Uncertainty abounds in the cannabis market

There was not much movement in cannabis stocks in the past week. Shares of cannabis companies have been drifting in a sideways trend. On Friday, April 24th, however, there was a boost from the somewhat-loosened overall market – in addition to the coronavirus, the situation with oil is particularly complicated. Although cannabis is not yet a raw material that fires whole economies, if people consume less because of the pandemic, then this also affects the sales of cannabis.

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Developments for cannabis in the past week 

A major problem continues to be the frequent lack of liquidity. As an example, Organigram is now actually starting to increase its capital, which is not so often quoted on the stock exchange. After the issuing of the new shares, up to 15% more Organigram Cannabis shares should be in circulation. In all probability, other cannabis companies will follow suit.

At the same time, some companies are betting on a price war. The company THC Biomed from Canada wants to go down to $4 per gram of cannabis and other companies have to think similarly. Most cannabis consumers overseas look at the price, even though there may be more and more exclusive small farmers and special companies dealing with hashish and cannabis. However, the price pressure also lowers the margins and this can mean bankruptcy for some suppliers – or a wave of layoffs, which is currently haunting the stock market anyway because of the coronavirus.

One of the concrete problems caused by the pandemic for cannabis shares in the USA is the refusal by politicians to offer any funding program for cannabis. At least the House of Representatives has now submitted some proposals, but it might already be too late for many cannabis companies.

Delays by authorities could lead to a wave of bankruptcies, as it’s happening in Germany, where a lot is promised, but many companies end up without subsidies. The corona crisis is now also increasingly causing difficulties in the supply chains. The medical cannabis industry is currently lacking new employees, for whom an examination by authorities is mandatory.

Marijuana index and performance of cannabis stocks

Due to the growth and the momentum on Friday, April 24th, the performance of the cannabis stocks in the past week does not look bad. Those who started trading at the right time got again a few big percentages on the price. Shares from the USA rose on average by more than eight percent, Canadian companies increased with an average of six percent. In addition, the volume of trading was quite decent. Many investors took cannabis back into their portfolio, even if only for a short- to medium-term investment strategy because of the existing risks.

Selected shares at a glance

Canopy Growth didn’t really have any important news to report, but investors are talking a lot about trading at the moment – because of the big price jumps, both short sellers and classic buyers often earn double-digit returns in one day! Does the relatively stable price level of around $15 (€14) indicate a bottom formation for Canopy Growth?

Aurora Cannabis, on the other hand, is still creeping up, but on a strangely inclined jagged course, which shows fast purchases and sales. The prices around 60 cents are not a bottom, but the long-term chart still looks very negative.

Rumors about a growing financial weakness of the company Tilray are still circulating. Cash is a general problem in the industry and investors should pay attention to these indications.

Aphria is more and more active on the German market for medical cannabis. The company now even offers a webinar and in the course of the week investors in Aphria Cannabis shares could enjoy a double digit plus. Apparently the price of Aphria’s stocks is mainly waiting for an improving overall environment in the financial markets, but seems to have fewer internal problems than other cannabis securities.

Outlook for the calendar week 18/2020

Fast growth, lower profits, large expansion of capacities. What started well at Amazon 20 years ago also put cannabis shares on the agenda. However, the corona crisis thwarts so many business ideas these days that it is not easy for investors to judge which stock is a winner and which is a bust.

Restraint is certainly not the wrong choice, but stock picking with a chart analysis is worthwhile for day traders. In the long run, however, low prices are still no guarantee for a large increase, and the burden of the current pandemic simply cannot be estimated at the moment.

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(Featured image by davide ragusa via Unsplash)

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