Distrust for the cannabis sector mounted when Health Canada charged CannTrust (NYSE:CTST) for illegal cannabis production. Add heightened uncertainties in the stock market and stocks in the sector are well-below yearly highs. Stocks like Canopy Growth (NYSE:CGC) and Tilray (NASDAQ:TLRY) are at yearly lows. When will this downturn end?
The obvious answer is that no one knows. The stock market rally for 2019 is coming to an end as more tariffs levied against China and vice versa mount. The cannabis industry now needs to shift from capex spend and acquisitions to profits. And until revenue exceeds costs, stocks in the sector will keep falling.
Aurora Cannabis (TSX:ACB) and Canopy have plenty of potential but for different reasons. Aurora is targeting the medical segment through its online store. It is also independent and could, at any time, attract investors.
Canopy has billions from Constellation Brands (NYSE:STZ). But CGC stock is under the latter’s control. Although Canopy is restricted from spending freely to acquire, it has a solid balance sheet to continue operating regardless of the market conditions.
Your Takeaway
Investors who held stocks in this sector for the last few years will not need to panic. But those who bought at the peak may not see a profit for a while longer. It may take a few quarters before these companies achieve profitability.
