Chart of the Week: Marijuana Stock Volatility Underscores Uncertainty, Industry’s Challenges

By Becky Olson

Marijuana stocks are a wild bunch.

One moment they’re soaring to the stratosphere, the next they’re plummeting back to earth and on life support…then they’re hitting new highs again.

The volatility highlights uncertainty about the industry’s future and publicly traded cannabis companies in general, as well as the fact that most cannabis-related offerings are thinly traded penny stocks.

Marijuana Business Daily selected a dozen public companies representing various sectors of the marijuana industry to get an idea of how cannabis stock trends differ from those in the market at large.

On a monthly basis, these marijuana stocks largely mirrored the ups and downs of the Nasdaq and S&P 500 indices over the past year, but the peaks were much higher and the valleys much lower, according to historical price data gleaned from Yahoo! Finance.

The cannabis stocks collectively fell by as much as 19% one month and rose as much as 16% in another. By comparison, the Nasdaq and S&P 500’s largest monthly gains were only 6.5% and 5.5%, respectively. The Nasdaq’s biggest monthly loss came in at just 3.3%, while the S&P 500’s largest loss was 2.8%.

Cannabis shares took several noticeable nose-dives in the second half of 2014 and at one point were down a whopping 47.5% near the end of the year compared to just six months prior. They mounted a recovery in the first two quarters of 2015, but they are still down 13.3% overall from a year ago and therefore have a ways to go before making up those steep losses.

This is in contrast to the Nasdaq and S&P 500, which are currently up 11.3% and 4.2%, respectively, compared to 12 months ago.

Marijuana stocks’ volatility is much more pronounced when you drill down deeper.

For example, their biggest weekly loss during the last 12 months occurred in mid-October last year, when they plummeted over 16%, only to rebound the very next week and gain almost 9%.

Understanding cannabis stock activity is important for all marijuana entrepreneurs who are targeting an IPO or merger/acquisition exit strategy that involves taking the company public.

It’s important to develop an exit plan based on realistic expectations. The market for most cannabis stocks just hasn’t materialized yet, so going public might not yield the necessary liquidity to make the move worthwhile.

As long as this is the case, marijuana investors looking for a quick turnaround with their money or for specific returns will likely prefer debt financing over equity derived from owning shares of a firm. Debt financing offers a defined time period in which investors will recoup their investment, and returns are not dependent on market volatility and performance (unlike with stocks).

Marijuana stocks can expect to continue to experience high volatility in the near future. Pending legislation at the state and federal levels, forthcoming regulatory frameworks in newly legal states, and a general election next year are sure to keep the industry in a state of extreme flux.

Note: The marijuana companies chosen for this analysis are: Affinor Growers (RSSFF), AmeriCann (ACAN), Arena Pharmaceuticals (ARNA), CannaVest Corp (CANV), Chuma Holdings (CHUM), DigiPath (DIGP), Enertopia (ENRT), Growblox Sciences (GBLX), GW Pharmaceuticals (GWPH), Pazoo (PZOO), Surna (SRNA) and Vape Holdings (VAPE). No consideration was given in selecting companies other than to ensure coverage across multiple sectors.

Becky Olson can be reached at [email protected]

2 comments on “Chart of the Week: Marijuana Stock Volatility Underscores Uncertainty, Industry’s Challenges
  1. Ken on

    If I was an investor in the marijuana industry I would only invest in a company that was established in a non marijuana market and has positive primary source of revenue. If an established company with hard assets is willing to get into the marijuana market then I would look at investing into that company.
    If you look at all the marijuana stocks that have gone bust they were only in the marijuana market with no hard assets and all had negative debt to equity right from the start.
    We get 3 calls a week asking if we are going to do a stock offering in Earthwise Packaging for our Cooljarz marijuana brand of packaging.
    Most corporations that have an existing product line in a non marijuana market do not need the funds to get into the marijuana market. It is my opinion that an ipo that is only in the marijuana industry is too high of a risk for any pie in the sky promised return.

    By the way this whole marijuana industry can go away tomorrow with one signature on one piece of paper. In this industry Marijuana is money and if you take away the marijuana you take away your invested money.
    The only green rush then will be the rush of your money leaving your wallet that you no longer have.

    • Dennis on

      Swing trade investors are making a killing in the MJ stocks. Buy’em at the dips when everyone else is selling and hold’em a month or two for a pop… but only if a buy a stock with growing volume and volatility. It’s not hard to get a 10% – 20% return several times a year with a single penny stock. I bought EEFI. It’s a sub penny stock with actual revenue and it is doing exactly as described.

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