Tax season may have played a large role in many cannabis companies’ share prices declining hard in the second quarter of 2017. Large gains were seen by many licensed producers at the beginning of the year with all the investor and consumer enthusiasm after voting last November.
The first half of 2017 was a tough period for cannabis investors and this has left many concerned.
Although the first quarter was not too rough, we saw several stocks move considerably lower in the second quarter.
During the first quarter, Canadian marijuana stocks were the hottest place to invest and we continued to see interest despite the frothy valuations. Just like 2014, we saw a surge in the number of Canadian marijuana companies going public and this trend accelerated over the following months. This rapid increased led to a drop off in liquidity as firms saw its average trading volume continue to decline.
These factors, coupled with tax season (due to the large gains on licensed producers like Canopy, Aphria, Aurora, Emblem, Organigram and Cronos) enhanced this weakness and some are down more than 50% this year.
Although this weakness is concerning, it creates opportunity for investors who are selective and patient. We recommend that investors focus on companies led by a solid management team that is focused on execution and creating value for its shareholders. Investors should target companies with a proven model, a strong balance sheet, and visible growth opportunities.
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