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Why Pot Stocks Are Glowing Green Today

Motley Fool - Tue Mar 21, 2023

What happened

Marijuana stocks, on balance, were on the mend Tuesday after a dreadful Monday, with Canadian pot companies having a particularly strong session. At the close of trading, Aurora Cannabis(NASDAQ: ACB) stock was up by 9.3%, Canopy Growth(NASDAQ: CGC) shares were higher by 5.9%, and Organigram Holdings(NASDAQ: OGI) was in the green by 9.2%.

On Monday, Aurora tumbled by 9%, Canopy Growth shares fell by 5%, and Organigram sank by 4.9%. Investors fled these risk-laden growth stocks in response to the ongoing banking crisis and a general aversion to risk by investors ahead of this week's Federal Reserve meeting. Now that private and public entities have stepped up to prevent a potential 2008-style global financial crisis, they appear to be attracting bargain hunters.

A jar of flowering cannabis.

Image Source: Getty Images.

So what

Why are Canadian marijuana stocks reacting to banking and U.S. interest rate headwinds? Aurora, Canopy Growth, and Organigram sell products that are largely discretionary in nature, with the exception being medical marijuana. If the Federal Reserve's aggressive rate-hiking policy or a global banking crisis tip the U.S. economy into a full-blown recession, consumers may have no other choice but to rein in their spending on products like recreational marijuana. That scenario would obviously be bad news for these already struggling cannabis cultivators.

Now what

Are any of these small-cap marijuana stocks worth buying right now? That's a tough call. Aurora and Organigram are both trading under the Nasdaq's $1 minimum share price requirement. This unfavorable situation may force both companies to execute reverse stock splits before year's end. So, even though Aurora and Organigram both screen as deeply undervalued equities, it might be wise to wait until this key risk factor is off the table before buying shares.

Unfortunately, Canopy suffers from a similar problem. Over the past 15 months, its shares have fallen by a staggering 77.4%. As a result, the pot titan's stock has fallen to under $2 a share at the time of this writing. If management can't reverse that trend soon, Canopy may be headed toward a reverse stock split as well. As such, this low-priced pot stock doesn't exactly jump off the page as a screaming buy.

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Learn more

George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Organigram. The Motley Fool has a disclosure policy.

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