weeks, the cannabis industry has faced some serious hurdles.

This week there was a congressional hearing on easing cannabis banking restrictions.  However, instead of making progress, it was clear that reforming Federal marijuana laws remains an uphill battle in Congress, despite growing bipartisan support among lawmakers. 

During the hearing, a range of speakers talked about the industry’s lack of access to banking services.  Because most banks are federally insured, they’re hesitant to deal with cannabis companies for fear of an enforcement action, since cannabis remains illegal at the federal level (regardless of state approval).

As a result, most cannabis enterprises have been forced to operate primarily in cash, which creates a series of risks for all employees throughout the supply chain.

“I thought the banking issue would be the easiest to pass, but what surprised me most about the hearing was how few Republicans and Democrats showed up,” said Rob Di Pisa, co-chair of the Cannabis Law Group at law firm Cole Schotz.

“Whether you are pro-cannabis or not, banking is such a fundamental part of any business, it’s crazy that they won’t even show up. There’s no other industry in the U.S. that has this issue.”

Stifel’s analyst notes that momentum has also stalled at the state level since late last year, when there were hopes that three big states, New York, New Jersey and Illinois were ready to legalize.

But New York and New Jersey legislatures became deadlocked on legislation, regardless of strong support from the public and state governors. In the end, Illinois is the only one that pulled through.

A couple of bad apples (or executives)…

The hits keep coming as one scandal after the next seems to rock the cannabis landscape.

By now, former CEO Bruce Linton’s firing from Canopy Growth Corp (CGC) has become infamous. At one time, many people regarded Linton as the poster boy of big industry cannabis. But when Constellation Brands (STZ) made quick work of him, they reminded us what institutional investors do when they receive disappointing results.

And then there’s the CannTrust Holdings (CTST) buffoonery that seems to get worse by the day. Not only did CannTrust get popped by regulatory agency Health Canada for growing in unlicensed rooms, and busted again for exporting said unregulated weed, it’s now coming to light that many CTST executives knew about it all along, and willingly pursued profit over compliance.

As this stock tanked, it took many cannabis stocks along with it, as investors began to question industry credibility. And now there’s the Curaleaf snafu.

Curaleaf Holdings (CURLF) received a warning letter from the FDA for their dubious claims that CBD-based products could treat a range of serious diseases, including cancer.

The FDA wrote that Curaleaf is “”illegally selling unapproved products containing cannabidiol (CBD) online with unsubstantiated claims that the products treat cancer, Alzheimer’s disease, opioid withdrawal, pain and pet anxiety, among other conditions or diseases.”

Analysts didn’t seem taken aback by the FDA’s move.

“Among MSOs, Curaleaf has made the largest push into CBD – with a full ‘Curaleaf Hemp’ line,” says Andrew Kessner, analyst at William O’Neil & Co. He added that the CVS partnership brought a lot of attention to them (referring to the partnership announcement in March for CVS sell a line of Curaleaf CBD products).

“So they’re a good company to make an example of – you can bet that any other MSO with similar content/claims on their website has already taken it down, or will have it down by the end of the day. Same goes for other public and larger private companies selling CBD products,” says Kessner.

 


The ETFMG Alternative Harvest ETF (MJ) was trading at $28.45 per share on Friday afternoon, up $0.04 (+0.14%). Year-to-date, MJ has declined -12.53%, versus a 13.48% rise in the benchmark S&P 500 index during the same period.

MJ currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #55 of 86 ETFs in the Global Equities ETFs category.


This article is brought to you courtesy of ETFDailyNews.com.


About the Author: Eric Bowler

eric-bowlerEric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.


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