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Investors continued to flee cannabis, making Monday the worst trading day for pot stocks in 2018.

The Horizons Marijuana Life Sciences ETF fell nearly 12 per cent Monday, the worst one-day drop in its history and only the second time the units have fallen by double digits in a single session. Started in April 2017 and noted for passing the billion-dollar mark in assets earlier this year, the ETF dropped below $900 million in assets Monday. It has shed $225 million in value in a week.

Nearly two dozen major pot stocks plummeted by double-digit percentages by the end of Monday’s trading.

Tilray Inc., the most valuable cannabis company by market capitalization, fell 15.6 per cent. Canopy Growth Corp. and Aurora Cannabis Inc. were down roughly 11 per cent and 12 per cent, respectively.

Losses in The Supreme Cannabis Co., and The Green Organic Dutchman Holdings , and Newstrike Brands Ltd. all topped 14 per cent.

Monday’s rout erased nearly $10 billion in market value from the 62 stocks in the Solactive North American Marijuana Index, the basis for the Horizons ETF, according to S&P Global Market Intelligence.

“We have not seen any news that explains that selloff,” Russell Stanley, a cannabis-stock analyst for Beacon Securities Ltd., said in an email to the Globe and Mail. Despite the good news of strong Canadian demand starting last week, “investors may now be wondering ‘what is next?’ for the Canadian market,” he said.

Debt-ratings agency DBRS published a report Monday that noted “although the development of the sector may benefit all [licensed producers], not all will perform equally and many will fail.”

Cannabis-stock analyst Jason Zandberg of PI Financial Corp. says he believes recent comments by Conservative party leader complaining about the Liberal party’s implementation of decriminalization have contributed to the decline. “I believe that Andrew Scheer's comments about not committing to keeping cannabis legal has weighed heavily on the cannabis market. We feel that reversing the legalization is bad policy and is extremely unlikely.”

Beacon’s Mr. Stanley notes the new lower equity prices translated to lower, but still high, price-to-earnings multiples. The companies he follows now trade at 36 times consensus forecast for 2019 EBITDA, or earnings before interest, taxes, depreciation and amortization. That’s off 20 per cent from the 45 multiple from last Thursday’s close, but still twice its 12-month average of 18 times EBITDA, he says.

Monday’s losses added to weakness in the sector since Wednesday’s legalization of cannabis in Canada. But the declines seemed to hit all companies, whether their focus is Canada or in the U.S. states that have legalized recreational marijuana.

Of the 62 stocks in the Solactive index, 28 have declined 20 per cent or more since Oct. 16, the day before legalization. Only four of the 62 have gained.

“The whole sector seems to move together,” says Bruce Campbell of B.C.-based StoneCastle Investment Management Inc., which manages the pot-focused StoneCastle Cannabis Growth Fund.

For most of 2018, that direction was up. Pot stocks have gained, particularly since the Aug. 14 announcement that Constellation Brands Inc. would invest $5 billion into Canopy Growth Corp., a validation of the sector and a call to investors to chase down the next beneficiary of beverage-industry largesse.

Coming into Monday’s trading, a dozen pot stocks had essentially doubled in value since Aug. 14, led by Tilray with a nearly 500 per cent return, according to S&P Global Market Intelligence.

Monday’s action blunts, but does not erase, those beautiful numbers. Even with the recent declines, 43 of the 62 stocks in the Solactive index are up 20 per cent or more since the big Constellation-Canopy deal Aug. 14.

With files from Brenda Bouw

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/05/24 3:59pm EDT.

SymbolName% changeLast
WEED-T
Canopy Growth Corp
-2.79%12.53
STZ-N
Constellation Brands Inc
-1.53%245.12
TLRY-Q
Tilray Brands Inc
-1.61%1.83
HMMJ-T
GX Marijuana Life Sciences Index ETF
-2.57%10.61

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