Risks ahead for investors in cannabis funds

Article Excerpt

When we last wrote about cannabis companies and ETFs in mid-2018, Canada was about to become the second country in the world to legalize recreational marijuana. In the months to follow, investor enthusiasm propelled stock prices to very high valuations in relation to their market caps. Subsequently, most cannabis stocks moved steadily downward. Notably, many spiked back up in February 2021, spurred by frenzy centred around Canopy Growth—and bigger expectations of legalization in the U.S. However, prices have since drifted back down again. Nevertheless, companies that survived are in a better position to take advantage of the continuing move toward full legalization in the U.S., as well as improving profit margins and more management stability. Unsettling corporate upheavals In the 2018 to 2019 marijuana market, when investor capital was readily available, several Canadian cannabis companies raised funds to make acquisitions, sometimes at inflated prices, or to rapidly expand production capacity to gain market share. However, as the hyped expectations of growth failed to materialize,…

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