Cannabis stocks have fallen on the territory of the bear market

Maybe it's just a sign that the fall is here, but marijuana stocks like Tilray and Aurora Cannabis have suddenly gone from green to red. Key stocks in the budding cannabis sector lost more than 20% last week – a figure generally used to measure a bear market.

The largest cannabis-traded fund, the ETFMG Alternative Harvest ETF of $ 750 million, fell 9.5% on Monday, peaking at 22% in the last five trading days. Meanwhile, Horizons Marijuana Life Sciences ETF, which trades on the Toronto Stock Exchange, lost 11.6% Monday and 24.3% last week. A week ago, both funds reached a record. Now both are down about 4% since the beginning of the year.

Speculative inventories of cannabis registered the largest declines. Tilray, the first cannabis company listed on the Nasdaq, fell 21% on Monday afternoon, before rebounding slightly to $ 122.60 at the close of the market, down 16% on the day. The OTC shares of Aurora Cannabis, which is officially traded in Toronto and is considering going public in the US, fell 20% before closing down 13% to $ 8.69 a share.

Tilray shares have lost 31% of their value over the past five trading days, while Aurora shares are down 29%.

With recreational marijuana becoming legal in many places, cannabis stocks have become a speculative habit this year, establishing comparisons with bitcoin because of the speculative bubbles generated in markets that are likely to become viable over time.

Many cannabis stocks have come together as a result of the legalization of marijuana for recreational purposes in California and other states, in anticipation of Canada's decision to legalize the pot at the national level. Investment conferences, such as the Private Cannabis Investment Summit last month in Toronto and Institutional Capital & Cannabis in New York, have also helped fuel interest in marijuana stocks.

It is not uncommon for speculative stocks to begin to decline, which is paradoxical, once announced a long-awaited news. This seems to have been the case with Canada's decision to legalize the pot. Investors who had been betting on the pot stock over the past few weeks or months were able to take profits, which prompted other investors to sell some of their shares as soon as this profit-taking started to weigh in. the share price.

One of the reasons for the volatility of cannabis stocks is that while many US states have legalized marijuana, it remains illegal at the federal level. For this reason, investors in new cannabis companies tend to be wary of the possibility that the Department of Justice will crack down on states that allow the sale of pot for recreational use.

Such caution, coupled with the feeling that cannabis startups have reached surprisingly high valuations, could contribute to last week's profit-taking. If positive news about the sale or use of legal marijuana appears, it is possible that some of these actions will eventually reach a high level.