Oct 1, 2019

The high times may have passed for marijuana stocks

A marijuana growth facility in Maryland. Photo: Michael Robinson Chavez/The Washington Post/Getty Images

Marijuana stocks have fallen hard in 2019 and short sellers have been increasing their positions, betting the sector is overvalued and primed for further losses. Despite the passage of the SAFE Act through the House last week, Wall Street remains bearish on companies dealing in the drug.

The latest: Bank of America Merrill Lynch analysts Christopher Carey and Lisa Lewandowski downgraded Canada's Canopy Growth, the world's largest marijuana company, to neutral from buy, saying Wall Street expectations are "far too high."

What they're saying: While Carey and Lewandowski said they still see future growth ahead for both the company and the Canadian cannabis market, it's not enough to justify significant further price gains, they wrote in a note to clients.

  • "Canada industry growth is set to pause in the second half, potentially flattening, a trend we think could also be the case with Canopy; and yet the Street is modeling strong double-digit sales growth quarter-on-quarter."
  • They expect the slowdown in near-term industry growth in part because of the negative impact of vaping legislation.

Why it matters to the market: The tide looks to have turned on pot stocks this year, with 2 major ETFs that track the marijuana industry — the Horizons Marijuana Life Sciences ETF and ETFMG Alternative Harvest — losing about half their value since October 2018.

  • Cannabis short sellers, who had gotten smoked betting against the industry in 2018, are seeing their luck change, with the top 20 shorts in the sector up $336 million in the second quarter and $1.76 billion in Q3, data from S3 Partners shows.
  • Since the BAML note was published on Friday, short sellers have seen more than $200 million in mark-to-market profits, according to S3's data.

Go deeper: The future of cannabis is mainstream retail

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Welcome to Marijuana 2.0

Illustration: Aïda Amer/Axios

The cannabis industry is poised to undergo another major change as Colorado's House Bill 1090 takes effect next month, providing investment opportunities for publicly traded companies, venture capitalists and private equity firms, which were previously barred.

Why it matters: The law will push cannabis into a new phase of development and foster considerable consolidation in the industry, creating new businesses and driving out others.

Go deeperArrowOct 8, 2019

Bernie Sanders debuts plan at 4:20 pm to legalize marijuana

Photo: Bastiaan Slabbers/NurPhoto via Getty Images

2020 presidential candidate Sen. Bernie Sanders (I-Vt.) released a proposal precisely at 4:20 pm on Thursday to legalize marijuana at the federal level, per a campaign email.

The big picture: Marijuana legalization has become an increasingly popular stance within the Democratic Party, but Sanders' proposal appears to be one of the most progressive in the 2020 field. Sanders says he would legalize marijuana within 100 days via executive action and fight against large marijuana companies monopolizing the market to ensure communities of color are able to benefit from the industry.

Go deeperArrowOct 24, 2019

Tesla short sellers are feeling the burn after its earnings report

Data: S3 partners; Chart: Lazaro Gamio/Axios

Tesla's stock price rallied nearly 18% on Thursday after a stronger-than-expected earnings report, putting a big dent in the profits of short sellers.

Why it matters: Many short sellers pulled out of the trade after the stock fell to $178.97 a share in June, counting $5.16 billion in mark-to-market profits because of the stock's decline, according to data from S3 Partners. But those who continued to short Tesla have paid dearly, and are now in the red, year-to-date.

Go deeperArrowOct 25, 2019