What goes up, must come down. That seems to be the Bay Street mantra on Canada’s streaking pot stocks.
Nervous analysts are looking at sky-high stock prices in a hyped up yet-to-be-born industry and one word comes to mind: bubble. Maybe, but maybe not — that’s the allure and risk of going where (almost) no country has gone before.
The signs are clearly out there. Canada’s marijuana space has been booming over the past year as a rash of newly minted companies scrambles into position before recreational pot becomes legal.
With only months to go, Canadian stock exchanges now boast over 80 publicly traded companies connected to cannabis, which all told are now worth a staggering $37 billion.
On paper, at least.
"Value on the stock market and sustainable business franchises are different," says Chris Damas, editor of the BCMI Cannabis Report, to CBC News. "If you give me enough Monopoly money,
I can buy Park Place and Boardwalk, too.”
It’s easy to scoff and probably wise to do so. The smart money says it’s logic-defying, with stock prices running up and down seemingly unrelated to any news items in the space. Not only are valuations out of whack with what Canada’s retail pot space will look like (estimates are in the $5 to $8 billion-dollar range), investor interest seems to be driven much less by steely-eyed analysis and more by a fear of missing out.
Yes, we all wish we’d bought Bitcoin at 150 bucks a pop, but that boat has sailed (presumably), leaving a whole lot of people hungry for the next big thing. A whole lot of newbie investors, that is: reportedly, online brokerages for Canada’s big banks are having trouble handling the rush of new accounts being opened along with the sheer volume of trading in marijuana stocks at the retail level.
But why not hitch your pony to a pot-co like Canopy Growth, Aurora or Aphria? Right now, the sky’s the limit for these businesses in terms of growth potential. A deal done with a province- wide distributor, for instance, or a drugstore chain and you’ve got potentially hundreds of millions, even billions, in new revenue.
Statistics Canada says that Canadians spent $5.7 billion on cannabis in 2017, which compares to $22 billion spent on alcohol and $16 billion on tobacco products. How likely is it that the balance will shift further towards pot once it’s legal? Look to Colorado, where recreational cannabis came of age in 2014. There, the number of adults choosing to use pot has gone up in the years since, while alcohol use has declined.
There’s more reason to dream. As first-movers in the pot space, Canadian weed companies will have a leg up on the competition in other countries who may also be on the road to legalization.
“Canada is about three, four, five year ahead and that enables the companies that do a good job making the right products here to have the next markets, which are the international markets” Canopy Growth Corp’s Bruce Linton recently said to BNN. “It’s going to be neat. Canada’s had a few waves of Canadian-made products dominating, and now we really have a window of opportunity.”
Will it all come to pass or is there a bubble ready to pop? In reality, there are too many unknownsto call it either way. That in itself should be enough to turn off the cautious investor, but for others — a group whose ranks are growing by the hour —you just never know.