Stock markets opened higher on Monday, and as of noon ET, the Dow Jones Industrial Average is up a solid 1% -- but don't try to tell marijuana investors. They're going through their own private bear-cub market today, with shares of Canopy Growth (CGC 5.39%) falling 2.7%, Tilray Brands (TLRY 0.54%) down 3.4%, and Aurora Cannabis (ACB 2.29%) leading the pack lower with a 4.1% decline.
What's got marijuana investors so spooked? There's not a lot new happening on the regulatory front today -- no really big changes in the prospects for federal marijuana legalization. What there is though, is a bit of headline risk that may affect the extent to which marijuana gets legalized in the United States, once legalization finally happens.
There's a movement in Congress -- which is largely in favor of legalizing marijuana... eventually -- to carve out an exception for marijuana edibles. Citing "an explosion of marijuana use among children," the 156-member House Republican Study Committee (which makes up about 35% of total votes in Congress) is advocating that, even if marijuana, in general, is allowed to be legalized, marijuana edibles "in the form of candy or beverages" should remain illegal due to the risk that such things as cannabis-infused gummy candies will be consumed by small children.
And over the weekend, it became apparent that that risk is very real. As The Today Show reported on Sunday, a mother in Virginia has been charged with felony child neglect and felony murder after her 4-year-old son allegedly ate a "large amount" of her THC-infused gummies -- and died.
Now this may be an isolated incident and even a freak accident. Today, at least, wasn't able to find any other instances in which marijuana edibles resulted in a child death and a murder case. But the incident is sure to become ammunition for legislators citing the need to keep restrictions on edibles sales in order to protect kids. And as I pointed out earlier this month, the sales of edibles are by far the most profitable form of marijuana sales for cannabis companies, commanding gross profit margins as high as 92%.
Should this most profitable pot product remain banned by federal law, or should publicity of the Virginia murder case cause states to reestablish restrictions on edibles sales, that could potentially crimp profits for marijuana stocks such as Aurora, Canopy, and Tilray. It could delay the day when these companies finally become profitable, or even prevent net profitability entirely.
Although I still believe legalization looks inevitable at this point, the chances for legalization of marijuana companies' most profitable product now look more doubtful. Investors selling marijuana stocks today appear to agree.