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Why Marijuana Stocks Are All Over the Map Tuesday

By Rich Smith - Dec 1, 2020 at 1:50PM

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One marijuana stock has even swung 40% top to bottom -- all on no obvious news.

What happened

The election is over. Joe Biden and Kamala Harris have won. In a few short weeks, we're scheduled to inaugurate an administration whose stated policy is to "decriminalize marijuana, and ... expunge the records of those who have been convicted of marijuana" on a national level.

You might think that now that the election has been settled, marijuana stocks would go on a tear, rising inexorably and never looking back -- but in fact, as of 12:40 p.m. EST today, they're all over the map:

  • Aurora Cannabis ( ACB -5.21% ) down 7%;
  • Aphria ( APHA ) down 6.5%;
  • and Sundial Growers ( SNDL -4.73% ), a small-cap producer of marijuana for recreational use, swinging wildly -- surging 30% in the morning only to plunge 10% below yesterday's closing price closer to noon, and currently just about where it started the day, up a bare 0.2%.
Close-up of marijuana plants

Image source: Getty Images.

So what

What the heck are marijuana investors thinking? It's very hard to say, but here's what we do know.

Historically, Aurora Cannabis has been considered one of the bellwethers of the marijuana market, but this morning Aurora got its bell rung when the Canadian press reported that the company is laying off 30 workers and "indefinitely pausing operations" at one of its Alberta cannabis production facilities. CanadianManufacturing.com notes that Aurora is saying its production pause is necessary to "ensure all of its operations are a fit for its current and future business and to help the company adjust to recent shifts in the industry." That sounds reasonable -- but it also sounds like an expansion of Aurora's previous plans to lay off 700 workers and shut down production at five facilities across Saskatchewan, Ontario, Alberta, and Quebec.  

And on top of this, Reuters is now reporting that other Canadian growers are looking to scale back investments in Europe, citing "pressure to cut costs and deliver profit."  

Now what

This latest news could affect Aurora and Aphria directly, as the former operates a distribution network in Germany, while the latter has established production hubs in Denmark. But Reuters cites analysts worrying that the marijuana market may grow slower than expected "especially in newer or smaller markets" outside of Europe as well -- and right now, the newest market of all is the one that hasn't yet been legalized in the U.S.

When you take these media rumblings and combine it with the evident worries over profitability, and the fact that none of Aurora Cannabis, Aphria, or Sundial are currently anywhere near profitable, while all three of them are burning enormous amounts of cash -- $462 million, $222 million, and $113 million, respectively -- it's pretty clear now why marijuana investors are nervous:

Just because marijuana might soon be legal across the U.S. doesn't necessarily mean it will be profitable -- at all.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$5.82 (-5.21%) $0.32
Aphria Stock Quote
Aphria
APHA
Sundial Growers Inc. Stock Quote
Sundial Growers Inc.
SNDL
$0.56 (-4.73%) $0.03

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

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