What happened
Stocks in the cannabis sector often move in tandem, which is the case again today as the trading week kicked off after a holiday weekend in the U.S. Shares of Canadian names such as Tilray Brands (TLRY), Canopy Growth (CGC 20.65%), and Aurora Cannabis (ACB 12.87%) all dropped between 5% and 7% in early trading. As of noon ET, Tilray was still down 4%, while Canopy Growth and Aurora remained 3.2% and 5.4% lower, respectively.
Image source: Getty Images.
So what
The Nasdaq Composite Index on which these three stocks trade is the laggard of the major U.S. indexes this morning, helping to explain the stock's moves lower. There hasn't been any company-specific news leading the sector lower today. Tilray, in fact, released what should be considered some positive news regarding its European business.
But the lack of progress toward federal legalization in the U.S. has been an overhang on virtually all companies in the industry recently. With a midterm election on the horizon, cannabis investors are hoping to see more support offered for legislation on the topic.
Now what
Tilray announced today that it is leading a policy roundtable with German regulators as that country moves closer to adult-use marijuana legalization. The company said Germany's drug commissioner presented a plan at the meeting for an initial draft of legislation geared toward adult-use cannabis legalization would be presented in the coming months.
Tilray is perhaps the company best positioned if that comes to fruition. The company is already a leader in Europe's medical cannabis industry, with a 20% market share in Germany. With that infrastructure in place, Tilray would be able to add the recreational-use market in Europe to help springboard its goal of realizing $4 billion in annual revenue by the middle of 2024.
Canopy Growth is also pursuing growth in international markets and reported revenue nearly doubled year over year from its international medical sales in the most recently reported quarterly period. That was primarily from sales in Israel and Australia, but the company also said its German sales force is working to expand its pharmacy network.
Investors really want to see the U.S. market open up for these Canadian firms, however. There is still not a consensus among politicians to garner needed votes on federal legislation, but President Biden himself discussed the issue with U.S. Senate candidate John Fetterman over the weekend, reports industry publication Marijuana Moment.
Fetterman is currently Pennsylvania's lieutenant governor and a long-standing advocate for cannabis legalization. Few details of his conversation with the president were reported, but having the topic on the table is a first step for backers of decriminalization.
It will likely take action, however, to drive these stocks higher. Whether discussions will lead to anything concrete is unknown, which helps explain both today's move in these stocks and the greater than 50% decline of all three year to date.
