Despite Positive Market News: Why Cannabis Stocks Disappointed in 2021

Cannabis stocks targeted by WallStreetBets

Price setbacks over the course of the year
M&A activities without positive price effects

A look at the stock market development of the largest players in the cannabis market paints a sobering picture: while large companies such as Tilray, Canopy Growth, Green Thumb Industries and Aurora Cannabis were still able to make strong gains in the early part of the year, things went down sharply in the months that followed. In particular, it was the WallStreetBets movement that turned stocks like GameStop into “meme stocks” and also propelled cannabis stocks to new price highs in February. The fact that the largest cannabis stocks are now miles away from their highs this year was not only due to the Reddit community, which cashed in after the significant price increases.

No major legalization breakthrough in the USA

One of the biggest factors for the price reductions at Canopy & Co. is likely to be disappointed expectations of politicians. US pot groups and Canadian players with expansion plans had hoped for more movement with regard to legalization measures, particularly for the US market. After all, the US Democrats had promised at the beginning of the year that they wanted to decriminalize the plant at the federal level. Instead, the United States is still a patchwork of different regulations from state to state. While some states and the capital Washington have already legalized cannabis, recreational use remains illegal in other regions. “Investors turned up earlier this year expecting faster progress on legalization and left because they were disappointed,” MarketWatch quoted Alan Brochstein, founder of 420 Investor and New Cannabis Ventures.

Legalization in Germany not necessarily driving prices

In Germany, efforts to achieve uniform cannabis legalization are already well advanced. This is where the “controlled supply of cannabis to adults for recreational purposes” will come, according to the coalition agreement of the new traffic light government. But a look at the Canadian Tilray Group, one of the biggest beneficiaries of this measure, which has already achieved a strong market position in this country, shows that the stock prices of cannabis companies cannot necessarily benefit from the developments. Only the share of the German SynBiotic group shows a clearly positive price reaction to the planned legalization of cannabis in Germany.

Mergers only drive stocks temporarily

The year 2021 was also characterized by a wave of mergers and takeovers, which, however, could not result in any permanently positive price developments for cannabis shares either. Above all, it was the merger of the two industry giants Tilray and Aphria in which investors had placed great hopes. But the Corona crisis slowed the business of the new Tilray group, the closure of retail stores increased the oversupply of cannabis products, especially in the Canadian home market. The hope that the merger could lead Tilray to profitability seems to be a long way off, as a look at the most recent quarterly balance sheet shows: Sales in the third quarter were below expectations at $168 million, with a loss of $0.08 to. Tilray shares, which had climbed to $67 in the WallStreetBet hype in February and also initially performed positively in May after the merger was completed, fell to $7.32 from a low in December.

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Canopy Growth stock was also unimpressed in 2021 after the Canadians announced the acquisition of Supreme Cannabis. The stock has fallen below $10 since February’s high of $56.49.

The share price development of Jazz Pharmaceuticals also remained below expectations after the Irish announced the 7.2 billion US dollar takeover of GW Pharmaceuticals. Among other things, the British had aroused interest in Jazz Pharmaceuticals with their cannabis drug against epilepsy, but the stock exchange did not thank the company for this billion-dollar deal: Interim price gains have not only evaporated completely, but the share even has a significant minus over the year.

A number of smaller acquisitions, such as the acquisition of Redecan by HEXO in the summer or the purchase of Harvest Health & Recreation by Trulieve Cannabis in the fall, did not have any lasting positive effects on the market.

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More market prospects for cannabis companies

While 2021 was a disappointing year for cannabis investors despite positive market developments such as legalization efforts in many countries and a strong influence from mergers and acquisitions, experts see the prospects for the industry as positive. The cannabis market research company Prohibition Partners, for example, sees global market sales of 37.4 billion US dollars for 2021 in its “Global Cannabis Report”, but expects this to increase to 102 billion US dollars by 2026. The experts continue to refer to the most important cannabis markets in the world, Canada and the USA, but also see considerable development potential for the next five years in international markets such as Germany, Israel and Australia.

Editorial office finanzen.net

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