Up in smoke! Why ASX cannabis shares are having a bleary day

ASX cannabis shares like Cann Group Ltd (ASX: CAN) are not getting high today. Here’s why the smoke might be coming out of this ASX sector.

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Not too many investors are having a good time today. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is down 2.18% to 6,633points, snapping the healthy momentum that 2021 had brought until now. One ASX sector is fairing a lot worse than the broader market. That sector is ASX cannabis shares. Cannabis shares are going up in smoke today, underperforming the ASX 200 quite handsomely.

Take Cann Group Ltd (ASX: CAN). CAN shares are getting smoked with a  2.34% loss at the time of writing to 62 cents a share. Althea Group Holdings Ltd (ASX: AGH) is fairing even worse, down 4.17% to 46 cents. Elixinol Global Ltd (ASX: EXL) is down 1.58% to 19 cents a share, and Ecofibre Ltd (ASX: EOF) is down 3.75% to $1.8 a share.

So why are ASX cannabis investors getting red eyes today?

ASX cannabis shares wake up with a hangover

It’s worth noting that the entire ASX cannabis sector has had an excellent run over the last 2 months or so. Althea blazed almost 40% higher between 3 November and 3 December last year. Cann Group was up more than 100% over a similar period.

The catalyst for that move appears to be the victory of President Joe Biden in November’s US presidential election. President Biden’s Democratic Party is far more supportive of cannabis legalisation in the US. This contrasts the stance of former president Donald Trump’s Republican Party. 

Although a significant and growing number of US states have legalised recreational cannabis, it remains illegal at the federal level. Expectations that the US government will move to lift federal restrictions have been… er, high, since Biden won office.

This month saw Democrats also win control of the US Senate which would have only added to these expectations. However, recent political machinations across the Pacific have dented hopes that this will amount to big legislative changes from Congress.

According to a recent reporting in The Washington Post, Democrats are now fearing that the Republican minority in the US Senate is gearing up to be as obstructionist as possible. That doesn’t bode well for federal cannabis legalisation, given the presence of the infamous filibuster rules of the Senate.

So perhaps today’s moves come down to investors looking for an excuse to take profits off the table after some incredible runs. High growth shares tend to sell off at a more enthusiastic pace than the broader market when the ASX is having a bad day.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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