Pot stocks have soared in the past year, but the investments are still very risky in the eyes of many investors. Higher-risk stocks that operate in the U.S., where it’s technically still illegal to buy and sell pot, have been able to find investors on the Canadian Securities Exchange (CSE), which has allowed stocks like Cannex Capital Holdings Inc. and Golden Leaf Holdings Ltd. to raise funds that otherwise wouldn’t be available.
The TSX, meanwhile, has been clear that stocks that run afoul of U.S. laws could run the risk of being delisted.
In an effort to gain even more credibility, both Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) and Cronos Group Inc. (TSX:CRON)(NASDAQ:CRON) have listed on exchanges in the U.S. to try and attract even more investors. The hope is that by having access to a wider group of investors that will help build momentum, which will help their share prices rise in value.
Did it work?
In late February, Cronos became the first cannabis company to trade on one of the main U.S. exchanges, the NASDAQ. The results have been far from convincing, as since the start of March, Cronos has lost more than a quarter of its value.
Canopy Growth was the first pot stock to trade on the NYSE back in May, and while the stock did get a boost in price, its share price has crashed back down since then, and returns are now flat.
To try and normalize these returns, let’s take a look at how Aurora Cannabis Inc. (TSX:ACB) did during these time periods. Since the beginning of March, Aurora’s stock has dropped 11% in value, which is nowhere near the sell-off that Cronos has seen. If we look at its returns in the past month, the stock has risen around 10% and has also outperformed Canopy Growth during its time on the NYSE.
While it’s hard to discern the reason for these patterns given all the variables we would have to account for, and especially given how volatile pot stocks have been, at best we can see that simply listing on a top-tier exchange doesn’t mean that a stock will rise in value. It is possible that on the more mature exchanges the stocks have faced more scrutiny, and investors have simply not bought into the hype that has fueled their growth thus far.
Whether a stock is listed on the TSX, NYSE, or the NASDAQ, investors will use the same strategies when it comes to investing. A stock that is overpriced on one exchange will be just as overpriced on another. While there may be more requirements that need to be met on one of the big exchanges, doing so doesn’t guarantee that a stock is safe or a good investment.
Pot stocks are still very expensive and very risky to invest in, so investors shouldn’t be surprised that simply listing on a new exchange wouldn’t send stock prices soaring. While it is easier to reach more investors, many institutional ones will still avoid cannabis stocks until pot is legalized at the federal level.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor David Jagielski has no position in any of the stocks mentioned.