A sector that once delivered piles of green to its investors is now largely being drowned in red.
Canopy Growth (CGC) has joined Tilray (TLRY) and a slate of other cannabis companies to recently deliver unexpectedly poor results or news to shareholders. The industry bellwether posted a significant miss of both top and bottom line estimates in its fiscal first quarter, with an eye-popping net loss of $1.28 billion ($961 million).
“Canopy Growth is under a microscope, especially with its recent CEO departure,” Innovation Shares’ Matt Markiewicz told Yahoo Finance’s The Ticker. Markiewicz runs The Cannabis ETF (THCX) — the first “pure-play” cannabis ETF to trade on the New York Stock Exchange.
“Regulatory stories in the industry, especially up in Canada, have weighed on the sector. It’s more of a series of issues that have been weighing on these stocks,” according to Markiewicz.
CannTrust (CTST) has become a poster child for the sort regulatory problems impacting the cannabis industry. Its shares have been battered in the wake of reports that the company was violating rules in at least two of its Canadian growing facilities.
“A very tough pill to swallow”
Markiewicz acknowledges it has been a rough ride for cannabis investors lately. “We’ve seen certain months [with] stocks that are up 80% and some stocks are down 60%,” he says. “That’s a very tough pill to swallow for a lot of investors.”
He advises investors to avoid betting on individual cannabis stocks to help steer clear of volatility. “Taking a diversified approach to building a cannabis portfolio is the best route,” Markiewicz argues. “That’s why we built a broadly diversified basket of cannabis stocks.”
Markiewicz views the cannabis industry as a collection of several sub-themes. “It’s not just what we call a ‘seed to sale’ story — so you have ancillary plays in the sector like a Scotts Miracle-Gro (SMG).” Scotts Miracle-Gro, a pest-control multinational corporation and one of The Cannabis ETF’s top 10 holdings, is up about 70% so far in 2019.
Despite the cannabis industry’s recent turmoil, Markiewicz remains bullish on its long-term prospects.
“This is, in our view, a very generational investment opportunity. It’s still the early days here in cannabis,” he says. “This is just the beginning of what we feel will be a massive global sector—not just a North American story.”
Nick Robertson is a senior producer at Yahoo Finance.