LOS ANGELES (AP) — Marijuana stocks have come down hard from their highs a year ago, and the skid isn't just spooking investors.
On Tuesday, MedMen Enterprises Inc., which sells legal cannabis in California and 11 other states, backed out of a blockbuster deal to buy PharmaCann, a Chicago-based marijuana company with operations in eight states.
In its announcement, Los Angeles-based MedMen cited the steep pullback in U.S. and Canadian cannabis stocks this year. It noted the Horizons Marijuana Life Sciences Index, a Canadian exchange-traded fund that tracks cannabis stocks, is down 47% since March.
"The underperformance has made it increasingly more critical to allocate capital efficiently, given the current industry headwinds," MedMen said in a news release.
The deal was announced in December and was seen as a forerunner of a wave of marijuana industry mergers and acquisitions promising big returns for investors.
Billions poured into marijuana stocks last year as investors got on board with the big, multistate operators with the funds to acquire costly licenses in the 11 states where it is legal to sell cannabis products.
A flurry of deals in late 2018 and early this year continued to entice investors. But hopes of mergers getting quick regulatory approval soon faded as the U.S. Justice Department began to review the deals for potential antitrust violations. That review process has yet to be completed, though some analysts expect the deals could begin closing as early as this month.
"There's been a delay in M&A activity and that's prompted investors to step away from the sector until they know M&A activity is going to pick up again," said Bobby Burleson, an analyst with Canaccord Genuity. "That's kind of dampened enthusiasm for the sector, because that was one exit path that looked like it was closed temporarily."
Investors have had no shortage of reasons lately to sour on marijuana stocks, beyond the delay in deal approvals.
Vaping-related deaths and illnesses have contributed to the slide in some cannabis stocks. States including Massachusetts and Montana have also temporarily banned sales of flavored electronic cigarettes and vaping products in a bid to reduce underage use.
Vaping of marijuana products in states where it is legal for adults account for over a quarter of revenue for the sector and, in some cases, 30% or more of sales, Burleson said.
"People are waiting to see whether or not there's been a negative impact over all on industry revenue," he said.