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Why these ASX cannabis shares are being smoked

It certainly has been a disappointing day of trade for a number of ASX cannabis shares.

Three of them have just tumbled to 52-week lows or worse. Here’s why they are down in the dumps:

The AusCann Group Holdings Ltd (ASX: AC8) share price has crashed to a two-year low of 26 cents on Tuesday. This means that the cannabis company’s shares are now trading within sight of their IPO price of 20 cents. Investors have been heading to the exits in their droves after its major shareholder and strategic partner, Canopy Growth Corp, dumped its entire 13.2% stake. Whilst the two parties intend to work together in the future, the sale of its stake certainly is an ominous sign.

The Creso Pharma Ltd (ASX: CPH) share price sank to a two-year low of 28 cents this morning. This decline appears to be down to concerns over the PharmaCielo takeover. The Canada-listed cannabis company is in the process of taking over Creso Pharma in an all-scrip deal. Unfortunately, though, that scrip has continued to depreciate in recent weeks, making the takeover offer far less attractive to shareholders. On November 11 shareholders will be able to vote on the takeover approach. Unless there is a big improvement in the PharmaCielo share price, I wouldn’t be surprised if they rejected it. The Creso Pharma board has unanimously recommended the takeover in the absence of a superior proposal.

The THC Global Group Ltd (ASX: THC) share price dropped to a two-year low of 41 cents this morning. Last month this cannabis company revealed that it has secured an agreement to lease a property with 66,000m2 of existing hydroponics greenhouses, and an additional 180,000m2 of agricultural land for the cultivation of medicinal cannabis in Bundaberg, Queensland. Management expects to be able to produce an initial 80,000kg of dried cannabis flower from hydroponics growing annually at the property. Whilst this might sound like a big positive, I’m not sure it is. This is because there are grave concerns about the oversupply of dried cannabis flower. As such, I’m not sure the market needs this production. For example, Health Canada recently revealed that in July total inventories of dried flower were a whopping 25x greater than the monthly sales in the country.

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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.

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