Part of the Stock Digest group of websites: Visit Small Cap Stock Digest  

'There’s no playbook': Two failed pot deals highlight growing pains

If cannabis investors were waiting for a sign that the beleaguered industry is turning the corner, Tuesday wasn’t that day.

Pot stocks came under pressure after U.S. cannabis operator MedMen Enterprises Inc. announced the termination of its all-stock takeover of PharmaCann LLC. The sector’s growing pains were also evident in Canada, as Aleafia Health Inc. ended a five-year supply agreement with Aphria Inc., citing a failure to meet obligations under the deal.

These developments come on the heels of a turbulent period in the cannabis space. Regulatory woes, disappointing earnings, ongoing problems getting pot stores up and running, and an emerging health crisis linked to vaping are casting dark clouds across the industry.

Legalizing cannabis has been “an unprecedented undertaking,” said David Wood, a Calgary-based partner at Borden Ladner Gervais LLP, in a phone interview.

“We haven’t really chosen to compete with black markets by regulating them before. There’s no playbook here,” he said.

It’s a far cry from a year ago when exuberance carried investors into the cannabis sector after Canada became the first developed nation to legalize recreational use of the drug. Constellation Brands Inc.’s $5-billion bet on Canopy Growth Corp. fueled optimism that not only is legal pot here to stay, but will be a valuable commodity in the pharmaceutical and consumer-packaged goods industries.

Since then, cannabis company valuations have tumbled.

The closely-watched Horizons Marijuana Life Sciences Index ETF is down about 50 per cent over the past year and individual stocks have suffered similar, if not more outsized, downturns. Canopy, for example, is down 28 per cent since it received its investment from Constellation and 59 per cent from its peak a year ago.

In fact, MedMen directly cited the decline in Horizons’ cannabis-focused ETF as one of the “market developments” that led the U.S. cannabis operator to call off the PharmaCann deal on Tuesday.

Click here to continue reading...

Subscribe to the SCSD email list and get the latest small cap stock activity directly to your inbox, for free.

Part of the Stock Digest family of websites

Resource Stock Digest

MARKET SUMMARY

INDICES

Name Last Change
DOW 26770.20 0.96%
S&P 500 2986.20 0.39%
NASDAQ 8089.54 0.83%
TSX 16377.12 0.30%
TSX-V 542.43 0.00%
RTY 1535.48 0.41%

Technology

Name Last Change
APPL 236.41 0.48%
GOOG 1245.49 0.61%

@SmallCapDigest ON TWITTER