Could Volatility In Cannabis Stocks Be Following The Crypto Trajectory?

CannTrust Holdings price chart

Welcome to July. Investors in the cannabis sector undoubtedly were more than happy to flip the page on the calendar to begin a new month and get on with the second half of the year as they attempt to put the last quarter behind them.

The so-called ‘pot stocks’—which saw some major spikes earlier this year—were among the worst performers in the last quarter on both the American and Canadian exchanges as the sector limped along, dealing with everything from worse-than-expected earnings to continuing supply issues. But could the trend be nothing more than the inevitable growing pains of an emerging sector that is destined to disrupt well-established industries?

Investors who got into the cannabis sector looking for rapid accelerated growth could compare their experience to those who jumped on to the cryptocurrency roller coaster. That asset class, which is experiencing renewed interest of late after prices resumed their upward trend, is seeing some serious volatility as well.

Established, Growing Market

But there is a big difference between the two sectors: the ultimate timeline. The cannabis market already has an established customer base that is poised to expand—and possibly explode—with the next phase of legalization of edibles in Canada and the eventual legalization of recreational weed use in the U.S.

Despite the drops in the last three months, most major cannabis stocks continue to perform well on a year-to-date basis, however. For those who have been watching from the sidelines, this lull might be exactly what they have been waiting for to jump in.

Q2’s Worst Performers

Of the biggest cannabis players, the worst performer during the second quarter of 2019 was CannTrust Holdings Inc (TSX:), (NYSE:), which lost just over 36.5% in the U.S. in the three-month period that ended June 30, and just over 37.5% in Canada.

On the New York Stock Exchange, the Ontario-based medical marijuana producer lost almost US$3 a share in the last three months, closing at US$5.12 Monday, while on the Toronto Stock Exchange it closed at C$6.56 last Friday before the Canada Day long weekend, down about C$4 since the beginning of April, when it stood at C$10.54.

Other weed stocks that took a battering in the last quarter were Aphria Inc (TSX:), (NYSE:), which dropped about 30% on both sides of the border, and the Toronto-based Tilray Inc (NASDAQ:) which only trades on the Nasdaq, lost almost 24.5%.

Rounding out the poor performers were Hexo Corp (TSX:), (NYSE:), Aurora Cannabis Inc (TSX:), (NYSE:), Cronos Group Inc (TSX:), (NASDAQ:) and Canopy Growth Corp (TSX:), (NYSE:).

Quebec-based Hexo Corp. lost 20.5% in the U.S. and about 22.5% in Canada, while Aurora Cannabis lost almost 15% on the U.S. exchange and just under 16% on the S&P/TSX Composite from April to June. Cronos Group saw its share price drop more than 14% in New York and just under 16% in Toronto in the past three months.

Canopy More Resilient

Given all that downward momentum, Canopy Growth fared by comparison. The largest cannabis company in the world saw its share price drop only about 4% in the U.S. and just over 6.5% in Canada between April and the end of June despite the fact that the Ontario company reported ballooning that were more than four times worse than what analysts were expecting.

Looking at the Wider Context

Despite the poor showing in the last quarter, no one should lose sight of the wider context. Just about all of the cannabis stocks have performed pretty well in the first half of 2019, with most tallying spectacular returns, with two exceptions. Here are the percentage changes for each in the first six months of this year:

Aurora Cannabis: +49.2% in the U.S., +44.7% in Canada

Cronos Group: +40.9% in the U.S., +36.4% in Canada

Canopy Growth: +40.8% in the U.S., +34.6% in Canada

Hexo Corp.: +40.36 in the U.S., +34.16% in Canada.

Aphria: +15.6% in the U.S., +13% in Canada

CannTrust Holdings: -2.18% in the U.S., -7.3 in Canada

Tilray: -32.4% in the U.S.

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