Just over two hours into the inaugural post Bill C-45 trading session, Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) and Aurora Cannabis Inc (TSE:ACB) (OTCQB:ACBFF) (FRA:21P) have sold off on moderately heavy volume. For now, the sell-the-news event anticipated by many investors has come to pass—but not drastically so.

As of this writing, Canopy Growth is trading down $1.28 to $38.00/share (↓3.26%) while Aurora Cannabis is off $0.54 to $9.10/share (↓5.60%). In the absence of any news, it appears investors are jockeying for better entry points now that a major anticipatory catalyst has exited the market. Although the passage of Bill C-45 is great news, investors now search for renewed impetus to jump back in.

Full interview with Canopy Growth CEO Bruce Linton, streamed live on May 28, 2018

Sector weakness has initially manifested itself on the top end of the market. Both Canopy Growth and Aurora Cannabis gapped-down markedly at the open; a trend which didn’t manifest in other mid-majors like Hydropothecary Corp and OrganiGram Holdings Inc. Thus, the first victims in the rather unsurprising post-legalization swoon are the bellweathers who lead the charge at week’s beginning.

Canopy Growth

The Midas Letter Canadian Cannabis Index is lower by a more modest ↓3.33%, reflecting the point we talked about above. Mid-major cannabis stocks have cushioned the decline so far this session, and Tier-3 issues have generally outperformed. The market has even seen some select upside action, with MYM Nutraceuticals Inc. higher by $0.19 to $1.94/share (↑10.86%) via technical breakout extension. That’s a positive sign that sellers haven’t completely engulfed the market.

Going forward, the key question is not why the market is selling off, but how far does sell-side extension last.

In the near term, the number I’m focusing on is $17.85-18.00 on the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ). The latter price is the approximate demarcation point from where this week’s pre-legalization rally emanated; the former would represent a ↓10.00% decline in prices, putting the sector in technical correction. After reaching a high of $19.84/share at the June 7 open, HMMJ is now printing at $18.64, down ↓2.76% today and ↓6.04% since investors started paring positions at yesterday’s opening bell.

Unlike the period following the tabling of Bill C-45 back on April 13, 2017, however, the market has more supporting factors cushioning any large fall. There’s greater sector revenue visibility, more clarity on the international legalization front, and significant institutional buying interest looking to put money to work. All these factors—along with the closer proximity to real earnings generation—should act as mitigation factors preventing an overly deep and protracted selling event.

The market may certainly grind lower for the indefinitely period of time, but a mass investor exodus is unlikely. Cannabis investing has entered a less speculative phase, thanks to Bill C-45’s passage and imminent retail allowance. Savvy investors and funds will capitalize on any outsized downside price extension the market is fortunate to bring.