Insights

Why U.S. Marijuana Stocks Like Curaleaf and Green Thumb Tanked Today

What happened

Stocks seen to be more speculative and risky investments had a tough time of it in Monday’s market swoon. Exhibit A: U.S. marijuana companies, who took it on the chin not only from a flight to perceived quality, but also due to a handful of negative developments in their sector.

Two of those companies, multistate operators (MSOs) Curaleaf Holdings (OTC: CURLF) and Green Thumb Industries (OTC: GTBIF), both plummeted by around 8% on the day — a far steeper rate than even the S&P 500 index’s stumble.  

So what

Taken separately, none of these developments was overly damaging to the marijuana industry. Collectively, though, they added up to a bummer that encouraged some investors to find the exit.

The first was a ruling from the Washington, D.C. Court of Appeals that dismissed a pair of lawsuits against a Drug Enforcement Administration (DEA) rule. The rule is that hemp extracts become marijuana produts — which, technically, remain illegal at the federal level — once they rise above the threshold of 0.3% tetrahydrocannabinol (THC; the substance that gets users high).

That’s a problem for cannabidiol (CBD) producers, as during the processing of such goods they often get “hot,” or temporarily rise above that level. So now, the many companies that make CBD products either have to spend the capital to ensure strict and constant compliance with the DEA rule, or risk breaking the law by simply manufacturing these goods.

Now what

Meanwhile, on the legalization front, there’s some dispiriting news from a state that’ll probably sanction recreational marijuana a few months from now. A report in The Baltimore Sun asserted that many officials in Maryland’s pot industry are concerned that recreational sales won’t begin until 2024 at the earliest.

Although such legalization will be voted on by the state’s residents in the November election, very little work is apparently being done to provide a legal framework for the recreational cannabis business. Since companies like Curaleaf and Green Thumb are eager and willing to expand into new markets, this represents a setback for such operators.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Green Thumb Industries. The Motley Fool has a disclosure policy.

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