The initial high from legal weed may have worn off a bit here in Canada but the battle between pot stocks north and south of the border is just getting started.
Take Exhibit A.
Boris Jordan, chairman of newly listed US cannabis company Curaleaf (Curaleaf Stock Quote, Chart CSE:CURA), who says that while Canadian companies are currently being spoiled by getting to trade on both Canadian and American exchanges, that advantage won’t last as American companies will ultimately dominate based on sheer market size.
Worse, Jordan says Canada’s pot stocks are both overhyped and overvalued. Ouch.
Curaleaf shares had an up-and-down first week of trading on the Canadian Securities Exchange, with the stock debuting at $8.70, significantly lower than the offering price of $11.45, as the Massachusetts-based company raised an industry-record $400 million in its oversubscribed offering.
The new listing is one of a storm of American marijuana companies coming to Canada this year to raise capital, where about one-quarter of the CSE is now made up of pot companies, a fair number of them US companies with established businesses in states where either medical and/or recreational weed is legal.
And while Canada’s pot stocks have been making headlines for more than a year now, it’s only more recently that American companies like MedMen, Green Thumb Industries and iAnthus Capital are gaining notice.
It’s about time, says Jordan, who claims that while Canadian companies may have all the advantages at the moment, that tide will turn.
“The biggest travesty is that we’re a $4 billion company that had to go to Canada to raise $400 million —we couldn’t do it in our own market whereas the Canadians, not only can they raise money in their own market, they can come here,” Jordan told CNBC Wednesday.
“Canada is a market of 36 million people and we’re a market of 320 million people, so the volatility that’s happened over the past few days should have happened because Canadian stocks were overvalued for the market size that they’re in,” he says. “There’s no justification in my opinion for the types of valuations we’ve seen in these Canadian stocks and it’s because they have little floats and a huge demand whereas the US companies are much better value from an earnings perspective.”
While currently in a post-legalization funk, Canadian pot stocks like Canopy Growth Corp , Tilray and Aurora Cannabis have all made hay on their US listings over recent months.
Jordan says that even with the current state-federal issues in the US, he prefers the American approach in which state bodies have less involvement in the pot business.
“The problem with the Canadian market is that the sales points are controlled by the government and the government wasn’t ready for the launch on October 17 and so the stores all ran out of product and the government doesn’t have enough stores open to service the public. In the States, all companies control their own distribution and that’s why we have much different revenue profiles than the Canadians do,” he says.
As far as when the United States will move on the marijuana issue, Jordan says that while the STATES ACT —which will give states the authority to legalize recreational marijuana while keeping it a scheduled narcotic at the federal level— would be a welcome improvement, the idea of a nation-wide opening of the doors à la Canada is unlikely anytime soon.
“I think we’re just not there yet. I just don’t believe that the Trump administration at this point in time is prepared for full rescheduling,” he says.