The Green Market Report Cannabis Company Index fell sharply in the first-quarter of the year, dropping 21.9 percent, with only a few components ending the period in a positive manner.
Much of the concern came from an increasingly hostile regulatory environment, as U.S. Attorney General Jeff Sessions rescinded the Cole Memorandum. While the full results of the rescinded memorandum have yet to amount to anything more than tough talk out of Washington, it has put a damper on the sector in the short-term.
There’s also been a cooling of the market in Canada as well, despite extreme optimism from investors that the country would legalize cannabis for adult use. Instead, Prime Minister Justin Trudeau and his team have hinted that recreational use could start in the fall, as opposed to July, as had been previously thought.
Much of the downfall seen in the U.S-based stocks occurred due to a correction in the so-called “California trade,” where investors were buying shares of companies hand-over-fist in anticipation of California’s legalization that began in January. The rollout of the legalization has been bumpy, with legal sales taking a back seat in some cases to black market sales due to heavy taxation in some cities and counties; as such, some cities, such as Berkeley, Calif., which recently cut the tax it placed on sales of legalized marijuana to 5 percent, down from 10 percent.
Signs Of Hope
Despite the negative headwinds seen throughout the broader cannabis sector, there were a few standouts in the index, most notably MariMed (MRMD), which gained 46 percent. The company, which participates in the red-hot Nevada market with its Kalm products, was able to raise $2.8 million in the quarter, pay off some existing debt and develop facilities in Maryland and Massachusetts.
Other companies that performed well in the index were Invictus MD Strategies (IVITF) and Kush Bottle (KSHB), which gained 16 percent and 14 percent, respectively. The only other company that had a positive return for the first three months of 2019 was Canopy Growth, which squeaked out a 0.92 percent gain.
Losers Really Struggle
Losers in the index really struggled, including Axim Biotechnologies (AXIM), which plunged 65 percent. The company is working on a chewing gum formula for medical marijuana, but investors are currently uneasy about the company, at least in the short-term, as evidenced by the 71 percent decline seen in its shares over the past year.
Other losers include Namaste Technologies (NXTTF), which dropped 50 percent, WeedMD (WDDMF) and Aohria (APHQF), both which fell 44 percent, respectively.
Changes To The Index
Green Market Report announced changes are being made to the index, adding Hiku Brands (DJACF), removing Corbus Pharmaceutical (CRBP), as Green Market has made the determination the company does not have “much real exposure to cannabis.”
Though Hiku Brands offers promise for the future, thanks to its DOJA, Tokyo Smoke and Van der Pop brands, the company has not issued a financial statement since significant changes took place in recent months, with the last coming in Sept. 2017 and no revenue to speak of.
Brighter Days Ahead?
Despite the negative headwinds seen in the first-quarter, there are some recent positives for investors to grasp onto, most notably Sen. Majority Leader Mitch McConnell (R.-KY) introducing a bill that would remove hemp from the controlled substance list, potentially paving the way for it to be a cash crop similar to tobacco or cotton.
In addition, former Speaker of the House John Boehner joined the board of directors of cannabis company Acreage Holdings. And just last week, Senator Cory Gardner (R.-CO.) said that he had a telephone agreement with President Donald Trump to “protect states that have legalized marijuana,” including California, Colorado, and Nevada.
In total, 9 states have legalized marijuana for recreational use. The majority of states allow marijuana to be used for medicinal purposes, while just Idaho, South Dakota, Nebraska and Kansas prohibit the use of cannabis.