Listing on the NASDAQ exchange might mean a lot for Canadian marijuana companies like Cronos Group and Canopy Growth Corp., but there are still too many unknowns about the sector, says Bryden Teich, portfolio manager at Avenue Investment Management, who says that the whole industry could go up in smoke if government policy changes direction.
Canada’s pot companies have been the talk of the town, with share prices having doubled and sometimes tripled in value over the last few months. On Tuesday, Toronto-based Cronos Group became the first Canadian cannabis company to trade on the US exchange, joining the NASDAQ and immediately gaining ground, closing up 20 per cent by Wednesday.
The same may be in the works for Smiths Falls, Ontario’s Canopy Growth Corp., as revealed by CEO Bruce Linton on Thursday, who said plans are underway to list on the NASDAQ.
“We prepared to list in October and we pulled it back, because trying to do the deal with Constellation was already 11 months of complexity,” said Linton, in reference to the $245-million investment from US alcohol giant Constellation Brands.
“The step will be list —and get ready for the drum roll— there will be a $75-million U.S. placement-ish. And it’s just because the economic model works for the people who took you public and give you coverage to get a listing out there,” said Linton to the Financial Post.
But NASDAQ or no NASDAQ, stocks in the marijuana space are too uncertain for your investment dollars, says Teich.
“We don’t own anything in the marijuana space,” he said in conversation with BNN. “The way I look at Canopy is that revenue is something like $40 or $50 million and the stock is trading at a market cap of, around Christmas it was $4 billion. You’re trading at an incredible multiple of sales, so it’s not even about looking at these companies and saying, ‘What are their earnings going to be?’”
“People make an argument that Amazon is expensive [but] Amazon trades at three times sales where these marijuana stocks trade at ten, 20, 30, 40 times sales,” says Teich. “So, it’s not about whether they’re going to earn anything or whether there’s going to be any cash flow. You’re really speculating on whether the government allows legislation here and in the US.”
“What happens if there’s a change in government and they say, ‘Well, no, it’s not legal anymore.’ This whole sector gets decimated,” he says.
Recently, the federal government in Canada gave further hints as to a start date for legalization of recreational cannabis, saying that once Bill C-45 passes gets assent from the Senate, there will be an eight- to 12-week buffer period for provinces and retail to prepare before legal weed is made available, thus pushing a start date to sometime in August.
Teich says that while money has been made on cannabis stocks, much of that action has already occurred.
“Could you hit a home run with one of these stocks? I think if you bought in the dollars, then you have already,” he says. “I think the super-easy money has already been made. But to try and value these things on anything but speculation on policy and regulations is not the way that I would invest. It’s not the kind of investing we do.”