One of the worst performers on the market on Wednesday was the AusCann Group Holdings Ltd (ASX: AC8) share price.
Why did the AusCann Group share price plunge lower?
With no news out of AusCann, the decline is a little bit of a mystery. Whilst some have speculated that it is tax loss selling, I think it could be related to news that Canada has legalised recreational cannabis use.
Although this might seem like a positive event, there is a bit of a twist that could make it a negative for some cannabis companies.
Legalising cannabis contravenes Canada’s pledge to adhere to existing drug-control conventions set by the UN.
In a chat with CEO Dr Elaine Darby a few months ago, I understood that such a move could lead to Canada being restricted from exporting narcotics such as cannabis.
This could potentially mean that the future importation of Canopy Growth Corp products is under threat.
As per its April announcement, AusCann is importing products for chronic and neuropathic pain control known as AC 5:5, AC 0:9.5, and AC 15:0. In addition to this, it was working on developing an arrangement where Canopy would supply AusCann with Spectrum Cannabis branded products to distribute into the Australian market alongside existing AusCann products.
All being well AusCann has already imported these products and is fully stocked up, but judging by its share price decline today, some may fear it may not have.
In light of this, I think it may be prudent for investors to stay clear of its shares for the time being while the situation develops and more details are known.
Though, it is worth pointing out that after the market closed AusCann responded to an ASX price query by advising that it “is not aware of any information concerning it which has not been announced to the market which, if known by some in the market, could explain the recent trading in its securities.”
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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 Scott Phillips.