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Alberta Cannabis Inc / Document via REUTERS
- Cannabis stocks plunged Thursday as optimism around federal decriminalization and the bullish trend of Reddit traders faded into profit taking.
- Tilray, Aphria, Aurora Cannabis, Cronos, and Canopy Growth all slipped amid the massive sell-off.
- Members of the Wall Street Bets Reddit page had applauded the shares on the rise as they did with GameStop in January.
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Pot stocks tumbled from highs seen earlier in the week as the momentum of casual traders uniting on Reddit collapsed.
Tilray led the industry’s losses, dropping as much as 34%. Aphria and Aurora Cannabis fell 27% and 19%, respectively. Cronos fell 16% to intraday lows and Canopy Growth plunged 18%.
The cannabis growers group rallied throughout the week in hopes Democrats would pursue federal decriminalization of marijuana soon. Canopy CEO David Klein told investors on Tuesday that he expected the Biden administration to decriminalize the drug and expand the U.S. market this year. Tilray chief executive Brendan Kennedy said his company expects federal legalization to be completed within the next 12 to 18 months.
The sector received a second boost from traders on Reddit during Wednesday’s trading. Members of the r / wallstreetbets forum began touting Tilray, Aphria, and other cannabis growers as the next stocks to generate outsized gains. Posts offering massive returns on pot stock options have climbed to the top of the Reddit page and garnered thousands of comments.
Read more: Reddit traders pile up in cannabis stocks, push up valuations, but experts say they’re betting on the wrong companies
As markets closed on Wednesday, several jar stocks were at their highest level in years. Exchange traded funds including Global X Cannabis, ETFMG Alternative Harvest and Amplify Seymour Cannabis were the top performing ETFs of the year to date.
The enthusiasm of traders now seems to have died down. Profit-taking topped the stock rally from the pot when the market opened on Thursday, immediately pulling stocks down sharply.
The sudden reversal calls into question the ability of Reddit traders to lead sustainable rallies. The GameStop phenomenon that dominated market chatter in January also eased this month as those who racked up profits or downplayed losses. Wall Street Bets day traders have rallied around other stocks since, but not with the unity that fueled GameStop’s boom.
To be sure, tumbling pot stocks in Thursday’s trading remain well above prices seen last month. Tilray, for example, remains up 421% since the start of the year.
Read more: Bank of America shares 9 stocks to buy as pandemic prompts consumers to shift spending habits towards ‘lonely leisure’ activities like golf and cycling
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