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Why Is The Cannabis Industry In Such a Slump?

Poor headwinds and outsized influence of individual investors have dropped valuations at multiple cannabis companies.

To understand why investors and financial analysts have cooled on the cannabis industry, just look at the jobs. Previously, marijuana businesses were all growth. If you needed a job and wanted to change fields, cannabis was fertile soil for a fresh start. While you can still find work in cannabis, the biggest players aren’t hiring like they used to.

Close to 600 cannabis industry workers have lost their jobs in the past few weeks, according to Business Insider. Layoffs hit everyone from CannTrust to Pax, meaning venture capital won’t save you from the recent downturn in cannabis. But in all cases a similar culprit to blame—the uneasy operating environment of a cannabis business.

Inconsistent regulations, high licensing fees, and media backlash from the vaping illness crisis all factor into the tricky variables inside the cannabis industry. Add in lower-than-expected retail sales in legal markets like Canada and California, and the inability to raise capital from regular investment means due to federal laws prohibiting cannabis banking, and you can understand why everyone isn’t as hot on cannabis as they once were.

RELATED: Here’s Why You Need To Be Careful If You’re Investing In Marijuana

Take The Marijuana Index, for example. The index is a composite of major cannabis stocks in the United States and Canada, including CannTrust, Canopy Growth, and Aurora Cannabis. After hitting a high in January this year, the index has lost 60% of its value, dropping to its around the same valuation it had close to two years ago. That’s not good, folks.

president trump could make marijuana legalization key issue in 2020
Photo by Bloomberg Creative Photos/Getty Images

Bloomberg reported that the investment community is blaming mom and pop investors for the cratering of pot stocks. Canadian retail investors, not major institutions, increasingly dominate the public float at many companies. Individual investors, as a result, carry an outsized influence than publicly traded companies would like.

“The stock price is driven by Canadian retail investors, and that Canadian retail investor is a fickle, ignorant investor that doesn’t really understand what they’re investing in,” Jeff Mascio, CEO of the Denver-based Cannabis One Holdings Inc., told Bloomberg.

RELATED: 4 Things You Need To Know Before Investing in Cannabis Stocks

One investment analyst told Business Insider the up-and-down, unpredictable nature of the cannabis industry has created a “toxic” environment for businesses. But Nicholas Vita, CEO of the New York-based Columbia Care Inc., said that could all change if certain players enter the fray.

“If the U.S. investing community, particularly the U.S. institutional investing community, decides to lean in, you’re going to see a massive spike in valuations,” he told Bloomberg.

From total marijuana legalization in Canada, to North America becoming more chilled out about its own state laws, buying your favorite green flower has never been easier and growing your own is almost as simple. 

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