Like most cannabis companies, Aurora Cannabis (NYSE:ACB) had a terrible 2019. The performance of ACB stock was especially punishing for investors who bought the shares during their March rebound, only to see their investments lose 78% of their value by the end of the year.
Like many marijuana stocks, ACB started rallying during the second week of January. Two key factors were giving the industry hope: cannabis-infused food hit store shelves in Canada, and a bill was introduced in the U.S. Congress that would legalize hemp-based CBD in food and supplements. After little traction materialized since then on either front, marijuana stocks are slipping again. In early trading today, ACB stock is changing hands for $1.99, about 15% below its Jan. 16 high of $2.32.
A Devastating 2019
By the end of 2019, many investors had abandoned the cannabis industry. Multiple marijuana stocks that had looked temptingly undervalued in the lead-up to Canada’s legalization of marijuana in 2018 had virtually collapsed.
ACB stock had been trading for under $2 for most of 2017, but when Canada legalized recreational marijuana on Oct. 17, 2018, the shares took off. In the days before the new law took effect, ACB rose above $10.50, for a gain of over 350% in just 12 months.
But the reality of the marijuana business soon shook marijuana stocks. Although the Street had expected the sector to have launch and distribution challenges, it greatly overestimated demand for legal marijuana in Canada. Moreover, not enough stores received licenses to sell cannabis, especially in Ontario, the country’s most populous province.
And as InvestorPlace columnist Tom Taulli pointed out, acquisitions caused cannabis companies’debt to balloon. The result was catastrophic for cannabis companies and investors. ACB stock went from just under $10 in mid-March of 2019 to $2.16 at the end of the year, finishing 2019 with a 78% loss.
ACB’s Mid-January Pop
On Jan. 10, ACB stock closed at $1.65, a level not seen since 2017. But then there were signs of hope.
On Jan. 13, a bill was introduced in Congress that would legalize the use of CBD in food and supplements in America. At the same time, cannabis edibles were hitting store shelves in Canada for the first time.
The double whammy of good news caused cannabis stocks to pop. In a three day span, Aurora Cannabis stock was up 25%, Hexo (NYSE:HEXO) gained 38% and Cronos (NASDAQ:CRON) posted a 23% increase.
The Good News Wore Off, and Aurora Stock Slid Again
After that welcome bit of positive news, Aurora once again retreated, and it’s now down 9% on the year.
There have been a number of reasons for the reversal. The bill to legalize CBD-infused food and supplements was introduced with significant fanfare, but soon media outlets stopped covering the legislation. Previous attempts to legalize cannabis have failed, and at this point, the new bill is being given a very slim chance of becoming law.
The news has also not been good in Canada. There have been complaints that the edibles and drinks introduced this month are too expensive, and have too little THC. Cannabis vapes, which were also recently legalized by the country, are under investigation by Health Canada, and sales of the products have now been banned by some provinces.
John-Kurt Pliniussen is a marketing professor at the Smith School of Business at Queen’s University in Kingston, Ontario. He told The New York Times that the legalization of cannabis-infused food is not going to result in a stampede of customers buying cannabis products:
“I expect this to be just like slow ripples on a pond as opposed to a tsunami of excitement. What we have now is what we’re going to have — this is it.”
“Slow ripples” may ultimately result in a healthier bottom line for companies like Aurora Cannabis. And it’s possible that CBD will eventually be legalized in the U.S.. However, neither of those catalysts is likely to enable Aurora stock to return to its 2018 levels any time soon.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
