(Bloomberg) — The case for investing in cannabis companies is, in theory, the strongest it’s ever been. Weed shops are popping up on street corners across the US at a frantic pace, while the 2024 presidential election offers an impetus for drug reform.
And yet the stocks underlying the industry are floundering, with even the bulls growing tired of waiting. An index tracking the shares of 100 marijuana-related companies has tumbled more than 15% so far this year, after touching an all-time low in October.
“The fundamentals don’t matter much at all, unfortunately,” said Dan Ahrens, managing director of Advisorshares Investments LLC. “They will again, but right now these companies and their stock prices are extremely tied to federal reform.”
Even though 24 states, two territories and Washington DC have all legalized weed for recreational use, the plant remains a Schedule I substance on a federal basis — on the same tier as heroin and LSD. Federal decriminalization has been a goal among Democrats, though there’s been relatively little progress under President Joe Biden’s administration.
On Wall Street, the lingering red tape is impossible to overlook. Because of marijuana’s status, cannabis companies are taxed so heavily that they struggle to make enough cash. Their shares — and the exchange-traded funds that track them — are also largely kept off of major marketplaces like the New York Stock Exchange, instead trading over the counter or on smaller Canadian exchanges.
That’s all but wiped out optimism among stock pickers who’d expected industry legitimization progress to unleash an epic windfall.
The highs and lows are clear in prices of pot stocks over the years: Tilray Brands Inc.’s US shares trade at just about $2 each, a tiny fraction of what they were worth in 2018, when the stock hit a high of about $214. Curaleaf Holdings Inc. has wiped out roughly $10 billion of shareholder value since a 2021 peak. And Canopy Growth this week resorted to plans for a one-for-10 reverse stock split in a desperate bid to ensure the stock trades at $1-or-more per share.
H/T: finance.yahoo.com
