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 5.48%) down 7%;
- Aphria (APHA) down 6.5%;
- and Sundial Growers (SNDL 1.72%), 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%.
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."
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.