The Toronto Stock Exchange edged lower on Thursday as news of the U.S. reclassification of cannabis initially lit up cannabis stocks, but failed to keep a fire burning as investors realized full legalization of the sector will require further legislative action.
The S&P/TSX Composite Index closed down 42.18 points to 33,912.93, only its fourth loss in 17 sessions, as investors also took profits after a recent run of winning days, while geopolitical tensions and uncertainty around the Iran war continue to cast a shadow over the outlook for markets.
Sectors were mixed, but the two biggest movers were Health Care, down 7.7% and Info Tech, down 4.5%. The Battery Metals Index was up 4%.
Within the health sector, cannabis firms lost early gains Thursday as investors at first welcomed news the Department of Justice was "immediately rescheduling FDA-approved marijuana and state-licensed marijuana from Schedule I to Schedule III", but after some more inspection seemed to conclude the move fell short of full legalization.
Aurora Cannabis (ACB.TO) was down 14%, Canopy Growth (WEED.TO) fell 13%, Cronos Group (CRON.TO) was down 8% and Tilray Brands (TLRY.TO) lost 13%.
BNN Bloomberg spoke with Pablo Zuanic, managing partner at Zuanic & Associates, about the implications for cannabis companies, investors and the broader industry. Among key takeaways, BNN noted the change reduces tax burdens by allowing companies to deduct operating expenses, improving cash flow, while expanded research and federal registration for operators are expected to support industry development. But, BNN also noted, cannabis remains federally illegal, and interstate trade and exports are still restricted. The move is seen as a step toward broader reform, but full legalization would require further legislative action.
Of commodities, the Energy sector was up near 1.8% as West Texas Intermediate crude oil closed higher with the United States and Iran making little progress to end a war that has produced the largest-ever supply shock with shipments from the Persian Gulf region barred from the Strait of Hormuz. WTI crude oil for June delivery closed up US$2.89 to settle at US$95.85 per barrel, while June Brent oil was up US$3.07 to US$104.98.
Base Metals lost near 3.2% as gold fell, remaining rangebound amid concerns high oil prices will push up inflation and force hikes to interest rates. Gold for June delivery was down US$34.00 to US$4,719.00 per ounce.