What happened
Several Canadian marijuana stocks plunged on Friday as worries about the novel coronavirus, COVID-19, caused the major market indexes to fall. Shares of the biggest Canadian cannabis producer, Canopy Growth (CGC -3.01%), were down by 10.5% as of 3:02 p.m. EST. Shares of Aurora Cannabis (ACB -6.81%) were sinking by 11.5%. Village Farms (VFF -3.79%) and Emerald Health Therapeutics (EMHT.F) stocks were falling by 11.2% and 11.6%, respectively.
So what
What does the coronavirus outbreak and the spread of COVID-19, the disease caused by the novel coronavirus, have to do with marijuana stocks? Not very much.
Some companies that sell vape products manufactured in China could be impacted by disruptions to the country's economy. It's also possible that retail cannabis sales could be negatively affected if consumers choose to stay home due to fears about being infected by the coronavirus.
Image source: Getty Images.
Mainly, though, what we're seeing is investors' fear. They're concerned that the coronavirus outbreak could lead to an economic recession, so they're moving their money to cash and other assets that are viewed as safer than stocks.
Canopy Growth, Aurora, Emerald Health, Village Farms, and other Canadian pot stocks are being hit especially hard because they're not consistently profitable yet. These companies also face industry headwinds, including a slow expansion of retail cannabis stores in Ontario.
Now what
There's no way to know how long the overall stock market downturn will continue to drag down marijuana stocks. For investors who remain confident about the long-term prospects for the global cannabis industry, today's sell-off could be a buying opportunity.
But even if coronavirus fears wane, some marijuana stocks are better picks than others. The stocks of companies with stronger financial positions should be less risky than those of companies that could quickly run out of cash.
