2022 was a bad year for the cannabis industry. The soft drug, although it has seen its consumption continue to grow, has not been spared from the circumstances that arise in the market. Although cannabis is conceived as an illegal drug in most countries, many other nations have been legalizing the use of cannabis, especially for medicinal use. In addition to this, and seeing that in these countries where the soft drug is legal, companies have seen a growing business. So much so that cannabis has reached the stock market.
Canada, Uruguay, South Africa, and some U.S. states allow the consumption of cannabis. In others, the industrialization of cannabis has become a practice like any other. Thus, several companies, especially Canadian, have made the leap to the stock market, where they give investors the option of betting on a business that many see potential. The reason is the growing global adoption and popularization of cannabis consumption. According to the UN, cannabis is the most consumed drug worldwide. The same organization quantified that in 2020, around 284 million people between 15 and 56 years old consumed drugs.
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Too much supply for the existing cannabis demand
Despite growing consumption, listed companies linked to the marijuana business are at a low point. The moment is not favorable for almost any company, and even less so for those dedicated to the production of a good which, despite convincing society more and more every day, is still being questioned by many others. On the other hand, the blow of inflation, which has led to high volatility, has caused all the firms in the sector to fall on the stock exchanges.
Darío García, an analyst at XTB, said that “the cannabis sector is suffering from what is known as the explosion of a new market in which many companies suddenly enter to participate in its growth.” The analyst emphasized the excessive supply launched at the time by this type of company. That is to say, despite the fact that consumption is growing, several firms dedicated to cannabis production quantified a higher demand than the real one. That has caused several companies to fall on the stock market.
“Despite the efforts of many companies to adapt their business from the recreational sector to the medical or pharmaceutical sector, there is still a very high oversupply,” added Darío García. In addition to all this, and taking into account that it is a sector that does not convince everyone, the current situation, in which volatility reigns in the stock markets, has affected the share price of this type of company.
The cannabis companies that have fallen the most on the stock market
The main listed companies in the sector are in the U.S. or Canadian markets. At the same time, all the stocks in the cannabis sector are in negative territory. Aurora Canabis Inc is one of the main companies in the sector, which is also listed on the stock market. It is listed on both the Toronto Stock Exchange and the Nasdaq, both of which have fallen sharply. Aurora’s shares on the Canadian Stock Exchange have fallen 77% since the beginning of the year, making it the most bearish company in the sector. Currently, the Canadian firm’s devaluation on the stock market exceeds €1.15 billion.
Along the same lines, Canopy Growth Corporation is trading on the stock exchange with the red light on. The also Canadian firm is the second company in the cannabis sector to lose the most on the stock market. Like Aurora Cannabis, Canopy is listed on several international markets, including the Nasdaq. In all of them, it marks the downward guideline.
Without going any further, the company is down nearly 50% on the Toronto Stock Exchange. Canopy Growth Corporation, faced with the deterioration it is suffering on the stock market, has accumulated depreciation of close to €1.9 billion.
Cannabis is not holding up on the stock market
Tilray follows closely behind Canopy Growth with a decline of more than 43% in the more than ten months that have elapsed. The Toronto-based company, despite having a presence in several international markets, has failed to capture the attention of investors. As with other companies, investors have not shown conviction in Tilray. Thus, the Canadian company has reduced its capitalization by more than €1.28 billion.
The last of the Canadian companies in this sector is Cronos Group. It is the company dedicated to the cannabis sector that has fallen the least on the stock market. Although it has depreciated by 22% since the beginning of the year, it has suffered less than its peers. Despite this, Cronos Group has seen its valuation fall by €236 million.
The cannabis sector lost €4.37 billion in ten months
Associated British Foods is the ‘exception’ in the sector. In its case, the business is not focused solely and exclusively on cannabis production. The London-based firm is involved in food processing and retailing. Associated British Food is the world’s largest producer of sugar and baker’s yeast. But in addition to that, the company decided to enter the cannabis business. The British firm has invested heavily in both cultivation and sales of the soft drug.
Despite the diversification of the business, Associated British Food fails to break out of the downtrend so far this year. The British company is listed on the London Stock Exchange, where it has accumulated a decline of 24% in the more than ten months that have elapsed. In its case, in addition to all the problems of the sector, it is a company closely linked to macroeconomic variations, not so much for its cannabis business, but for those linked to the sale of sugar or yeast. Be that as it may, the company’s stock market decline has meant that its valuation has been reduced by more than €4.37 billion.
Thus, taking into account the stock market falls of the main companies in the sector, the cannabis market has been devalued by more than €9 billion. Cannabis, despite what many might think, has not managed to save itself from the bad times the financial market is going through. The excessive supply compared to the demand for the product seems to be the main problem for these companies. Although several of them are confident in the ‘resurrection’ of the sector, at the moment it is a fateful market, at least in the stock market.
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First published in inversion.es, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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