Don’t put your rent money into Canadian weed stocks, this portfolio manager warns

Canada’s pot stocks have been on a rollercoaster ride over the past few months, with much of the sector making huge gains over December and early January only to abruptly plunge again during February.

But is now the time to buy? No way, says Benj Gallander, president at Contra The Heard Investment Letter, who thinks the real money has already been made.

The FOMO (fear of missing out) vibes are strong for investors looking anxiously at cannabis stocks and wondering if there’s still time to strike it rich. But in the lead-up to recreational legalization in Canada, markets have witnessed wild swings based on little to no significant news in the sector.

Stocks like Canopy Growth Corp. and Aurora Cannabis grew by multiples between November and mid-January, then lost over 30 per cent of their value in a matter of days. And for Gallander, that kind of volatility is a flashing red sign to stay away.

“Looking at the sector as a whole, it’s been absolutely incredible,” says Gallander in conversation with BNN. “If you look at the revenues of the companies in the sector and the valuations, they do not make sense at all. A lot of the easy money has been made. A few years ago, I was talking a lot more about them,” he says.

“It’s a great field to be in. You know, you see [cannabis companies] selling to the government of PEI, to the Australian government, you look at Canopy and what they’re doing,” he says. “I think it’s good in many ways to stick with some of the bigger players. A lot of the smaller players could do better but they’re riskier.”

This week, Toronto-based licensed producer Cronos Group announced that it would begin listing on the NASDAQ, the first Canadian cannabis company to do so. “This up listing to Nasdaq is a major corporate milestone and reflects the significant progress we have made in strengthening our corporate governance and expanding our global footprint,” said Mike Gorenstein, CEO of Cronos Group in a press release on Monday.

Cannabis remains a Schedule 1 narcotic in the eyes of the US federal government, while a number of states including Oregon, Washington State and California have passed laws which make recreational pot legal.

In Canada, provinces and territories are quickly putting together plans to deal with impending federal legislation, which now looks to be coming into effect by August of this year.

The Canadian cannabis sector has also seen the birth of a number of exchange-traded funds aimed at giving investors diversified exposure to the marijuana sector, but even ETFs are a risk when it comes to marijuana companies, Gallander says.

“The idea of buying into ETFs, I’m generally not big on it, although it can be worthwhile to have a number of the companies,” he says. “But this is a sector with fear and greed. It’s a dangerous sector to be involved in. I wouldn’t put the rent money into them.”