Why Hexo, Canopy Growth, and Aurora Cannabis Investors Are Scared

© Provided by The Motley Fool Why Hexo, Canopy Growth, and Aurora Cannabis Investors Are Scared

What happened

“Congress to vote on marijuana, psychedelics and CBD this week,” declared marijuana news hub Marijuana Moment yesterday evening — but the reaction among marijuana investors wasn’t at all what you’d expect.

As early as today, according to the report, the House of Representatives could begin voting on legislation to remove cannabis from the list of Schedule I substances forbidden for sale, use, or possession by federal law. And yet, in 1:05 p.m. EDT trading Tuesday, shares of Hexo (NYSE: HEXO) are down 4.6% while Canopy Growth (NASDAQ: CGC) and Aurora Cannabis (NASDAQ: ACB) have plummeted 6.8% apiece.

So what

So what, precisely, is it that marijuana investors are scared of? Three possibilities spring to mind.

First and foremost, although the legislation introduced in the House today aims to broadly legalize marijuana, it lacks some provisions that marijuana legalization activists have advocated, including a ban on denying renters access to public housing based on marijuana use — a factor that could continue to weigh on the product’s popularity.  

Next, as an article on PitchBook this week points out, because proposed legislation (in both the House and Senate) does broadly make marijuana easier to sell, possess, and use, it could potentially “spark up cannabis IPOs on Wall Street.” And investors in existing cannabis stocks like Hexo, Canopy Growth, and Aurora Cannabis might not relish the idea of competition with a bunch of brand-new cannabis company IPOs.  

And then there’s the wild card — that bit about “psychedelics” included in the headline of the Marijuana Moment report. As the site points out, the marijuana legalization legislation being proposed in the House, at least, includes an amendment that could legalize the use of federal funds to research uses for “psychedelics such as psilocybin, MDMA and ibogaine.”

Now what

And here’s the thing: Marijuana activists and marijuana investors have been so focused on getting their drug of choice legalized — and enjoying the fruits of that legalization in the form of new revenue — that they may not have considered what might happen if drugs such as mushrooms and ecstasy get legalized at the same time (or even a little later). Here, too, the possibility of competition for products produced by Hexo, Canopy Growth, and Aurora Cannabis may be rearing its ugly head.

Now that Congress has embarked upon the legalization of one drug, investors have to start considering what might be the effect of legalizing other drugs as well — and what effect that would have upon the profitability of marijuana stocks.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.