Cannabis stocks continue to take a battering with the value of the Global Cannabis Index down by over 50% in the last year.
This carnage has been starkly evident in the last few weeks as the U.S vaping crisis sent further shivers through the market prompting a fall of over 20% in September, alone, reports New Cannabis Ventures.
As well as the vaping crisis the continued revenue underperformance of the sector’s leaders is sapping the confidence of increasingly pessimistic investors. And CIBC analysts says sales estimates for the legal cannabis industry over the next two years are ‘far too aggressive’ and could lead to significant further stock declines, reports Bloomberg.
Continued uncertainty over regulation in the CBD space, with the FDA deliberations and uncertainty over Novel Food authorisations in Europe also undermine confidence. In both the U.S. and Canada the illicit market continues to provide a stiff challenge to the regulated industries.
In Canada investors have been rocked by the CannTrust scandal and concerns of the underperformance of cannabis stocks was highlighted by the dismissal of Canopy Growth CEO Bruce Linton.
One of the fallouts of this on-going revenue underperformance are the growing concerns over the rate at which cannabis companies are burning through cash; this is prompting markets to tighten the purse strings when it comes to accessing capital.
In a market update in last few days of September New Cannabis Ventures highlighted how two companies, which have raised capital in September, have seen their stocks punished.
Cresco Labs saw its value plummet by 25% in and KushCo Holdings by over 50% after both went to the markets for capital. In earnings calls last month a key focus of some the Canadian licensed producers is to increase their retailing foot print.
“You cannot read a transcript from one of these licensed producers without them mentioning retail stores. It’s typically why they don’t reach consensus estimates,” said analysts Zamparo. It went to to say that retail will be driven by consumers who elect to shop at brick-and-mortar locations, getting guidance from budtenders, reports Cannabis Investing News..
However not all observers are totally downbeat about the sector.
Looking to identify the drivers of the Canadian market, Zamparo says the upcoming legalization of edible cannabis products could ‘almost double the value of the industry in the country’, reports Cannabis Investing News.
The Investors’ Business Daily summed the situation up as follows: “The cannabis industry and stocks are worth watching, because of the long-term potential for growth.”
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