Why did cannabis stocks go down?
By Nina Zdinjak
Wednesday marked a historic day for the marijuana industry with the unveiling of the highly anticipated Senate bill that would legalize cannabis at the federal level.
Details of the draft law, the Cannabis Administration and Opportunity Act, were released early this morning and sparked excitement and speculation. Around noon, the sponsors of the bill, Chuck Schumer (DN.Y.) and Sens. Cory Booker (DN.J.) and Ron Wyden (D-Ore.) Held a press conference.
Photo by Kevin Dietsch / Getty Images
While the impact on marijuana stocks was expected to be felt, marijuana stocks surprisingly fell.
Cantor Fitzgerald’s Pablo Zuanic provided several possible explanations for this reaction in his latest analyst note, while also stressing that investors “should take advantage of yesterday’s weakness”. There’s an upside, claims Zuanic, realizing that Wednesday was a historic day for the industry despite the decline in cannabis stocks.
First off, the Canadian marijuana index fell 5.3% for the day, the US marijuana index fell 2.8%, the AdvisorShares Trust AdvisorShares Pure US Cannabis ETF (ARCA: MSOS) lost 3.5% and the AdvisorShares Pure Cannabis ETF (ARCA: YOLO) was down 4.3%. All of this while the SPDR S&P 500 (ARCA: SPY) was flat (+ 0.1%).
Why have cannabis stocks fallen?
According to Zuanic, there are several reasons that could explain these market actions:
- An ambitious plan – a comprehensive approach rather than a step-by-step approach;
- The confirmation from Sen. Schumer that the the current draft may not get enough votes for the Senate;
- Sen. Booker’s strong opposition to separate banking reform;
- White House Press Secretary Jen Psaki reveal that President Biden prefers gradual decriminalization and did not pass this marijuana bill;
- Several difficult parts of the design like the notion of interstate trade and a 25 percent federal marijuana sales tax.
Photo by boonchai wedmakawand / Getty Images
According to Zuanic, there are several potential areas of tradeoff, and these include: lowering the £ 10 ownership limit; Do not allow international trade in the first few years; implement the federal tax of 25% over 10 years instead of the proposed five years; leave extinction to the states; limit the funds for the “opportunity programs”.
Use the weaknesses, but choose wisely
With some ambivalence over many aspects of the bill, particularly banking reform, Zuanic advised investors to carefully select cannabis operators from multiple states to invest in. Cantor’s top picks in the US remain Curaleaf stocks (OTCQX: CURLF), Green Thumb Industries Inc (OTCQX: GTBIF) (CSE: GTII), Real cannabis (OTCQX: TCNNF) and Cresco Labs (OTCQX: CRLBF).
The analyst also noted that investors should avoid “companies that lack government depth; financially overwhelmed; with high stock-based cops-to-sales ratios; focused more on complaining about their reviews than going about their business; those in bed with predatory lenders. “
“Well, take advantage of Wednesday’s weakness again – from our point of view, selectively.”
This article originally appeared on Benzinga and was republished with permission.
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