Marijuana Stocks and Supply: Is it time to freak out?

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The North American Marijuana Index experienced another drop last week with marijuana stocks closing an otherwise newsworthy, although, placid week on a disappointing note. Marijuana stocks and investors hoped stocks would respond positively in light of the Attorney General Jeff Sessions’ admission medical marijuana may, in fact, pose some benefits and warrant further research; however, they only continued to drop.

The downward trend of the marijuana stocks Index this year, so far, has raised questions of recovery among leading experts and analysts, as well as marijuana stock investors.

This year, alone, The North American Marijuana Index has lost almost 6%, most notably in February, when The Index dropped 24%. The loss last week was 4.8%. Given this trend, cannabis experts and analysts have continually sought to answer the question of whether or not a recovery is forthcoming.

Average pot stock investors have fretted and fumed over unfulfilled promises of gains as specialists capitalize on teasers for the legalization of marijuana and draw attention to the repercussions of a shift in public perception of weed: the fall of similar vice investments, such as alcohol.

One such investor, posting on a popular site, subreddit r/weedstocks, expressed anxiety over what looked to be nothing but losses in his marijuana stocks investment portfolio. His post generated nearly 200 comments from other investors, many of whom noted experiencing similar situations, though some commentators were hopeful of the market experiencing a turnaround.

While the marijuana stocks index in the U.S. gained last week, marijuana stocks in Canada closed the week with losses and the stock market, overall, remained unmoved.

At the close of last week, The Index was at 243.88, a 0.07% (or 0.17 point) loss over the week. A glimmer of good news showed in the 0.85% gain reflected in the United States Marijuana Index, but, The Canadian Marijuana Index did not fare as well, closing the week with a 1.07% loss.

On a broader scale, the stock market was unmoved last week in the face of historical peace negotiations between North and South Korea and preliminary talks to denuclearize while the new Avengers movie broke records at box offices. By the end of the week, Wall Street offered conflicting reports on the economy. Analysts cited a decline in the economy due to decreased consumer spending, however, pundits agreed on the potential for surges in wages and lowering tax rates to counteract some of those negatives.

In an interview last week with Reuters, the director of the NYSE floor division at O’Neil Securities stated, “The GDP came in much stronger [than expected] but the employment cost index was also stronger and that is what caused some of the negative reaction because that just brings up the whole wage pressure and inflationary argument again, and what the Fed is going to do.”

In sum last week, The Dow Jones Industrial Average closed the week at 24,311.19, a 0.05% (or 11.15 point) loss. The S&P 500, on the other hand, ended the week on a slight increase at 2,669.91, having risen 0.11% (or 2.97 points). The Nasdaq Composite also had a slight rise of 0.02% (or 1.12 points), closing at 7,119.80.

Meanwhile, the major stock exchanges to the north experienced a partial outage, leading to an early shutdown of trading, lost business for investors and the exchange, and questions of TMX Group’s credibility (the ones in charge of operating the exchanges).

On The Horizons Marijuana Life Sciences ETF (HMMJ.TO), shares fell CAD$0.13 (0.80% per share), settling at CAD$16.04 by the end of the day. On Evolve’s Marijuana ETF (SEED.TO), prices per share dipped CAD$0.11, closing the day at CAD$16.54

Marijuana stocks involved in the cannabis market in Oregon are experiencing the effects of overproduction in the form of layoffs and price cuts.

Due to loosening of cannabis regulations in the state, which allowed more growers to enter the marketplace, Oregon overproduced cannabis in 2017 – a total of more than 1.1 million pounds. According to reports from Merry Jane, state consumption of cannabis is under 340,000 pounds and, per federal law, Oregon cultivators cannot compensate for excess supply by selling across state lines.

This supply glut has forced local dispensaries to lay off employees and slash dried cannabis prices. For instance, cannabis flowers currently sell for roughly $4 per gram, while a pound of cannabis flower sold at wholesale is around $700. Per Merry Jane’s report, these current prices are 40% less than in 2017.

One concern expressed by experts is Oregon growers and dispensary owners will turn in desperation to the black market in order to sell off excess supply. A warning of potential federal government intervention has been issued to Oregon’s marijuana players by U.S. Attorney Billy Williams, should the state not resolve its problems of oversupply.

On a more positive note, those looking for marijuana stocks to invest in now ought to bear in mind the great potential in California’s recreational market.

Most of the talk of the marijuana industry’s boom concentrated on Canada’s impending legalization of recreational cannabis this year. However, with the opening of California’s legal recreational market in January, this one state has a larger cannabis market than all of Canada. Comparatively speaking, California’s market is worth $1.35 billion while Canada’s is worth $370 million, according to a report from New Frontier Data. California’s market anticipates a rise this year to $2.51 billion and Canada’s to $1.68 billion.

Investors can take some encouragement from the growth potential of both California and Canada’s markets, even in the midst of some otherwise unsettling market patterns.

(For more on the California market, read California is Changing the Game for Marijuana Stocks.) 

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