Cannabis companies Affected by Inflation and Economic Slowdown

Canadian and U.S. cannabis product makers are showing a sharp pullback in the stock market this year after posting double-digit gains in 2021.

Shares of Edmonton-based Canadian cannabis company Aurora Cannabis are down 71.68% on the Toronto Stock Exchange, trading at C$1.94. The company makes cannabis-based medicines.

Ottawa-based cannabis company Hexo, which manufactures products for recreational cannabis use, is the second biggest loser this year, with its shares down 70.45% at C$0.26.

Canopy Growth, also a manufacturer of medical and recreational cannabis products, fell 61.23% to 4.28 Canadian dollars a share.

You can find more information about the cannabis markets and other important news in the cannabis sector with the Hemp.im mobile app. This app collects the latest marijuana news among cannabis sectors that investors operate in.

Factors that affected the cannabis industry

Carlos Hermosillo, an independent stock market analyst, said that although the sector’s drop in the stock market can be explained by the general market falls due to investors’ pessimism about high inflation and the increase in rates, there are particular factors that have affected cannabis companies.

“The main thing is the general effect on the stock market due to the exchange rate and the prospect of recession, but on the other hand there are regulatory issues in general and also some companies in particular that have given bad news in their ‘real’ production capacity and/or product quality,” he explained.

Alain Jaimes, a stock market analyst at Signum Research, said that “the cannabis industry still presents regulatory risks, and although it seems to be an industry with favorable expectations, its nature and the environment in which it is traded, make it an asset with marked volatility.”

The U.S. manufacturer of medical and recreational marijuana-based products, Trulieve Cannabis, is down 58.44% in the U.S. over-the-counter market.

Other companies in the sector that also lost in the stock market during 2022 are the Canadian cannabis company Tilray (-52.47%), the U.S. companies Green Thumb (-50.87%) and Curaleaf (-35.55%), and the Canadian company Cronos (-19.08%).

There is the confidence that the cannabis sector will grow

Analysts said that even though the cannabis sector reached historic highs last year, there is room for it to grow more in the future in the stock market.

Carlos Hermosillo stated that the growth potential is “ample” because there are countries in which the medicinal and/or recreational use of marijuana has not been decriminalized or legalized.

In the world, about half of the little more than 200 countries have already legalized the use of cannabis for medicinal purposes (not all of them in the same way), 30 have decriminalized recreational use and only 12, including Mexico, have legalized the latter, according to data from the World Population Review.

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(Featured image by TinaKru via Pixabay)

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First published in EL ECONOMISTA, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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