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 get PharmaCann, a Chicago-primarily based marijuana firm 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% because March.

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

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

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

A flurry of offers in late 2018 and early this year continued to entice investors. But hopes of mergers receiving fast regulatory approval quickly faded as the U.S. Justice Division started to overview the offers for prospective antitrust violations. That overview approach has but to be completed, although some analysts anticipate 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,” mentioned Bobby Burleson, an analyst with Canaccord Genuity. “That’s type 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 causes lately to sour on marijuana stocks, beyond the delay in deal approvals.

Vaping-connected
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 goods in a
bid to lower underage use.

Vaping of marijuana goods 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 a lot more of sales,
Burleson mentioned.

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

Also
weighing on marijuana stocks is a boost in stock industry volatility
brought about by a slowing U.S. economy and uncertainty more than the trade
war among the U.S. and China.

Nonetheless, cannabis stocks are a massive loser so far this year, relative to the broader industry.

Take into consideration,
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 most significant marijuana firms,
like Tilary, Canopy Development, and Aurora Cannabis are down a lot more than
50% from a year ago.

Quite a few massive firms that have invested in
cannabis enterprises are also down a lot more than 10% from a year ago,
like 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 much less welcoming stock industry can limit a company’s capability
to raise capital by issuing stock. MedMen noted that a huge portion of
PharmaCann’s cultivation and manufacturing assets demands “significant
capital expenditures.”

“There’s been a lot much less capability to go to
the markets and raise capital, so investors are scrutinizing the balance
sheets of public firms to see who’s most effective 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 net company. In exchange for
forgiving some debt, the firm is taking specific cannabis licenses and
other assets in Illinois and Virginia from PharmaCann.

“Looking
at the PharmaCann portfolio currently, Illinois has emerged as the most
eye-catching chance for our longer-term, strategic development program,” mentioned
Adam Bierman, MedMen co-founder and CEO.