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

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