These 19 pots stocks lost 20% (or more) in October – The Fool Motley

The marijuana industry has had a groundbreaking year in many ways. We found that Vermont was accepting the use of the recreational pot through the legislative process, had the Food and Drug Administration approved the first-ever cannabis-derived drug, if there were more marijuana stocks on the NYSE or Nasdaqand on October 17, Canada legalized recreational cannabis. This is a very good year for the movement of legalization and presumably for investors.

However, in the classic "buy the rumor, sell the news", marijuana stocks fell in October. Specifically, they rallied to the eve of Canada's legalization and began a two-week fall.

Cannabis carnage in october

By the end of the month, the industry could be described as a "Marijuana train wreck". Of the 33 largest and most popular marijuana stocks, only three finished first, 27 with double-digit declines and 19 (yes, nineteen!) drop of at least 20%. That said, a 20% drop from a recent high would be interpreted as a bear market.

In descending order, here are the most mediocre pot stocks in October:

1. Capital of globalization of India (NYSEMKT: IGC): down 61.4%
2. The Dutchman Bio Vert (NASDAQOTH: TGODF): 57.2% decrease
3. Green Thumb Industries: down 38%
4. VIVO Cannabis: down 34.2%
5. Tilray: down 34%
6. FSD Pharma: down 33.9%
7. HEXO Corp.: down 33.4%
8. Cronos Group: down 33.3%
9. Aleafia Health: down 31.9%
10. Supreme cannabis company: down 31%
11. Namaste Technologies: down 29.9%
12. Aurora Cannabis: decrease of 29.2%
13. CannTrust Holdings: down 29%
14. Canopy Growth Corp. (NYSE: CGC): decrease of 24.2%
15. Therapeutic Cara: down 21.8%
16. GW Pharmaceuticals: down 20.4%
17. Auxly Cannabis Group: down 20.4%
18. iAnthus Capital Holdings: decrease of 20.1%
19. OrganiGram Holdings: decrease of 20.1%

While the industry as a whole had bathed in October, three trends certainly emerged, at least among the worst pot actions.

Producers were sabotaged at all levels

One trend, without question, is that cannabis producers have all been hit hard enough. The best result among the top 10 producers estimated in terms of peak performance was Aphria, and it ended up down a little over 14%.

Why were producers hit so hard in October? This probably has to do with the maturity of the industry. Of course, investors have a hard time understanding the lesson, but recreational marijuana is now legal in Canada, so the time for promises is over. On the contrary, investors will want to see tangible growth in sales and profits, which may be difficult to obtain for a few years.

For example, Canopy Growth Corp. brings a number of benefits to investors. This will likely be the second largest producer in terms of maximum production, given the development of its 5.6 million square foot space. It also has a wide range of channels to sell its product and is hip related with Constellation Brands, which invested $ 3.8 billion in Canopy Growth in mid-August.

But what Canopy Growth does not have are recurring profits. Expenses devoted to expanding capacity and its international infrastructure will be so aggressive that it could continue to lose money until 2020. Add to that the shortages of initial products. (but planned) and the state of Canopy results could disappoint. It is not surprising that producers took it on the chin in October.

Firms without tangible output were the hardest hit

Since investors want tangible results, pot shares have nothing to offer, but the promises of the moment are absolutely devastated in October. I'm looking at you, India Globalization Capital and The Green Organic Dutchman.

India Globalization Capital was up more than 1,000% just weeks after announcing its intention to enter the market for energy drinks containing cannabidiol (CBD). CBD is the non-psychoactive component of the cannabis plant, better known for its medical benefits. Again, the idea of ​​India Globalization Capital's DBC drinks does not fit in perfectly with its other off-the-wall activities, which include the search for an isolated cannabinoid drug for Parkinson's disease and its existing infrastructure inherited from the exchanges of steel and iron ore. This puzzle of a pot stock was doomed to failure and was notified last week of delisting from the NYSE.

Then there is The Green Organic Dutchman, which is expected to be the fourth largest producer in terms of annual yield, with 195,000 kilograms. There is just one problem: it will not even record its first sale until the first half of next year. Green Organic Dutchman is so far behind its peers in production that it runs the risk of losing extremely lucrative supply contracts. In summary, I am not at all surprised that it was reduced by more than half in October.

Auxiliary actions at the call of the brand have resisted better

On the other hand, auxiliary marijuana stocks (that is, companies that do not deal directly with the cannabis plant) or brand-name companies with a minority exposure to the pot industry, have tended to to outperform in October.

Notably absent from the list of the worst performers above are names like KushCo Holdings, Innovative industrial properties (NYSE: IIPR), and Scotts Miracle-Gro (NYSE: SMG), which fell by around 11%, 15% and 15% in October. Note that stock indexes plunged 6% to 10% last month, so the performance of these volatile stocks of auxiliary jars was not significantly worse.

For example, Innovative Industrial Properties is a cannabis real estate investment trust that owns medical marijuana facilities and leases them for 15 years most of the time. With integrated lease increases and management fees, Innovative Industrial Properties has created a platform to generate predictable cash flows over a long period of time while leveraging demand for cannabis in the United States. More importantly, it is already profitable, which means that investors are getting the tangible results that they want.

At the same time, Scotts Miracle-Gro relied solely on its subsidiary Hawthorne Gardening for 11% of its total sales in 2017. Hawthorne provides hydroponics, lighting, soil and nutrient solutions to the plant. cannabis industry for medical purposes. Although Hawthorne has struggled a bit in 2018, Scotts can rest from its main lawn and garden business to do the heavy lifting, again offering the tangible results that marijuana investors are looking for.

Volatility should be expected with pot stocks, but ancillary players and well-known brand companies seem to be surviving to the best of their ability.

Sean Williams has no position in any of the actions mentioned. The Motley Fool recommends Auxly Cannabis Group, CannTrust Holdings Inc., Constellation Brands, Hexo., Innovative Industrial Properties, KushCo Holdings, Namaste Technologies, Nasdaq and OrganiGram Holdings. Motley Fool has a disclosure policy.