Cannabis stocks turned higher Wednesday, buoyed by gains in the broader market as investors digested the latest earnings from the sector while volumes thinned ahead of the U.S. Labor Day weekend.
The Dow Jones Industrial Average DJIA, +1.00% was last up almost 200 points, drifting higher as investors shrugged off some of the recent pressures on the market from the inverted yield curve to the China/U.S. trade tensions to the growing chances of a no-deal Brexit.
The ETFMG Alternative Harvest exchange-traded fund MJ, +1.09% was last up 1.4%, with 29 of its 38 constituent stocks moving higher. The Horizons Marijuana Life Sciences ETF HMMJ, +2.01% was up 2.3%, with 31 of its 54 component stocks higher.
Still, “sentiment is very negative right now across the sector,” said Korey Bauer, portfolio manager of the Cannabis Growth mutual fund CANNX, -4.95% from Foothill Management, who noted his firm’s proprietary Cannabis World Index is down 35% from its March highs. The two ETFs have fallen almost 30% in the last three months.
While valuations are starting to look more reasonable, analyst estimates are coming down across the board as Canadian companies continue to post losses almost a year after full legalization, he said.
“The sector needs a positive spark,” he said, such as the one provided last year by drinks giant Constellation Brands STZ, +1.86% $4 billion investment in Canopy Growth CGC, +3.07% WEED, +2.79% arming that company with a war chest that has helped make it the sector’s biggest player by market value.
“We think M&A will start to pick up after this significant decline,” he said. Sentiment may also find support from the rollout in Canada of cannabis derivatives, including edibles, expected in December, he said.