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Should You Hold On to Your Cannabis Stocks?


Jun. 4 2019, Published 2:44 p.m. ET

Wild swings

Cannabis stocks have been under selling pressure since March. The weakness in the sector shows that investors’ confidence has been slowly eroding. Take the ETF Horizons Marijuana Life Sciences ETF (HMMJ), for instance, which has fallen nearly 24% as of June 4 from its peak on March 19, 2019.

Among HMMJ’s constituents, Tilray (TLRY) has lost nearly 53% in the same period, while Canopy Growth (WEED), Aurora Cannabis (ACB), and Cronos Group (CRON) have lost 15%, 28%, and 34%, respectively. The cannabis sector remains highly volatile, and these wild swings spell high-risk investments.

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The reason for the weakness

The weakness in the sector has sparked concern among investors, and one wonders just how low can it get. The cannabis sector has mainly been pressured by weak earnings data, and slow developments in the US cannabis space have further affected this enthusiasm. Just yesterday, the FDA took a cautious stance on the effectiveness of cannabidiol-derived products. Read FDA’s Caution Causes Cannabis Stocks to Bleed on June 3 to learn more.

Apart from the above-mentioned factors, global market weakness has added to the selling pressure. Trade tensions and recession fears have led to a flight to safety. If you got in at the peak of the cannabis industry, getting out now would mean booking huge losses on your investment.

Therefore, it’s important to consider the fundamentals to determine how to play on cannabis stocks.


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