Pro Research of the Week: Are Cannabis Stocks Ready to Go Higher Again?

 | Jun 30, 2023 10:55

  • Cannabis stocks have been in a downtrend since 2020
  • However, the bears are showing signs of slowing down
  • And analysts predict strong growth for cannabis stocks in the next 12 months
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    • Ever since achieving an impressive run in 2020 and early 2021, buoyed by the prospect of federal legalization following the Democrats' rise to power in the United States, Cannabis stocks have endured a long and catastrophic downward trend.

    While the initial decline appeared to be a correction after a rapid and strong surge, it simply did not come to a halt. Disappointment over the lack of progress in federal legalization in 2021, coupled with inflation, rising central bank rates, and oversupply leading to plummeting prices, have impacted the cannabis industry in 2022.

    According to the Department of Justice, a pound of marijuana cost on average $6,000 in 2000. However, now, with the influx of new cultivators, supply has far exceeded demand, resulting in a market surplus and cultivators earning only $1,000 per pound for their products.

    With lower prices and greater competition, it has become particularly tough for the sector's companies to produce healthy margins — particularly in the face of the current inflationary macro environment. The significant drop in cannabis stock prices, thus, can be attributed, in large part, to the inability to cover cultivation expenses.

    h2 Will Cannabis Stocks Rebound?/h2

    The ETF AdvisorShares Pure Cannabis (NYSE:YOLO), for instance, plummeted over 92% from its peak of $31.87 in February 2021 to a low of $2.53 this week.