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Cannabis stocks take a beating in a tough context

The difficult economic context generated by the coronavirus crisis has taken its toll on cannabis shares. Just like other sectors, the cannabis industry is struggling to adapt to the broad downturn brought by the pandemic. That is despite growing sales and a visible change in attitudes towards cannabis in countries like Israel and the United States.



This picture show stock market data.

The last week was a rough one for cannabis shares. Prices went down on a broad front, despite reports from the hemp industry that do not look so bad. However, the second wave of the coronavirus and the catastrophic situation in the USA are also affecting cannabis investors, so cannabis is selling off just like cars or services. However, the price of cannabis has not fallen as much as in the months before and it seems that many cannabis stocks are holding the important brands in the charts, suggesting that investors are re-entering the market and expecting good profits.

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Recent developments in the cannabis sector

Recreational cannabis users, hemp patients, and investors in cannabis shares are eagerly watching Israel, where the legalization of cannabis is imminent. Israelis are uncomplicated in their dealings with hashish and cannabis and are doing intensive research on its medical uses. 

That is also reflected in the performance of corresponding shares on the stock exchange. It’s true that the Jewish state is not as populous as North America and the purchasing power is correspondingly lower, but the signal effect for cannabis could reach as far as the sluggish, lazy EU. Speaking of Europe, perhaps Israel’s cannabis legalization will send out some urgently expected impulses towards a new and fair drug policy for cannabis.

The opinions shared by Canopy Growth’s boss, who expects the USA to legalize cannabis on a federal level within the next two years also sounds good! President Trump, as well as his challenger Joe Biden, will probably not be able to avoid this urgently needed improvement of the legal situation. The prohibition of cannabis in the United States, just like in Germany, contributes massively to the discrimination of whole population groups.

In Germany, the ruling CSU party and its Federal Drug Commissioner can get their way, due to compliant media and not very self-confident lawyers, who hardly ever criticize the brutal, outdated, and completely failed prohibition policy on cannabis. But in the USA, the lobby associations and millions of citizens are going on the offensive.

Once again back to Germany: Because of the coronavirus, supply chains are massively disrupted in this country, too, and the failure of the Minister of Health to supply patients with hemp is becoming apparent. Now a large exporter from the Netherlands has announced that it can no longer supply Germany for the time being because of production difficulties. Countless sick people are once again lacking access to cannabis in the pharmacy! It is very doubtful whether the first cannabis harvest on German soil, expected for autumn and winter, will be able to change this situation. That is because Jens Spahn and his comrades in office would deliberately delay the release of the cannabis-based medicine or simply set the quantities much too low.

The cannabis index and performance of cannabis stocks

On the whole, the cannabis index went downwards, but in the single-digit range depending on the shares. As already mentioned at the beginning, many cannabis companies are stuck on important chart support. Canadian cannabis shares did worse than those from the USA. In the land of the maple leaf, cannabis is already legal for everyone on a federal level, while Uncle Sam is expected to follow suit in the future. The blue chips – market leaders with large turnover, personnel, and huge cultivation areas – were, as usual, at the top of the list of cannabis stocks in the past week, in terms of the trading volume.

Selected stocks at a glance

Canopy Growth, whose share price dropped to as low as $15.7 (€14), can save a lot of money in the acquisition of Acreage, whose price has just dropped to $37 million. In addition, Canopy Growth is investing even more in the market for the increasingly popular cannabis-infused drinks, which should naturally be good for sales after the rather mixed first quarter in 2020.

Aurora Cannabis is still focusing on cost reduction. To do that, Aurora Cannabis has already closed cannabis factories and set aside areas for cultivation. Especially in times of the coronavirus, the cash balance is problematic, so that the management is relying on savings in the hope of being able to continue to attack with sufficient capital after the crisis.

Tilray: Experts consider both the Tilray chart, with a current valuation of around $7.87 (€7), as well as the fundamental data to be not particularly promising. But other investors point to the company’s major commitments in future growth markets such as Europe. Rumors are swirling of nasty short sellers in the background who want to push the stock down, so an investment here should certainly be viewed with caution at the moment.

Aphria had to pay almost $30 million in compensation to a partner because it couldn’t keep up with the delivery of cannabis. Maybe this is an indication of a permanently disrupted supply chain in the pandemic? So there was no increase, it went down to about $4.05 (€3.60), but that is above the downward trend and could offer at least a chart technical option.

Deutsche Cannabis AG: Again nothing is happening here, with prices in the $0.56 (€0.50) range. That means Deutsche Cannabis AG investors either need some insider information – punishable by law – or they can naively invest without any news here, just like in a casino. Neither of the two options seems to be interesting for serious investors.

Outlook for next week 

We are, of course, approaching the end of the second quarter and investors will be particularly curious to see what marks the annoying virus from China has left on cannabis shares in the USA and Canada.

Cash holdings are melting down anyway, costs are out of control for many companies, and these are risks that no one should underestimate. At the same time, cannabis is extremely popular, sales are exploding and even conservative politicians are slowly realizing this, positioning themselves in favor of cannabis. It remains to be seen whether the socially positive attitude towards cannabis will also be reflected in stock price increases.


(Featured image by 3844328 via Pixabay)

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Desmond O’Flynn believes in minimalism and the power of beer. As a young reporter for some of the largest national publications, he has lived in the world of finance and investing for nearly three decades. He has since included world politics and the global economy in his portfolio. He also writes about entrepreneurs and small businesses, as well as innovation in fintech, gambling, and cannabis industries.