Corporate Scandals Abound
Exacerbating poor performance were several scandals that generated uncertainty about the viability of established cannabis players and shook investors' faith in the legal cannabis industry.
First, after its earnings call, Canopy Growth fired its CEO Bruce Linton, a high-profile advocate in favor of the legal cannabis industry. According to a report by MarketWatch, Linton's ouster was a result of pressure from Constellation Brands (STZ), who had inked a partnership deal with Canopy last year and was frustrated by the firm's continued lack of profitability.
Meanwhile, CannTrust Holdings was discovered to have illegally planted marijuana with the knowing consent of its top management. More than five tons of crop were seized by the Canadian government, but some of the illegal marijuana had already been illegally exported, a violation of Canadian law.
FDA Crackdown On CBD
In the U.S., the FDA issued a crackdown letter to multistate operator Curaleaf Holdings, whose consumer wellness cannabidiol (CBD) products are sold at CVS stores.
The firm has made far-reaching claims as to the health benefits of its products, including their efficacy in treating Alzheimer's disease and opioid withdrawal.
Swaps on Curaleaf represent 5% of YOLO's portfolio, while Canopy Growth and CannTrust represent 4% and 1%, respectively. MJ holds 2% in CannTrust and 7% in Canopy Growth, but holds no swaps.
Poor Timing Not Keeping THCX Down
As cannabis stocks enter free fall, it might appear to be rough timing for the three marijuana ETFs that launched last month: The Cannabis ETF (THCX), the Amplify Seymour Cannabis ETF (CNBS) and the Cambria Cannabis ETF (TOKE). (Read: "Challenge Of Launching Cannabis ETFs.")
The sector's troubles haven't blunted investor enthusiasm for cannabis ETFs, however. Trading especially in THCX has been brisk so far, with average trading volume in the ETF surpassing even that of longer-lived rival YOLO:
Average Volume & Spreads For Cannabis ETFs
|ETF||AUM (M)||ADV (M)||Spread|
Source: ETF.com; data as of Aug. 1, 2019
Since it launched on July 9, THCX has brought in $13 million in new net investment assets. That may sound modest, but it's more than the segment's current leader, MJ, which has brought in $8 million; and YOLO, which has brought in $6 million.
Contact Lara Crigger at [email protected]