On Thursday (February 1) cannabis investors saw their holdings decrease below average as the industry faced a severe drop that could be the start of a larger market correction for the entire cannabis industry.
An index of Canadian cannabis companies showed a total 8.95 percent decrease in company share prices overall while leading companies like Canopy Growth (TSX:WEED), Aurora Cannabis (TSX:ACB) and MedReleaf (TSX:LEAF) all experienced drops of close to or over 10 percent. This decrease was seen throughout the entire public industry.
As investors searched for answers as to the exact reason this dip was taking place, one analyst told the Investing News Network (INN) there was no specific announcement that caused today’s decrease.
Jason Zandberg, special situations analyst with PI Financial said this type of market correcting action is typical for markets where there is a sudden surge in buying.
“Quite honestly there is no real catalyst, it’s just the way of buying and selling that we’ve seen,” Zandberg told INN.
Decrease in share value across the Canadian exchanges
The impact of this dip reached even companies on the Canadian Securities Exchange, a majority of which operate with a clear focus on the US. Cannabis operators like CannaRoyalty (CSE:CRZ), MPX Bioceutical (CSE:MPX), and Friday Night Inc (CSE:TGIF) all saw dips in their share price on Thursday during trading hours.
The leading cannabis exchange-traded fund, the Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ) also suffered a decline from Thursday’s overall decrease. Once the market closed on Thursday, the ETF had dropped by 9.46 percent in value. While the year in just over a month in, the ETF’s share price has decreased marginally by 3.43 percent.
TSX Venture exchange companies like The Supreme Cannabis Company (TSXV:FIRE), The Hydropothecary (TSXV:THCX), Cannabis Wheaton Income (TSXV:CBW) and Organigram Holdings (TSXV:OGI) all saw dips of over 5 percent during Thursday’s trading session.
Zandberg said he doesn’t think this type of trading nature is healthy for the industry with “too much enthusiasm” causing over corrections, which–in the end-affects new investors.
“You tend to have a larger amount of new investors that their first taste of investing in this market is with a significant loss because they get in at the peak,” Zandberg said.
As part of their industry update for the month of January, Canaccord Genuity wrote a report stating despite the recent increases seen in the cannabis market their analysts were worried about the sustainability of these bumps.
“While excitement is clearly building around the pending legalization of recreational cannabis in Canada, we are growing increasingly wary that the fundamentals may not support the rapid share price increases that we have witnessed,” the report co-authored by Matt Bottomley and Neil Maruoka, cannabis analysts with Canaccord Genuity, said.
Analyst recommends second look before buying the dip
When asked how he’s telling investors to respond with this dip today, Zandberg said he’s recommending caution about buying the drop since it’s not known when the correction will stop.
“Be comfortable [that] if you buy today there may be another down day tomorrow and that you are going to be ok with that,” Zandberg said.
A debate has been growing between experts and critics of the industry regarding the potential for an overvaluation on these cannabis stocks. While these companies differ in business approaches, there has been joint growth from regulatory announcements or policy framework being unveiled.
According to Zandberg, 2017 was a year full of run-ups for the industry, causing casual investors to buy in, thinking the gains would continue without any slowdowns.
Using Canopy Growth as an example, Zandberg said they serve as a recognized leader that reached an incredibly high market cap without a total justification for their exponential growth.
“We can look back and we could have market leaders that are beyond $8 billion in market cap but again with the limited information that we know of as of today, it was definitely trading ahead of itself,” Zandberg said.
This market reaction shows how the rapid increase of the cannabis industry could have been running more on promise than results. Zandberg told INN he expects to see more run-ups this year with even larger waves of capital.
Despite Thursday’s market dip, the industry is looking ahead for some catalysts– such as the announcement of an actual legalization date in Canada–to bring the markets back up.
Don’t forget to follow us @INN_Cannabis for real-time news updates!
Editor’s Note: This article was updated to reflect the percentage changes by market closure on Thursday and to include information from a Canaccord Genuity cannabis report.
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Friday Night Inc. and The Supreme Cannabis Company are clients of the Investing News Network. This article is not paid-for content.
CanBud Distribution Corporation Closes 2M Second and Final Tranche of its Oversubscribed Private Placement Offering
CanBud Distribution Corporation (CSE: CBDX) (FSE: CD0) (“CanBud” or the “Corporation”) is pleased to announce that it has closed the final tranche of its oversubscribed non-brokered private placement for aggregate gross proceeds of approximately $4,730,000 (the “Offering”).
The Corporation issued a combined total of 39,409,346 units (each a “Unit“) at price of $0.12 per Unit, with each Unit comprised of one common share in the capital of the Corporation (each a “Common Share“) and one common share purchase warrant (each a “Warrant“). Each Warrant entitles the holder to purchase one additional Common Share at an exercise price of $0.22 within 24 months of the closing of the Offering (the “Warrant Term“), provided, however that if the closing price of the Common Shares on the Canadian Securities Exchange (the “CSE“) (or any such other stock exchange in Canada as the Common Shares may trade at the applicable time) is $0.25 or greater per Common Share for a period of five (5) consecutive trading days at any time after the closing date of the Offering, the Corporation may accelerate the Warrant Term such that the Warrants shall expire on the date which is 30 days following the date a press release is issued by the Corporation announcing the reduced warrant terms.
Thoughtful Brands Inc. (CSE:TBI)(FSE:1WZ1)(OTCQB:PEMTF) (the “Company” or “Thoughtful Brands) announces that the letter of intent with Franchise Cannabis Corp. (“FCC”), previously announced in January, has been terminated. The previously announced European joint venture with FCC will continue and allow the Company to launch and tailor its products to European consumer demands
In connection with termination of the merger transaction with FCC, the Company has agreed to pay FCC $100,000 in cash and to issue FCC 5,000,000 common shares of the Company at a deemed value of $0.05 per share. The common shares will be subject to a four-month-and-one-day statutory hold period in accordance with applicable securities laws.
Mergers and acquisitions (M&A) in cannabis space have helped boost the industry to new levels.
Strategic sale of non-core assets by Lobe adds non-dilutive capital and shareholder value
Lobe Sciences Ltd. (CSE: LOBE) (OTC Pink: GTSIF) (“Lobe” or the “Company”) is pleased to announce, further to its press release dated February 23, 2021, that it has completed the sale to Ionic Brands Corp. (“Ionic Brands”) of Lobe’s non-core cannabis assets relating to Washington-based Cowlitz County Cannabis Cultivation Inc. (“Cowlitz”) held by Lobe’s subsidiary vendor, Green Star Biosciences Inc. (the “Transaction”).
Seattle Area Grocery Chain Metropolitan Market to Begin Carrying KOIOS and Fit Soda on March 22, 2021
Adding to its existing presence on the west coast of the United States, all five KOIOS™ flavours and all four Fit Soda™ flavours will be carried in Metropolitan Market stores beginning on Monday, March 22, 2021. Serving the Seattle-Tacoma area (population 3.87 million), Metropolitan Market is one of five chains under its parent firm Good Food Holdings, which has a total of 51 stores in California, Oregon, and Washington State.
Koios Beverage Corp. (CSE: KBEV; OTC: KBEVF) (the “Company” or “Koios”) is pleased to announce that beginning on Monday, March 22, 2021, Koios’ entire line of canned beverage products will be sold at all locations of Metropolitan Market, an urban format supermarket chain in the Seattle-Tacoma area of Washington State. In Q1 2021, the Company announced multiple placements of its beverage products with regional grocers in markets on the west coast of the United States including Market of Choice in Oregon Jensen’s in Southern California and major natural grocery chain Sprouts Farmers Market which has a substantial west coast presence with over one third of its locations (360+ stores across 23 states) in California as well as Washington State 1 . The Company has also recently announced other developments relating to its expansion efforts being undertaken in 2021 such as an in-house beverage canning facility and distribution agreements with regional and national wholesale partners.