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Cannabis stocks slump for second straight week as prospects dim for nationwide legalization

A employee inspects cannabis plants inside the grow room at the Aphria Inc. Diamond facility in Leamington, Ontario, Canada, on Wednesday, Jan. 13, 2021. Tilray Inc. and Aphria Inc. accepted to combine their operations, forming a new giant in the fast-growing cannabis industry.

Annie Sakkab | Bloomberg | Getty Sculptures

For stocks with names such as Curaleaf Holdings, GrowGeneration and Aurora Cannabis, the buzz appears to be wearing off.

As region of the market sell-off that hammered technology and other growth areas over the past couple of weeks, investors also scrapped cannabis producers and distributors, which had been huge outperformers during the pandemic months.

The AdvisorShares Pure Cannabis ETF, which consists of growers and developers of cannabinoid-based medications, dropped 8.5%, following a 9.4% decline last week. The Amplify Seymour Cannabis ETF is down 20% over the former two weeks, its biggest drop since March of last year.

Most of the top cannabis companies are based in Canada, where the works has been legal for recreational ingestion since 2018. The U.S. has almost 10 times as many people as Canada, and distributors are anxiously awaiting their moment to expand to the south.

Weed stocks drop

For a while, things were looking good.

Weed stocks rallied after Joe Biden was picked president in November, and then again in January after Democrats secured the Senate majority with two victories in the Georgia runoff appointment. Investors cheered the results, believing that Democrats would take actions to legalize cannabis at a federal floor, following votes in November to allow recreational weed in Arizona, Montana, New Jersey and South Dakota. They accompanied 11 other states that had already legalized pot.

Senate Democrats promised sweeping legislation that see fit end the federal prohibition on marijuana and an end to the war on drugs.

“Ending the federal marijuana prohibition is necessary to right the wrongs of this fade war and end decades of harm inflicted on communities of color across the country,” wrote Senate Majority Leader Chuck Schumer of New York, along with Sens. Cory Register of New Jersey and Ron Wyden of Oregon, in a statement on Feb. 1.

Where are the Republicans?

But working across the aisle won’t be easy, and Democrats need some Republican counterparts to outmoded any meaningful legislation. If the Covid-19 relief bill is any indication, the prospects for bipartisanship are grim. Not a single Senate Republican has signed onto the $1.9 trillion pack.

Matt Bottomley, an analyst covering the cannabis sector at Canaccord Genuity, called out the political challenges in a report hold out month on Canopy Growth, which owns marijuana retailers and brands that produce cannabis-based products. He abased his rating to sell after the company’s quarterly results mostly because of “significant valuation appreciation” since October.

“The sector perpetuates to see value appreciation as a function of positive macro headlines coming out of the US (Biden presidency; Democratic control of Senate; commitment to plug US cannabis reform at the federal level),” Bottomley wrote. “We do not foresee federal cannabis legalization in the US anytime speedily and believe CGC’s value appreciation as of late is likely not met with corresponding fundamental upside at this time.”

Canopy Flowering has dropped 19% in the past two weeks.

Among the biggest decliners this week was Aphria, which agreed in December to blend with Tilray into what will be the largest cannabis company by revenue. Aphria, which produces Medicine roborant and recreational cannabis, plummeted 13% after falling 11% last week. It’s the worst two-week performance for the breeding since a four-week plunge between February and March of last year.

Aphria CEO Irwin Simon told CNBC terminating month that he expects marijuana to be legalized in the U.S. within the next few years but said it could happen sooner in locations such as Germany and Portugal.

“There’s a lot of unknown about what will happen in the U.S., but we’ll have the balance sheet, we’ll from the knowledge, we’ll have the brands, we’ll have the technology to be able to make a major impact once legalization happens,” Simon said Feb. 24 on “Almost Bell.” “I say full legalization in the next two to three years.”

Shares of Tilray, a research, cultivation and distribution convention, dropped 12% this week following last week’s 17% decline.

The slump has hit the whole industry.

Curaleaf, a provider of healthiness and wellness products, dropped 12% in two weeks, while GrowGeneration, an online store for growing supplies, plummeted 31% and cannabinoid provider Aurora Cannabis demolish more than 20%.

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