Investors Were Warned About the Recent Pot, But Didn’t Listen

Any investor who has dabbled in cannabis stocks in recent years will know that massive volatility can be both your best friend and worst enemy, depending on which way the winds are blowing at a given time.

The recent selloff in cannabis stocks has the exchange traded fund (ETF) tracking this sector, Horizons Life Science Marijuana (TSX:HMMJ), down approximately 75% at the time of writing. In this article, I’m going to explain how investors could have seen this coming via insider selling.

In late 2018 and early 2019, the market for anything remotely related to cannabis was absolutely frothy. Investors were paying whatever it took for exposure to anything weed-related, and prices continued to skyrocket- often doubling in just a few weeks, then doubling again.

The sky appeared to be the limit for every producer, which was either apparently set to become the next Google, Inc. (NASDAQ:GOOG) or be acquired at a ridiculous premium. Now, companies like Aurora Cannabis Inc. (TSX:ACB) are taking massive $1B writedowns as these acquisitions (obviously) failed to pan out.

Insiders in many of Canada’s largest cannabis producers have continued to sell on the way up, indicating a belief among many Canadian cannabis executives that the market was getting ridiculous- I’ve touched on this in recent articles in the past on, and would encourage readers to check those out.

As always, insider buying or selling is not necessarily indicative of which direction a stock will move. Be sure to consult a financial advisor before making investment decisions.

Invest wisely, my friends.