Most marijuana stocks have taken a beating in recent weeks. The Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF), which includes over 50 top pot stocks in its holdings, is down more than 20% from its peak in January.
This dismal performance isn’t only a result of continued challenges in the Canadian adult-use recreational marijuana market. There’s another factor behind marijuana stocks’ latest downturn — the coronavirus outbreak. Why would the spread of a new virus cause problems for pot stocks? Here are two key reasons…
1. An ebbing tide lowers all boats
You’ve probably heard the old saying that “a rising tide lifts all boats.” Well, an ebbing tide lowers all boats, too — or at least most of them. I know I’m mixing metaphors here, but it’s difficult for any stock to swim upstream when the overall market is tanking. This is especially the case for any stocks that were relatively weak in the first place.
Make no mistake, marijuana stocks were weak even before the initial cases of the coronavirus-caused COVID-19 disease made headlines. The lack of enough retail cannabis stores in Ontario continues to weigh on growth for Canadian cannabis producers. Most of the companies remain unprofitable. Some, particularly Aurora Cannabis, have significant debt loads.
But it’s not just Canadian cannabis companies that face significant problems. The health scares related to vaping have caused shares of some U.S.-based marijuana stocks to fall. KushCo Holdings (OTC:KSHB), for example, derived 61% of its total revenue in fiscal 2020 Q1 from vape products. The concerns about vaping were taking a big toll on the stock well before the coronavirus epidemic raised its ugly head.
This preexisting weakness made marijuana stocks especially vulnerable when the broader market nosedived. It’s not surprising that the Horizons Marijuana Life Sciences Index ETF fell more than twice as much as the S&P 500 index.
2. Products made in China aren’t being made in China
The coronavirus outbreak started in China and has affected the country more significantly than anywhere else. With the Chinese government taking aggressive actions to control the spread of the virus, the manufacturing activity in China has been negatively affected.
How does this affect marijuana stocks? Many cannabis vaporizers are…
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