What happened
Marijuana stocks closed Tuesday trading broadly higher -- and the smaller they were, the higher they popped.
Tiny HEXO (HEXO) closed the day up 7.9%, while Aurora Cannabis (ACB 12.87%) rose 6.8%, and industry bellwether Canopy Growth (CGC 20.65%) closed out the day with a 5.8% gain.
Image source: Getty Images.
So what
Why did marijuana stocks rise today? In the absence of obvious catalysts like market-moving analyst upgrades or price target increases, it's not 100% clear what investors were responding to today.
They may, for example, have drawn encouragement from news of U.S. cannabis grower Verano Holdings' reverse-merger IPO on the Canadian Securities Exchange, and the $2.8 billion value investors attached to it. MJBizDaily reports that "capital is loosening" in the marijuana industry, meaning that it is getting easier to attract financing (and investors), now that the U.S. presidential election is definitely over and a marijuana-friendly administration is set to take office next month.
Or investors may have gotten excited by an early-morning item on MarketWatch detailing a trading outlook for 2021 from MKM Partners, in which the investment broker announced a series of "winning stock themes" for the new year, cannabis being among them.
Now what
If it was the latter that investors were responding to, though, they may want to read a bit further down, and not stop at the headline. In that article, MKM explained that its preference was for a certain flavor of cannabis stock in particular -- specifically, "multistate operators" growing in more than one U.S. state.
Coincidentally, soon-to-be IPO Verano Holdings is one such multistate operator, as it's headquartered in Chicago, "active" in 12 states, and in possession of 440,000 square feet of cannabis cultivation facilities. So, too, is MKM's specific pick in the sector, Curaleaf, with its 15 cultivation sites, 24 processing sites, and 57 dispensaries spread across 18 U.S. states. In contrast, according to data from S&P Global Market Intelligence, all of HEXO's assets are located in Canada, as are the vast majority of Aurora Cannabis and Canopy Growth assets. Thus, none of these three marijuana stocks that moved today seem to fit neatly into the investment thesis that MKM outlined.
More importantly, all three of these stocks are still losing money and burning cash (as, indeed, is Curaleaf). Before getting swept up in today's marijuana stock rally, therefore, investors might want to do a gut check and ask how long they can afford to be patient for these stocks to turn a profit -- because according to analyst estimates, it's going to be at least 2023 before HEXO becomes profitable, and 2024 for Canopy Growth, and 2025 for Aurora Cannabis.
