Cannabis Sector Faces Unsettled Future: Key Stock Indices Discontinued Amid Industry Turbulence

LOS ANGELES– In a telling sign of the shifting tides in the cannabis sector, two prominent indices tracking the performance of cannabis businesses on North America’s largest stock exchanges have been discontinued. This development comes amid dwindling investor interest and substantial financial losses incurred by companies in the sector.

Earlier this year, the S&P/TSX Canada Cannabis Index was quietly decommissioned, a little over a year since its inception on January 20, 2020, as confirmed by a spokesperson for S&P Dow Jones Indices in a communication with MJBizDaily. This was followed by the discontinuation of the S&P/MX International Cannabis Index in November 2021, a significant downturn since its launch in November 2019.

The S&P/TSX Canada Cannabis Index, which monitored the performance of a selection of cannabis companies listed on the Toronto Stock Exchange and TSX Venture Exchange, included notable names such as Canopy Growth Corp., Cronos Group, Organigram Holdings, and Village Farms International. Despite the abrupt end to these indices, Standard & Poor’s refrained from providing an official explanation.

However, a document detailing the methodology behind S&P equity indices suggests that an index might face discontinuation due to a decline in investor usage or interest, a scenario that seems to have played out in the recent closure of a cannabis-centric exchange-traded fund associated with San Francisco’s Poseidon Investment Management.

The industry has witnessed significant financial turbulence, with leading Canadian cannabis firms grappling to achieve profitability amidst challenges of overproduction and hefty taxes and fees. Industry giants Canopy and Tilray Brands reported a combined loss of 5.2 billion Canadian dollars ($3.8 billion USD) in their recent fiscal years, a testament to the sector’s ongoing struggles.

The S&P/MX International Cannabis Index, which primarily focused on the legal cannabis industry outside North America, saw a staggering decline of over 92% from its peak value in February 2021. This downturn mirrors the broader industry’s struggle to meet the high expectations of investors following unsuccessful or scaled-back legalization efforts in several countries.

Corporate leaders in the sector have often been criticized for prematurely expanding their businesses before adequate laws and regulations were established in key markets to facilitate sales. This trend is evident in various regions, including Mexico, where legislators missed multiple deadlines set by the Supreme Court to legalize adult-use cannabis, and New Zealand, where a 2021 referendum narrowly rejected cannabis legalization.

Furthermore, Germany retreated from its initial plans for nationwide recreational legalization, opting for a more conservative, dual-track approach with limited commercial opportunities. Similarly, Colombia’s Senate narrowly missed passing a legal framework to regulate recreational marijuana sales this year.

The challenges extend to cannabis-related mutual funds and exchange-traded funds, which have also experienced difficulties. In 2020, the Evolve Funds Group, managing over CA$630 million, announced the closure of a small, underperforming cannabis mutual fund and a smaller ETF. More recently, the AdvisorShares Poseidon Dynamic Cannabis ETF, overseen by the Paxhia sibling founders of the marijuana hedge fund Poseidon Investment Management, declared its shutdown, citing industry headwinds such as falling wholesale prices and the sluggish pace of federal reform in the United States.

As the cannabis sector navigates these turbulent waters, the discontinuation of these indices serves as a stark reminder of the industry’s volatile nature and the pressing need for a more stable and regulated market environment.