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Why the pot stocks crashed lower

Medical Cannabis, Doctor, Marijuana

After days and days of smoking the market with sizeable gains, it was the turn of the pot stocks to get smoked on Wednesday.

As you can see below, almost all pot stocks finished the day with heavy declines. Here’s how things finished:

  • The Auscann Group Holdings Ltd (ASX: AC8) share price fell 12.5% to $1.62
  • The Cann Group Ltd (ASX: CAN) share price tumbled 5% to $3.58.
  • The Creso Pharma Ltd (ASX: CPH) share price dropped 9% to $1.04.
  • The Hydroponics Company Ltd (ASX: THC) share price was down almost 7% to 91 cents.
  • The MGC Pharmaceuticals Ltd (ASX: MXC) share price fell 5% to 10 cents.
  • The MMJ Phytotech Ltd (ASX: MMJ) share price dropped 3.5% to 56 cents.
  • The Zelda Therapeutics Ltd (ASX: ZLD) share price was down 4% to 11 cents.

What happened?

With no news out of these companies or any further developments in the industry, this appears to be a profit-taking sell-off by traders. This is something that I had warned was likely to happen on Tuesday of this week.

And it shouldn’t really come as a surprise to investors. Some of these pot stocks had put on gains of over 50% in just a matter of days, with AusCann even managing to double in value.

In fact, despite yesterday’s sell-off, AusCann’s shares are still 80% higher than where they were a week ago.

Are there more declines ahead?

That all depends on how traders and chartists feel. As such, I would suggest that investors stay clear of the pot stocks for now and wait for things to settle.

Overall, while I do think that some of these companies will have very bright futures ahead of them and could be great long-term investments, I feel investors would be better off waiting to see what kind of revenues they generate over the next 12-24 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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