The high is wearing off for investors in cannabis stocks
Cannabis stocks were white-hot last year. But many North American pot firms have now lost two-thirds of their value.
Legalisation in Canada and California meant that the cannabis sector was "white-hot" last year, says Kristine Owram on Bloomberg. Yet many North American pot firms have now "lost two-thirds... of their value". Canada's Canopy Growth Corporation, the world's largest, has reported poor sales.
The shares are down 47% so far this year. CEO Mark Zekulin told analysts that the "addressable market is only about half of what was originally expected", reports Ciara Linnane for MarketWatch. Cannabis retailer MedMen announced at the end of last week that it will cut "more than 20% of its staff" as it struggles with a cash crunch.
The industry faces several problems, says Owram. Efforts to legalise it in new markets have stalled, established black-market dealers are providing stiff competition and big institutional investors are sitting on the sidelines because the drug remains "federally illegal in the US". That leaves cannabis shares hostage to the whims of retail investors.
The market has become plagued by oversupply, adds Alexander Osipovich in The Wall Street Journal. Yet some analysts think that the recent falls are a buying opportunity. As more European and Latin American countries move towards legalising medicinal or recreational cannabis, the "long-term growth prospects" will still be tempting for some.