Canadian Marijuana Stocks Are Booming But How Long Will It Last?
Canadian marijuana stocks skyrocketed over the last year. Shares at Canopy Growth Corp., Aurora Cannabis, and Aphira Inc rose by over 200% in 2017 and are now worth over $14.5 billion. And those numbers are only expected to rise as Canada plans to introduce full legalization of recreational cannabis later this year. But is Canada’s weed market really the “green frontier” it’s made out to be?
Some experts are skeptical, saying the industry is heading towards a bubble that will leave a lot of investors short-handed. Read on to find out whether Canada’s cannabis industry is really all it's made out to be.
What Is Canada’s Weed Market Really Worth?
Despite being only 4 years old, the cannabis industry in Canada is growing like a weed. And despite being such a young industry, it’s already home to some of the largest marijuana firms around the globe. One of these firms is Canopy Growth Corp., considered the largest publicly traded cannabis firm in the world.The company, based in Ontario, saw huge increases in its stock prices, which increased from $10.36 CAD in January 2017 to roughly $37 CAD this month.
This rise in stock prices makes sense, seeing that Canada’s recreational market is set to open later this year. When it does, the demand for cannabis is obviously expected to rise. According to the Parliamentary Budget Officer, the total expenditure on cannabis in 2018 is expected to be around $5.5 billion, the PBO estimates.
Some private analyst firms, however, suggest the industry is worth much more. Deloitte, for example, suggested that the Canadian pot industry could potentially grow by up to $22.6 billion CAD every year. These figures are based on a company survey which showed that almost 30% of the Canadian population currently uses cannabis either recreationally or medicinally, and a further 17% would be willing to try it if it were legal.
Cannabis In Canada: Boom Or Bubble?
While Canada’s cannabis industry is attracting a lot of hype, it’s also getting its fair share of criticism. Rob Tétrault, a Portfolio Manager and Senior Vice President at the National Bank of Canada, says that current valuations of cannabis sales don’t justify the rise in the price of Canadian marijuana stocks. Tétrault also told VICE he is concerned that Canada’s pot market is heading towards a bubble, with companies being valued as if they are already making profits in a large, stable industry when they are really hoping to capitalize on a new market.
And Tétrault isn’t alone. "I don't think the numbers are that high," said Chris Damas, editor of The BCMI Report, in an interview with CBC News. He argues that most people who write about cannabis “have a vested interest in promoting the industry." According to Damas, the most independent report on the Canadian marijuana industry is that by the Parliamentary Budget Officer mentioned earlier.
How Do US Pot Politics Affect The Canadian Market?
Like Canada, the US has a huge potential market for cannabis. Unfortunately, the market in The States is far less stable than the one across the northern border. Earlier this month, US Attorney General Jeff Sessions revoked the Cole Memorandum (brought in under Obama) which promised that the federal government wouldn’t intervene with US states who choose to legalize the plant, despite it being a federally controlled substance. Sessions’ decision took a huge toll on Canadian marijuana stocks, some of which saw double-figure drops following his announcement.
Canopy Growth stocks, for example, dropped almost 19% before stabilizing. However, some experts suggest that a US crackdown on legal weed could actually benefit the market in Canada. Russell Stanley, an analyst at Echelon Wealth Partners, for example, suggests a US crackdown would help pave the way for Canadian companies to dominate the cannabis market.
"It keeps the U.S. out of that game and it allows Canada to pursue these opportunities with relatively little competition," Stanley told CTV News.
“Green Frontier” or “Up In Smoke”?
Unfortunately, it’s still hard to make concrete conclusions on where Canada’s cannabis industry and Canadian marijuana stocks are heading over the next year. For now, we know that there is a demand for legal weed in Canada. How large that demand is, however, depends on which estimates you go by. If all goes well to the north, Canada could serve as a positive example for the cannabis industry in the US, prompting a similar boom in US marijuana stocks.