Canopy Growth Corp (TSE:WEED), Aurora Cannabis Inc (TSE:ACB) Pave Way For Sector Bloodbath
The co-drubbing of both Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) and Aurora Cannabis Inc (TSE:ACB) (OTCQB:ACBFF) (FRA:21P) guaranteed a decisively negative tone for cannabis stocks today. Nobody found refuge, as all twenty of the most capitalized Canadian companies were aggressively lower by midday. As the story image suggests, it appears investors have taken their football and gone home.
The dark tone was ingrained pre-market when doubts surfaced about Bill C-45’s ability to pass through a second reading in the Senate. Even if these concerns prove unwarranted, a close vote would crystallize opposition towards the lightening-fast legalization timeline aggressive pushed by the Trudeau government. Bill C-45 still faces the Committee Stage, Report Stage and Third Reading before royal assent becomes possible.
Such fierce opposition—at this juncture—is setting the groundwork for tough legislative wrangling ahead. This is dashing investor hopes of a smooth and quick path to cannabis legalization in Canada.
Beyond setting back domestic sales targets a quarter or two, delayed and/or amended Bill C-45 legalization could materially affect Canada’s status as a world leader in the space. Downstream, this could indirectly affect Canopy Growth and Aurora Cannabis’ ability to forge inroads in international markets—at least temporarily. Until cannabis legalization attains the full weight of Canadian government backing, business initiatives—both domestic and internationally—are left twisting in the wind.
With the Canadian marijuana sector aggressively valued (around 20-times on a price/book basis), there’s little room for any hiccups to occur. Even in the best of times, the markets loathe indecision.
It’s All About Bill C-45 Today
Adding credence to the fact that it’s all about Bill C-45 in Canada, American marijuana stocks have collectively risen today. As of this writing, the American Marijuana Index is up 0.27% to 77.88 in mixed trade.
Meanwhile, all components of the Canadian Marijuana Index (CMI)—save Invictus MD Strategies (CVE:GENE) (OTCMKTS:IVITF) which has just ticked green—are lower. The CMI is currently down 3.65% to 714.43, with Life Sciences and cannabis producers getting equally punished. As mentioned, both Canopy Growth and Aurora Cannabis have moved in tandem, breaking the recent trend of moving in opposite directions. With sector co-leader conviction decidedly bearish, the rest of the sector grudgingly followed.
Below are the gory sector numbers:
(Source: Canadian Marijuana Index, approx 2:30 pm EST)
Regardless of whether today’s selling is a one-off event or not, it’s patently clear cannabis stocks aren’t firing on all cylinders. After breaking free of its 50-Day MA recently, Canopy Growth is re-testing this level. Aurora Cannabis is poised to finish lower for an eighth straight session since testing its 50-Day MA on March 13. Overall, very few Canadian cannabis stocks are above this telling technical benchmark, both small and large cap.
As the investing world waits for the Senate decision today, it remains to be seen how long this overhang lasts. Investors may regard a tight decision as bearish for short-intermediate term sentiment, indicating that Senate resistance may be more powerful than originally thought. However, a more comfortable vote margin may assuage concerns somewhat, as Senate resistance may be deemed less problematic.
All told, today was a decisive victory for the cannabis bears. The margin of the Senate second reading vote will determine to which order of magnitude.
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