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Aussie Cannabis Stocks Tumble as Optimism Outpaces Progress

Huge gains made by cannabis stocks earlier this year now appear to be evaporating. In late  March, Bloomberg reported that Australian cannabis stocks had seen gains of 136% on average this year. Now, just over two months later, most major cannabis stocks have fallen substantially—in some cases losing half their value. Let’s take a look at where they stand.

Cann Group Limited (ASX:CAN)

Cann Group went public on May 4, at 65 cents a share. Within a few days, that price had climbed to 70 cents. But it’s been a steady slide downhill since then, with the stock now sitting at 51 cents. An announcement that Cann Group will grow and test medical cannabis provided by the Victorian government last week appeared not to buoy investor confidence in the ailing stock.

The Hydroponics Company (ASX:THC)

The Hydroponics Company (THC) is one of the few players in the industry already turning a profit – it makes and sells hydroponic equipment to growers around the world. But despite high demand among investors a month ago—the stock was three times oversubscribed at its May 4 IPO—THC has lost a quarter of its value, dropping from 41 cents a share at launch to 30 cents today.

AusCann Group Holdings (ASX:AC8)

AusCann hit a year high of 90 cents a share on March 29, but at close of trade Monday, it was worth less than half that—42 cents. The drop occurred despite the mid-May announcement of a joint-venture deal to grow and manufacture medical cannabis products with Johnson & Johnson-owned Tasmania Alkaloids, which produces 40% of the world’s opioid stock.

Stemcell United (ASX:SCU)

On the day in March when the Singaporean plant-extract company appointed to its board Nevil Schoenmakers, a Dutch-Australian former fugitive known to some as the “King of Cannabis,” shares skyrocketed by 3,800%—and climbed even further the following day. But after the excitement dissipated, investors lost much of those gains. Shares have levelled off and are currently trading at 10 cents a share.

MMJ Phytotech (ASX:MMJ)

MMJ Phytotech has been on the market longer than most cannabis stocks, and it’s one of the most volatile. After hitting a year high of 77 cents a share following the negotiation of the the first-ever deal to import medicinal cannabis into Australia, share prices have since slumped to 37 cents a share.

Creso Pharma (ASX:CPH)

Although it’s lost a lot of value from its March price of 83 cents a share, Creso Pharma is one of the few cannabis stocks that appears to be regaining its footing. Creso’s share price rebounded after a June 1 announcement that it had signed a letter of intent with Swiss medical cannabis manufacturer Cannapharm to become the exclusive importer and distributor of Cannapharm’s products in Asia Pacific and Latin America regions. The deal includes Australia and seems to have brought investors back into the fold. It’s currently trading at 55 cents a share.

Why the Drops?

Some market commentators have been suggesting for a while that Aussie cannabis stocks were overvalued, but the specific factors behind the recent market shifts are still being teased out. One likely culprit is the market’s slow rollout. Optimism about cannabis rules being relaxed had buoyed cannabis stocks, but investors may not have anticipated the regulatory wheels turning so slowly. A report earlier this week about imported medical cannabis “sitting in warehouses” underscores how red tape remains a problem for the industry.

Eighteen months after the federal government passed its landmark medicinal cannabis law, reportedly only 25 doctors in the country are authorized to prescribe cannabis to patients. The gap between the legislation’s intent and the present reality appears wider than many anticipated, and that’s put a strain cannabis companies that lack ways to generate profit in the interim.