3 Nasdaq stocks facing regulatory hot water in 2023
Among the groups of Nasdaq struggling stocks this year are crypto names and marijuana stocks. When it comes to cryptos, Washington is clearly attacking the sector. Meanwhile, marijuana stocks are likely to crash much more as it becomes clear to even those most bullish on space that Congress isn’t coming to its rescue anytime soon.
In addition, other factors weigh on both sectors. For example, many if not most investors have clearly lost faith in cryptos, despite their recent rebound. And the still abysmal financial results of cannabis companies seem to have finally convinced most investors that the sector is a dead end.
In light of these points, here are three struggling Nasdaq stocks in 2023. Two are from the crypto sector and one is selling marijuana.
Nasdaq stocks in trouble: MicroStrategy (MSTR)
Regulators look set to further reduce most consumers’ low opinion of cryptos, and that’s negative for MicroStrategy (NASDAQ:MSTR). This is because MSTR, at the end of last year, had a huge stash of 132,500 tokens of Bitcoin (BTC-USD).
The Federal Deposit Insurance Corporation may soon take a decision from regulators that could undermine confidence in crypto. The FDIC sold part of the assets of Signature Bank, which failed earlier this month. Along with the deal, the FDIC said the buyer, New York Community Bank (NYSE:NYCB), did not purchase “approximately $4 billion in deposits related to the digital asset banking business of the former Signature Bank.”
The agency added cryptically (no pun intended) that it would “provide these deposits directly to clients whose accounts are associated with digital asset banking activities.”
But the fact that the FDIC didn’t use the word “crypto” or “insured” and used such strange and generally strange indirect language makes me think that the agency might refuse to release some or all of the crypto deposited with of Signature.
The agency’s general and past hostility to crypto and its rather clear statement last July that “deposit insurance does not apply to products other than deposits, such as… crypto assets.”
If the FDIC decides not to refund depositors’ crypto, concerns about the security of crypto are likely to resurface. After all, the FTX saga showed that the value of cryptos held on exchanges could be wiped out. If cryptos held in banks can be erased and those kept on personal devices can be stolen by hackers, where exactly can they be kept safe?
If Bitcoin’s value falls amid Bitcoin security fears, Microstrategy shares will plunge.
Coinbase (NASDAQ:PIECE OF MONEY) would also be affected if the value of crypto plunges following a potential decision by the FDIC to refuse to insure crypto deposits at Signature Bank, as I explained in the previous section.
Coinbase, however, faces many other regulatory headaches. First, the exchange is refusing to comply with the Securities and Exchange Commission’s request to complete the necessary paperwork to become a securities exchange. This probably led the agency to be hit by a potentially disastrous opinion (for Coinbase) of Wells by the SEC on March 22.
According The Wall Street Journal, “Staking products allow investors to earn a return by lending their tokens.” The SEC blocked another crypto exchange, Kraken, from carrying out this practice. According The newspaper“Coinbase’s net revenue from blockchain rewards, which includes staking revenue” generated 10% of its total sales last quarter.
Additionally, COIN will struggle to find banks to partner with and borrow funds from in the future. This is because, as I pointed out in a previous column, the Federal Reserve, along with the FDIC and the Comptroller of the Currency, have resolutely tried to prevent banks from funding “crypto-asset related entities”.
Aurora Cannabis (ACB)
A few years ago, I predicted that the cannabis business would not explode because, for the most part, it is not socially acceptable and because illegal dealers could sell the drug for less than legal retailers. This scenario has indeed played out, as few or no marijuana businesses are profitable, and most have become penny stocks.
Aurora Cannabis (NASDAQ:ACB), for example, was, a few years ago, touted as “can’t miss” stock by many cannabis bulls. In the 12 months to June, however, its operating profit entered at -$171.3 million, and ACB stock closed yesterday at 66.6 cents. Meanwhile, the shares have a relatively small market capitalization of $226.5 million.
The few investors who are still bullish on cannabis stocks believe Congress will legalize the drug, giving cannabis companies unfettered access to US banks for the first time and forcing many more Americans to start using the drug.
However, Republicans have a majority in the House of Representatives, and many members of this conservative party are still can’t stand legalize cannabis. Additionally, in most scenarios, any legalization bill would need to garner the support of 11 GOP senators. Therefore, this Congress will not legalize the drug, therefore cannabis will not be legalized nationwide until at least 2025.
As of the date of publication, Larry Ramer has run out of COIN. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.