You’ve probably seen a lot of people blaming Aphria for the recent cannabis stock downturn. They’re wrong. Here’s the real story…
We saw a little bit of downside volatility in the NICI 50 index and in cannabis stocks generally last week. It was the first real downdraft since the cannabis market turned up with the overall equity market in late December of 2018.
Whenever these downturns occur, I get a lot of questions.
“What’s going on?”
“What’s driving the market lower?”
And, of course, “When will things turn back around?”
And in this case, the answer is simple: Cannabis is doing just fine, the overall market is driving cannabis stocks lower, and I don’t know when things will turn, but they will.
That’s not very satisfying, is it? But it is the truth.
Let me explain.
When the cannabis market turned down in November and December, it turned out that the stocks were selling off in the context of a worldwide rout of riskier assets. Tech stocks got crushed, emerging markets’ stocks were down, even blue-chip stocks got hit. It was only natural that cannabis stocks would have their turn in the punishment room.
These graphs will show you what I’m talking about…
Cannabis industry bellwether Canopy Growth (NYSE: CGC, TSX: WEED) declined by 34.6% between the October 23 launch of Cannabis Profits Daily and Christmas, which marked the low point for most cannabis stocks. That’s a big decline. But Apple (NASDAQ: AAPL) was down by almost the same amount – 34.1%.
And there was a reason Apple was down. It turns out that there is the possibility of a recession in China, so Chinese consumers haven’t been scooping up as many iPhones as people thought they would. There is also the possibility that trade tensions between China and the United States could eventually increase Apple’s costs.
So why was Canopy down? Canopy was down because all stocks were down, and all stocks were down partly because of the possibility of a recession in China. If that makes no sense to you at all, that’s good. It’s nonsensical. It’s just the way stock markets trade these days.
A Reality Check in Our Favor
But as I’ve said, eventually reality moves the stock market, not the other way around. Eventually, people realized that Canopy Growth was a Canadian cannabis company. No one in China will ever choose to buy or not to buy their products. So Canopy and other cannabis stocks recovered and then added more to their prior high levels. Let’s look at that same chart through today.
Canopy is back. Apple only came back a little, because there are still those Chinese consumers out there who might not buy an iPhone this quarter.
What about this time? What sent the NICI 50 index down nearly 5% in two days last week?
The same thing. The world is getting a little nervous about its big, global stocks. A slowdown in China, zero growth in Europe, trade tensions, Brexit, central bank doings – all of these things have investors jittery. And since cannabis is considered among the riskiest asset classes, some of the first and strongest sell signals come in that sector.
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I will say that there’s one thing which did NOT send the sector down.
You may have seen articles blaming the declines on Aphria (NYSE: APHA) rebuffing Green Growth Brands’ (CSE: GGB, OTC: GGBXF) hostile takeover offer or on the news that New York City’s restaurant regulator is cracking down on CBD. I’ll have more to share on that restaurant story later this week, but know that it did not send stocks down.
Whenever stocks decline, financial journalists scramble to find the reason why – and most often they get it wrong.
This time, though, reality seems to be catching up more quickly. As I write this, stocks are down .6%, the NICI 50 index is basically flat, and the stocks in our model portfolios are doing better than that – most are up for the day.
No one can guarantee that will continue, of course – and you shouldn’t listen to those who claim they can. But my message to you is that this kind of short-term volatility is normal, particularly after a period of big gains like we saw in January.
It’s nothing to worry about, and it’s certainly not a signal that it’s time to sell anything! In fact, you might use any price backup to add to some cannabis positions you especially like.
Thank you again for being an important member of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
P.S. We’re about to see an explosion of new cannabis IPOs hit the market. And for smart investors who get in on IPO day, the gains can be incredible. We’re talking about the potential for each of these stocks to soar 200%, 500%, 1,000%, or more, practically overnight. And today, we’ve uncovered two potentially high-flying companies set to go public that you can’t afford to miss out on. Just click here to find out more.
17 responses to “No, Aphria Did Not Crash Cannabis Stocks”
February 11 2019