The sell-off in marijuana stocks has been relentless ever since topping out as Canada’s marijuana legalization was going into effect.
Although the sell-off is not unprecedented in marijuana stocks (the Canadian Marijuana Index has declined more than 40% in the past two years, it’s currently down 39%), the timing of this sell-off is particularly bad.
The problem with the timing is that it’s happening right into tax-loss selling season.
Tax loss selling could have a disproportionate heavy impact on marijuana stocks in the next few weeks.
In most stocks tax-loss selling has little appreciable impact.
Shares of the Amazons and Microsofts trade so much volume, even hundreds of millions of tax-loss related selling will barely register.
That’s not the case in for marijuana stocks though.
They are small and trade less volume so even a little bit of selling (even if it’s only driven by investors looking for tax advantages of dumping a stock that’s down regardless of fundamentals) can cause a dramatic slide in price.
It’s a very real thing across the markets too. The TSX Venture Exchange, for example, has declined in five the last Decembers.
It can and, at this point, probably will get ugly for even the most sparkling gems out there.
If it does, expect a bottom and a sharp bounce back to begin on or near December 24 which is the last day for tax-loss selling in Canada.
If you’re new to Canadian markets, know this time is painful for the short-term focused investors and, conversely, is a gold mine of oversold values which pay off big in a few days or weeks.