It has been a roller coaster ride this year for cannabis investors. The industry may have gotten a boost from Canada legalizing cannabis, but was it enough to erase all of the losses from the start of the year? How is the cannabis market doing in California? Isn't Gene Simmons doing something with cannabis?
Unless you obsessively follow the daily activities of the cannabis industry, there are a lot of questions about the state of cannabis that needs to be answered; and in the Green Market Report's Second Quarter Cannabis Company Index Report, we found a lot of answers.
Here are five things we just learned about cannabis stocks:
Stocks Have Nearly Recovered
The cannabis industry got off to a rough start in 2018. At the beginning of the year, US Attorney General Jeff Sessions announced that the Justice Department would rescind the Obama-era Cole Memorandum. The Cole Memo previously provided the cannabis industry with reassurance that the federal government would not interfere with state-legal cannabis markets as long as they abide by state laws and prevented cannabis from moving to states where it was not yet legal. After it was rescinded, cannabis stocks took a tumble, and the Green Market Report (GMR) Cannabis Company Index fell by 21.9% in the first quarter. But as time passed—and as the impending federal crackdown never came—investors began regaining confidence, and the GMR Index rose by 20% in the second quarter of 2018; nearly erasing all of its first-quarter losses.
Cannabis Could Soon Be Rescheduled
The medical cannabis market got a huge boost in the second quarter as the biopharmaceutical company, GW Pharmaceuticals, gained FDA approval for its cannabis-based drug Epidiolex. Epidiolex will be used to treat rare forms of epilepsy such as Dravet Syndrome and Lennox-Gastaut. Cannabis is a Schedule I Drug, which means that federal government believes there are no medically accepted uses for it, gaining approval from the FDA is a huge step towards having cannabis rescheduled or even descheduled. The FDA was quick to point out that approving Epidiolex does not mean that cannabis's schedule status will change, but DEA public affairs officer Barbara Carreno told Business Insider, "we don't have a choice on that. It absolutely has to become Schedule 2 or 3."
California Cannabis Might See a Short-Term Dip
At the start of the year, California finally launched its recreational cannabis market. Although the rollout has been less than smooth, overall, it's been a success. But coming up on the horizon is a dip in the California cannabis market that may spook investors if they don't know that it's coming. The state of California ruled that on July 1, 2018, all cannabis products sold must be 100% compliant with state regulations; which has proven easier said than done for many operators. Consequently, many cannabis companies were forced to sell their stock at huge discounts before the July deadline. California could stand to lose $350 million in inventory before all is said and done; but in the long run, the market fundamentals are still strong.
Cannabis Finally Goes Public
In the wake of Canada legalizing recreational cannabis, companies are starting to eye the possibility of going public. Canada saw several high-profile companies go public; such as MedMen Enterprises, The Green Organic Dutchman, and Green Thumb Industries. Likewise, in the United States, Cronos Group made its debut on the NASDAQ and Canopy Growth went public on the New York Stock Exchange. Over the next quarter, and in the years to come, more cannabis companies will see launching an IPO as a viable option; companies such as Dixie Brands, MJIC, and Acreage Holdings.
Investors Want Results, Not Promises
As the cannabis market marches towards maturity, so too do investor attitudes and expectations. When cannabis took its first steps towards legitimacy, investors were mostly excited and hoped to get in on the ground floor of a burgeoning industry. But as things in the cannabis industry begin to solidify, they want more than big promises; they want results. Just look at the cannabis company Invictus MD Strategies. When news broke that rock stare Gene Simmons would join the company as an adviser, their stock shot up faster than pyrotechnics at a KISS concert. Once reality failed to meet expectations, however, investors started to cool off on Invictus, and now the company has fallen so far as to be removed from the GMR Index altogether. This just goes to show that star power means nothing when compared to quarterly financial results.