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Why Hexo, Canopy Growth, and Aurora Cannabis Stocks Are Dropping Today

By Rich Smith - May 13, 2021 at 3:20PM

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It's good news for marijuana legalization -- but bad news for cannabis stocks.

What happened

On a bright day for the stock market in general -- the S&P 500 is up a solid 1.5% -- marijuana stocks are wilting today. As of 2:35 p.m. EDT, three of the best-known names in the sector, Hexo (HEXO 1.67%), Canopy Growth (CGC 7.41%), and Aurora Cannabis (ACB -4.42%), are down 3.1%, 3.6%, and 5.3%, respectively.

So what

Scan the newsfeeds today, and there's no bad news to be found. No negative press releases from any of the companies themselves. No downgrades from stock market analysts -- not so much as a lowered price target.

Cartoon characters confused by stock chart arrow falling and crashing into floor

Image source: Getty Images.

Actually, the contrary is true. If there's any news of relevance to report today, it's that in the halls of Congress, two Republican lawmakers have just introduced a bill to legalize marijuana at the federal level, and to "protect banks that service state-legal cannabis business and ensure that military veterans are specifically permitted to use marijuana in compliance with state laws," reports

When viewed in conjunction with last month's news that Senate Majority Leader (and Democrat) Chuck Schumer has called "to end the federal prohibition on marijuana in this country," this certainly seems to suggest that there's now bipartisan support, and support in both bodies of Congress, for legalizing marijuana federally.

Now what

Why would this development translate into falling stock prices for cannabis stocks like Hexo, Canopy, and Aurora? It honestly makes no sense to me -- except for one thing.

Hope for a national marijuana legalization bill has been behind the surge in marijuana stock prices ever since then Democratic presidential and vice presidential candidates Joe Biden and Kamala Harris threw their support behind the idea in last year's campaign. It's the catalyst that investors have been hoping would lift their stocks higher. But if and when legalization happens, what then?

Then, the onus may fall upon Hexo, Canopy, and Aurora -- each of which sells cannabis legally in Canada today, but hasn't been able to make a profit off of it -- to explain why they can't make a profit off of legal marijuana in the United States, either.

In the end, the most important factor moving marijuana stocks may not be legalization -- but profits.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
$1.73 (-4.42%) $0.08
Canopy Growth Stock Quote
Canopy Growth
$4.06 (7.41%) $0.28
HEXO Stock Quote
$0.26 (1.67%) $0.00

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