Marijuana stocks rose Monday as investors became more optimistic about the cannabis industry. Many of the largest companies made significant gains that day, including:
Several factors have probably contributed to the recovery of cannabis stocks. Many investors see the stock market as expensive after its recent rebound from lows in March, and it is possible that bargain hunters may turn to the besieged marijuana industry. Even after today’s gains, many of these stocks are still far below their historic highs. This could encourage some of the strongest marijuana companies to intrigue investors who are more value oriented.
It is also possible that some investors may begin to consider cannabis stocks as defensive investments. If more people turn to marijuana to relieve stress during the current economic downturn, cannabis stocks could recover even if the market as a whole were to fall. In addition, if social protests push lawmakers to legalize marijuana in more states, cannabis stocks could recover.
In addition, Aphria began trading on Nasdaq today’s stock market, which could help draw more attention to pot stocks.
Despite their recent gains, cannabis stocks remain relatively high risk investments. Most are unprofitable and only a select few, such as Canopy Growth and Cronos Group, have strong balance sheets. Others, such as Aurora Cannabis and HEXO, were forced to dilute shareholders by selling shares in order to raise funds.
So while the cannabis industry as a whole has immense growth potential, investors should keep these risks in mind.