Canada’s Marijuana Stocks are Facing Problems: Should Investors Walk Away From Curaleaf and Its Competitors?

Last Updated on August 18, 2021

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Marijuana stocks in Canada have had an ambivalent relationship with the coronavirus, and now have an equally ambivalent relationship with the opening up.

A recent article by Bill Peters of Investor’s Business Daily took a look at the whole group and cautioned investors against it. He said profitability for “most Canadian marijuana stocks has been hard to come by” after the 2018-19 period when the industry “over-expanded and burned through money.”  That was even before the pandemic. During and since Covid-19 hit, the industry’s situation has become worse. 

Although the provinces, especially Ontario, are now loosening up their once-rigid pandemic lockdowns, the loosening may not help marijuana much. Indeed, since it sells itself as a stress relief, the better times may actually hurt sales. At any rate, it has other problems that ought to worry investors more: problems left over from pre-pandemic days.

CURLF as an Example

Consider Curaleaf (CURLF) as an example. Peters says very little about it, but it’s a good jumping-off point.

CURLF is a U.S. based firm, headquartered in Wakefield, Massachusetts. But, given the differences between the relevant legal systems in the two countries, especially at the federal level in each, Curaleaf turned its eyes to Canada for some purposes. Specifically, it went public in 2018 on the Canadian Securities Exchange (Toronto). 

It is, considered by revenue, the world’s largest cannabis company. 

In August 2020, with Covid-19 raging on both sides of Niagara Falls, Boris Jordan, then the executive chairman of Curaleaf, spoke to Bloomberg TV about this ambivalent relationship.  

On the one hand, he said, “We’re no different from any other consumer goods company,” in that Curaleaf depends on consumer demand and disposable income. If they lose jobs, or the self-employed among them lose “gigs” or opportunities, then leisure expenditures such as the adult recreational use of cannabis may be reconsidered. 

Further, Curaleaf had to change the ways that it sold and distributed its product as the pandemic kept people away from brick and mortar stores. 

On the other hand, marijuana is one response to stress, and the stresses of the pandemic have steered many new customers toward this particular product. 

Netting out its consequences, Jordan said, the pandemic was probably at that time more of a help than a hurt to the marijuana industry in general, and Curaleaf in particular.  

Marijuana Stocks in Canada: Buy or Sell?
The marijuana industry was one of the few categories that did better during the pandemic. The obvious reason: consumers were stressed. Photo credit: Shutterstock.com

A Brief History of Curaleaf

Curaleaf went public on October 29, 2018. It started trading at $8.43. It reached a peak exactly seven months later (April 29, 2019) of $10.76, then headed down. These were of course pre-pandemic days, and it headed down then at least in part because it had been overhyped. Its recreational-marijuana business model put it into competition with more entrenched medical usages, and with the ability of Canadians to grow their own at home. 

In January 20, 2020, as the world began to take the pandemic seriously, CURL was already in the doldrums, at $6.61. The immediate uncertainty of the virus sent it further down, for the reasons Jordan would mention, to a low below $3 in mid March.

It recovered from there. By the time Jordan spoke to Bloomberg in the middle of August, the stock price was in the neighborhood of $9. Zigzags continued, as both sides of that ambivalence played themselves out for months.

Then in November, Biden won the Presidential election in the U.S. Although famously the results were contested, as time passed the markets became ever more convinced that Biden had, in fact, won the election and this fact would be good for marijuana sales in the United States, on whatever exchange the producing and selling companies were listed. 

The pandemic, and any ambivalence, was briefly forgotten.. From early November 2020 until early February 29021 the Curaleaf price negotiated a simple upward line, getting above $16.

Soon after that, there were indications that the politics of marijuana would continue to be complicated. And there were starting at about the same time indications that the vaccines were powerful and, to much of the population of North America, appealing.  The political optimism faded, and the medicinal ambivalence returned: the economy could improve (good news), but the need for green stress relief might lessen (bad). 

Curaleaf has fallen from that February peak, and it is of late trading at below $13.

Considered as a Group

A similar story could be told about several other Canadian listed marijuana companies.  

Peters writes: “IBD’s research shows that investors would be better served looking for stocks with better overall ratings that are closer to their highs.”