Please ensure Javascript is enabled for purposes of website accessibility

Why Top Marijuana Stocks Are Sinking Today

By Keith Speights - Mar 9, 2020 at 10:57AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pot stocks are getting caught up in the overall market sell-off.

What happened

Shares of top Canadian marijuana stocks were sinking Monday morning in the wake of a massive overall stock market sell-off fueled by continued coronavirus worries and plunging oil prices. Aurora Cannabis (ACB -3.65%) and Tilray (TLRY) stocks were hit the hardest, with shares tumbling 7.7% and 8.3%, respectively, as of 10:38 a.m. EDT. Shares of Canopy Growth (CGC -18.57%) were falling 6.5% lower. Cronos Group (CRON -2.08%) and OrganiGram Holdings (OGI -5.45%) stocks were down 4.7% and 3.6%, respectively. 

So what

Do the coronavirus outbreak and lower oil prices really hurt the business prospects for the leading Canadian cannabis producers? Probably not very much. It's possible that some of the companies that buy products such as vape devices that are made in China could be negatively impacted if Chinese manufacturing is disrupted. On the other hand, lower oil prices should also lead to lower shipping costs for cannabis companies.

Cannabis plant in a greenhouse

Image source: Getty Images.

However, fear is in the air with the stock market in general. None of the top Canadian cannabis producers are profitable yet. They're all in an early stage industry that continues to experience some headwinds. It's not surprising that investors are bailing out of marijuana stocks since the cannabis industry itself is more speculative than most other industries.

It's also not surprising that Aurora and Tilray are getting slammed the most. Neither company has a large partner with an equity stake like Canopy and Cronos do. OrganiGram doesn't have a big partner, but it's in a stronger financial position than most of its peers thanks to management's fiscal discipline.

Now what

Perhaps the best thing for long-term investors to do is take a deep breath and sit back. Today's sell-off doesn't change the fundamental growth opportunities for any of the top Canadian cannabis producers.

There are some positive developments for each of these companies. Ontario is issuing new retail cannabis licenses beginning this month, a move that should boost retail sales for all of the leading cannabis producers this year. The Cannabis 2.0 market in Canada is just getting going. Medical cannabis markets in Europe and elsewhere continue to expand.

Of course, there are still challenges -- especially for some of the companies. Aurora, in particular, could have to raise more cash in the not-too-distant future. Not every marijuana stock is a bargain buy even after the recent carnage.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
$2.85 (-18.57%) $0.65
Aurora Cannabis Stock Quote
Aurora Cannabis
$1.32 (-3.65%) $0.05
Cronos Group Stock Quote
Cronos Group
$2.82 (-2.08%) $0.06
OrganiGram Holdings Stock Quote
OrganiGram Holdings
$0.92 (-5.45%) $0.05
Tilray Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.