As Canadian medical cannabis stocks plunge from their record highs, analysts say the volatility could dampen the mood for mergers and acquisitions and access to blazing capital markets for some companies – at least until stability sets in.
Since peaking in early January, the Canadian Marijuana Index – representing 24 leading cannabis stocks – has tumbled 35%, wiping out 7 billion Canadian dollars ($5.6 billion) in market cap.
Some of the biggest losers since Jan. 9 include Canopy Growth (TSE: WEED), down 44%; Aphria (TSE: APH), down 43%; and Cronos Group (TSX: MJN), down 52%.
Khurram Malik – a partner with Jacob Capital Management, a Toronto-based financial advisory firm – said this week’s market pullback is “perfectly healthy” given that the index had risen 380% since Sept. 1.
“Stocks are coming back to Earth after a very unusual spike in December,” he said. “They had no business being where they were and now they’re coming back to more reasonable levels.”
Chris Damas, editor of the Barrie, Ontario-based BCMI Cannabis Report, said the recent volatility could “take the bloom off the rose” for companies looking at M&As, because raising capital by potential acquirers has suddenly become problematic.
Damas said the current meltdown is no surprise, given the recent gains. “The technical indicators have been flashing on this,” he said.
Damas warned retail investors against “panic selling” and urged them to “reassess your risk profile and be aware that there’s nothing magical about cannabis. Look at bitcoin. Unless you’re a very risk tolerant investor, you might want to rethink your strategy.”
Matt Lamers can be reached at [email protected]
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