Cannabis Sector: Five Reasons Investors Are on Edge


Dec. 4 2020, Updated 10:53 a.m. ET

The cannabis industry is on the edge in November. Four cannabis companies are set to release their earnings results this week, and investors seem worried. This uncertain sentiment is evident in the price action of cannabis stocks. Let’s look at five reasons why investors are awaiting cannabis players’ earnings results with bated breath.

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Cannabis expectations

Cannabis companies have disappointed investors in the past, creating uncertainty about what’s to come. Just yesterday, MKM Partners cut its outlook on Canopy Growth (CGC) (WEED) and Aurora Cannabis (ACB) (ACB.TO) on the heels of a weaker growth outlook.

Slower retail rollout

Ontario’s retail market rollout hasn’t been a smooth one. The opening of retail outlets has been slow in the province. As a result, companies haven’t had a chance to expose their products to more customers. Ontario is one of the most populous provinces in Canada, so getting retail up and running there would prove to be a positive catalyst.

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Cannabis in the US market

Several analysts and investors have bet on the US CBD market for cannabis. However, the market has moved sideways. For example, legal cannabis still hasn’t been talked about much in the country, so investors’ hopes for growth in that market have taken a hit. In addition, even the hemp market hasn’t delivered great returns.

Vaping crashes the party

If you’re active in the cannabis market, you’re probably aware of the recent issues related to vaping. However, all vaping news is not bad news. A lot of cases of vaping-related illnesses have resulted from purchases on the illegal market, which could actually translate into a positive for legal cannabis. To protect their citizens, countries may look into formalizing the industry and plugging the leak.

Global weakness

Sectors and global equity markets are highly correlated. Therefore, an increase in risk perception in one market could also affect other markets. Recent concerns related to the US market’s performance have negatively affected the overall investor sentiment. Essentially, the recession fears in the US have been pulling down investor confidence. However, according to a recent report by the Wall Street Journal, this view could be reversing.

For now, we think it’s best to sit tight until we see these companies’ earnings releases and how the week shakes out.


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