Get ready for carnage in the marijuana sector, this portfolio manager says

No space has been hotter this past month than the marijuana sector, with pot stocks continuing to race up (and sometimes down) the charts in the lead-up to recreational cannabis becoming a reality across Canada.

And if you’ve been lucky enough to have placed some winning bets on stocks like Canopy Growth and Aurora Cannabis, now might be a good time to cash in your chips before the bubble bursts, says Lester Asset Management CEO Stephen Takacsy.

“The sector is so overvalued right now, it’s undescribable,” Takacsy told BNN Bloomberg . “You can’t justify these market valuations based on never mind today’s results but even forward results two, three, four, five, ten years down the road. There will be a lot of casualties.”

“If you’ve made a lot of money at this point, I’d certainly take a good chunk off the table,” he says.

Ever since sector leader Canopy Growth announced its new $5-billion deal with beer and alcohol giant Constellation Brands in mid-August, the run has been on, as investors jumped on the notion that a bonafide and extremely lucrative business was about to be born.

Already equalling its share price achieved at the height of the late December/early January frenzy in the pot space, Canopy pushed higher over the past few weeks, essentially doubling in value since mid-August. The Horizons Marijuana Life Sciences ETF, which tracks the performance of the top Canadian and American pot companies, jumped 75 per cent over the same one-month period.

Marijuana sector news is moving the market. But for how long?

Still, Takacsy says there may be life left in the cannabis run, however out of touch with reality it appears.

“You may see another little bump when it’s legalized,” he says. “There’ll be a quarter or two where it’ll appear that the business is really booming because things will be sold out. That’s maybe more logistics and supply problems in the system. But I think this bubble is really going to really deflate over the next 12 months when reality sets in, when the size of the market and the profitability of the market starts to become more apparent.”

“We’ve seen these bubbles before and we’ve seen how they end,” he says. “That being said, there will be some winners in the medical marijuana space. But recreational, I think it’s largely overhyped. And edibles, that remains to be seen from a purely food and safety [perspective]. Amongst Canadian families, I think the regulators are going to take a very strict approach, I would assume.”