Source: Bukhta Yurii/Shutterstock
Cannabis stocks are falling today on news that new regulation may be on the horizon in 2023. Recent reports indicate that the Food and Drug Administration (FDA) is planning a review of hemp-derived products, including cannabidiol (CBD). Scheduled for the first months of the year, this review could lead to new regulatory policies. After a tough quarter, cannabis stocks don’t need any more turmoil. But that may be exactly what’s in store if the review goes ahead. Shares of some of the industry leaders are falling today as the pending review casts a dark shadow of uncertainty over the future of the industry.
Let’s take a closer look at the potential regulation and what it means for investors.
What is happening to cannabis stocks
As the pending FDA review continues to trend, cannabis stocks are far from green. Both big and small names have been on a steady downward trend since the markets opened. Hexo Corp (NASDAQ:HEX) is down nearly 1% on the day, but is still outperforming some of its peers. Collective of cents Cannabis Aurora (NASDAQ:ACB) is down 1.9% year to date and meme shares Tilray (NASDAQ:TLRY) down 2.5%. These companies were already shaky before the FDA’s announcement. They will now head into 2023 at an even greater disadvantage.
According to the Wall Street Journal, this review is motivated by concerns about public safety and CBD. More specifically, it focuses on how hemp-derived oil is used in foods such as edible pastries. Janet Woodcock, the agency’s senior deputy commissioner, addressed them and said:
“Given what we know about the safety of CBD to date, it raises FDA concerns about whether these existing regulatory pathways for food and dietary supplements are appropriate for this substance.”
The agency’s cannabis strategy office is led by Patrick Cournoyer, who also highlighted public safety issues. Cournoyer noted that the agency wants to determine the effects of CBD on future fertility, raising the question of whether it can be safely consumed during pregnancy. A chemical compound, CBD is one of the main ingredients of cannabis. However, unlike another important component, tetrahydrocannabinol (THC), does not cause high or psychoactive effects on its own.
Cannabis stocks saw a significant increase earlier this year when the White House took steps to legalize the product at the federal level. But since then, the momentum that propelled them has stalled, casting considerable doubt on the industry’s future. As InvestorPlace writer Shrey Dua reports, investors seem to be losing faith in the sector. See when the safe and fair app (SAFE-DEPOSIT BOX) The Bank Act recently failed to pass for the third time, sent cannabis stocks even lower.
What comes next
Other experts have expressed similar views. InvestorPlace Senior Investment Analyst Luke Lango recently raised more concerns about cannabis stocks, citing “commoditization and a lack of profitability” as reasons for his bearish stance. He made this case at a time when the industry was winning. Now that it faces more regulation, its profitability is further questioned.
While the future of the cannabis industry remains uncertain, there’s no denying that it faces significant headwinds as it prepares for a new year. Even if markets recover in 2023, cannabis stocks may not be among the winners.
As of the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com’s publication guidelines.
Samuel O’Brient has been covering financial markets and analyzing economic policy for over three years. His areas of expertise include electric vehicle (EV), green energy and NFT stocks. O’Brien loves helping everyone understand the intricacies of the economy. It is ranked in the top 15% of stock pickers on TipRanks.
