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LOS ANGELES (AP) — Marijuana stocks have come down difficult 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 business 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% due to the fact March.

“The underperformance has created it increasingly much more crucial to allocate capital effectively, offered the existing business headwinds,” MedMen stated in a news release.

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

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

A flurry of offers in late 2018 and early this year continued to entice investors. But hopes of mergers finding swift regulatory approval quickly faded as the U.S. Justice Division started to evaluation the offers for prospective antitrust violations. That evaluation course of action has but to be completed, even though some analysts count on the offers 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 again,” stated Bobby Burleson, an analyst with Canaccord Genuity. “That’s sort of dampened enthusiasm for the sector, simply because that was 1 exit path that looked like it was closed temporarily.”

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

Vaping-associated
deaths and illnesses have contributed to the slide in some cannabis
stocks. States such as Massachusetts and Montana have also temporarily
banned sales of flavored electronic cigarettes and vaping solutions in a
bid to minimize underage use.

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

“People are waiting to see no matter whether or not there’s been a adverse effect more than all on business income,” he stated.

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

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

Look at,
the ETFMG Option Harvest exchange traded fund, which focuses on
cannabis stocks: It is down 19.six% this year and off almost 50% from a
year ago. And shares in some of the largest marijuana firms,
such as Tilary, Canopy Development, and Aurora Cannabis are down much more than
50% from a year ago.

Several major firms that have invested in
cannabis organizations are also down much more than 10% from a year ago,
such as Altria Group, AbbVie, Molson Coors Brewing and Constellation
Brands.

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

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

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

“Looking
at the PharmaCann portfolio right now, Illinois has emerged as the most
desirable chance for our longer-term, strategic development program,” stated
Adam Bierman, MedMen co-founder and CEO.