LOS ANGELES (AP) — Marijuana stocks have come down tough from their highs a year ago, and the skid is not 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 acquire PharmaCann, a Chicago-primarily based marijuana corporation with operations in eight states.

In its announcement, Los Angeles-primarily 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% considering that March.

“The underperformance has produced it increasingly much more vital to allocate capital effectively, provided the existing market headwinds,” MedMen mentioned in a news release.

The deal was announced in December and was observed
as a forerunner of a wave of marijuana market mergers and
acquisitions promising significant returns for investors.

Billions poured
into marijuana stocks final year as investors got on board with the significant,
multistate operators with the funds to obtain pricey licenses in the 11
states exactly where it is legal to sell cannabis merchandise.

A flurry of bargains in late 2018 and early this year continued to entice investors. But hopes of mergers finding fast regulatory approval quickly faded as the U.S. Justice Division started to critique the bargains for possible antitrust violations. That critique approach has however to be completed, although some analysts anticipate the bargains could start closing as early as this month.

“There’s been a delay in M&A activity and that is prompted investors to step away from the sector till they know M&A activity is going to choose up once more,” mentioned Bobby Burleson, an analyst with Canaccord Genuity. “That’s sort of dampened enthusiasm for the sector, mainly because that was 1 exit path that looked like it was closed temporarily.”

Investors have had no shortage of causes lately to sour on marijuana stocks, beyond the delay in deal approvals.

deaths and illnesses have contributed to the slide in some cannabis
stocks. States like Massachusetts and Montana have also temporarily
banned sales of flavored electronic cigarettes and vaping merchandise in a
bid to lessen underage use.

Vaping of marijuana merchandise in
states exactly where it is legal for adults account for more than a quarter of
income for the sector and, in some situations, 30% or much more of sales,
Burleson mentioned.

“People are waiting to see regardless of whether or not there’s been a adverse influence more than all on market income,” he mentioned.

weighing on marijuana stocks is a enhance in stock market place volatility
brought about by a slowing U.S. economy and uncertainty more than the trade
war amongst the U.S. and China.

Nonetheless, cannabis stocks are a significant loser so far this year, relative to the broader market place.

Take into consideration,
the ETFMG Option Harvest exchange traded fund, which focuses on
cannabis stocks: It is down 19.six% this year and off practically 50% from a
year ago. And shares in some of the most significant marijuana businesses,
like Tilary, Canopy Development, and Aurora Cannabis are down much more than
50% from a year ago.

Numerous significant businesses that have invested in
cannabis organizations are also down much more than 10% from a year ago,
like Altria Group, AbbVie, Molson Coors Brewing and Constellation

By comparison, the benchmark S&P 500 index is up 15.four% this year and hovering slightly above exactly where it stood 12 months ago.

A much less welcoming stock market place can limit a company’s potential
to raise capital by issuing stock. MedMen noted that a big portion of
PharmaCann’s cultivation and manufacturing assets calls for “significant
capital expenditures.”

“There’s been a lot much less potential to go to
the markets and raise capital, so investors are scrutinizing the balance
sheets of public businesses to see who’s ideal positioned to climate the
dry spell in capital markets,” Burleson mentioned.

Now that it has
backed out of its bid for PharmaCann, MedMen mentioned it intends to concentrate on
creating its retail brand and on the web business enterprise. In exchange for
forgiving some debt, the corporation is taking specific cannabis licenses and
other assets in Illinois and Virginia from PharmaCann.

at the PharmaCann portfolio these days, Illinois has emerged as the most
appealing chance for our longer-term, strategic development program,” mentioned
Adam Bierman, MedMen co-founder and CEO.