- Marijuana stocks have taken a nosedive this year.
- Access to financing, heavy taxes and black market prices have contributed to the struggles of pot businesses.
- The good news is that industry regulation is looking good.
A year ago, the cannabis industry was dubbed as the next gold rush. Pot stocks such as Tilray (NASDAQ:TLRY), Aurora Cannabis (TSE:ACB), and Canopy Growth (TSE:WEED) surged to their all-time highs as investors rushed to get a piece of the action. Unfortunately, 2019 has not been so kind to the once blazing industry. A combination of factors have pushed the industry deep into bear territory. Here are three reasons why the marijuana industry is coming down from its high.
1. Lack of Access to Basic Financing
The United States is one of the biggest cannabis markets in the world. While some states have legalized the use of marijuana for medical and recreational purposes, the federal government has kept its foot down. It continues to classify cannabis as a Schedule 1 substance.
Schedule 1 classification of drugs in the United States. | Source: Soapboxie
As a Schedule 1 drug, there are huge consequences for companies who sell cannabis. For instance, marijuana business owners have little to no access to basic financial services. It is difficult for them to secure loans and get checking accounts. This is because banks are under the jurisdiction of the Federal Insurance Corporation (FDIC) and may be slapped with criminal charges for doing business with a cannabis company.
Many pot businesses had to rely on equity to fuel growth. However, stock market valuations have dropped big time. The North American Marijuana Index has plunged by over 63% from the all-time high.