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For cannabis connoisseurs, particularly in the United States, recent months have brought victory. Lawmakers in both New York and California have implemented pro-marijuana policies, and the $1 trillion infrastructure bill includes funding for cannabis research. For cannabis stocks, however, these last few weeks have seen shares move in a downward trend. Things are no different today, with a new report from Barclays calling into question the growth potential of Canadian producers.
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What Happened With Cannabis Stocks
It didn’t take long for the effects of the report to quickly take shape. Tilray (NASDAQ:TLRY), a leader within the Canadian cannabis industry, saw shares plunge this morning. The stock is currently down 12% on the day. Its peer Cronos (NASDAQ:CRON) is down by almost as much while Canopy Growth (NASDAQ:CGC) has seen shares fall by more than 9%.
Today’s declines have plunged all three stocks substantially into the red for both the week and month. Their smaller-capitalization peer Sundial Growers (NASDAQ:SNDL) has faired slightly better, but experts have expressed concern about its long-term profitability.
Why It Matters
The coverage initiated by Barclays analyst Guarav Jain included the downgrading of both TLRY and CRON to an “underweight” rating and downgrading both stocks’ price targets to $10 and $5, respectively. Those new price targets indicate downsides of 19% and 1%. While CGC’s coverage was less harsh, with an “equal weight” rating and price target of $14, that’s about as positive as the report got. Jain argued that Canadian cannabis stocks are unlikely to keep achieving sustainable growth from U.S. policies when their companies are unable to gain a market share within the country.
The underlying message from the report is that much of the growth that Canadian cannabis stocks have enjoyed has been more due to potential than actual company or industry developments. It also calls to mind the potential complications for the Canadian cannabis producers who have entered into transactions with U.S. multi-state operators. The analyst feels these deals will benefit the American companies more those based in Canada.
What It Means
The report raised some good points, calling to mind some factors that don’t tend to receive much coverage. The fact that cannabis stocks across the board have fallen as quickly and steeply as they have should serve as a good indicator that the Barclays team is at least partially correct in its predictions.
It isn’t just Canadian companies whose shares are down today, either. U.S.-based Green Thumb Industries (OTCMKTS:GTBIF) has seen shares fall by 6% today while GrowGeneration (NASDAQ:GRWG) is down by 7%, though these may indicate sympathy patterns. All the same, there’s still time for Canadian cannabis producers to continue efforts to expand into the U.S.
Until more U.S. companies spring up to grab market share, Canadian companies can still maneuver to do the same.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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