The Canadian Marijuana Index plunged nearly 19 per cent on Friday.
Marijuana stocks shook in the middle of a wave of “panic-selling” and concern that companies that had seen rising share prices recently are now overvalued.
The BI Canada Cannabis Index plunged as much as 19 percent, its biggest drop on record.
“There’s a lot of investors that got in in the last month and many of them are looking at significant losses,” PI Financial analyst Jason Zandberg said by telephone. “It now looks like it’s a pile-on. There’s a bit of panic selling.”
After growing nearly four-fold in value in the last months of 2017, Canadian pot stocks peaked in early January and have since lost about 35 per cent.
That sort of rapid growth led to rampant speculation that weed stocks were in a speculation that itself may have soured investors on the stock.
Shares of Canopy shook as much as 16 percent in Toronto to the lowest intraday price in six weeks, while Aurora dropped 17 percent and Aphria Inc. fell 14 percent.
The plunge comes after some market leaders more than doubled in value since November amid optimism that Canada will legalize pot this year. Last month, Aurora Cannabis agreed to acquire CanniMed Therapeutics Inc. in a C$1.23 billion ($1 billion) deal that’s the largest merger ever in the red-hot industry.
On Friday, the government’s statistics agency released new data that shows Canadian marijuana costs C$6.85 ($5.53) a gram. Earlier estimates suggest weed prices have been falling in recent years as illegal producers boosted output in recent years, potentially cutting into the revenue for publicly traded companies that hope to tap into the new market.
Concern that companies are overvalued has helped spark the decline, Zandberg said. While some of the periphery cannabis stocks will probably not survive in the long term, there is enough demand in Canada to transfer over to a legalized market and the industry leaders will thrive, he said.
“People are panicking because they are losing their money,” Chris Damas, editor of the BCMI Cannabis Report, said in an email. “Stocks are in bear market territory.”
“Everyone compares this to the dot-com era,” Damas said, “You could throw a dart and hit a winner in cannabis.”
Sources inform, every single stock that makes up the Canadian Marijuana Index lost ground on Friday, with market leader Canopy Growth, the largest publicly-traded pot grower, down more than 12 per cent.
Summing up, some $2.7 billion was wiped off Canada’s marijuana markets on Friday alone.
According to Canadian, Friday morning’s selling is probably the peak and stocks will likely stabilize from here. Still, the Canadian cannabis shares have been overbought and have probably seen their highs for the year, he said.
The nation’s largest producers including Canopy Growth Corp. and Aurora Cannabis Inc. tumbled more than 40 percent from their January highs.
In the U.S., the Dow Jones suffered a steep 665-point drop, down 2.6 per cent to 25,520.96. The index saw its worst week in about two years, dropping about 1,000 points for the week.
Mike Baele, managing director at U.S. Bank Wealth Management, said a lot of the downward pressure has to do with fears that interest rates will be rising.
“The old adage is: ‘Bull markets don’t die of old age, they are killed by higher interest rates.’ That looms large,” he said.