More Upside for Marijuana Stocks?
Canopy Growth Corp (TSE:CGC, CVE:CGC) stock has seen a rise of over 72% following the election of Donald Trump as U.S. president, but investors are concerned whether this marijuana stock is selling too hot, too fast.
And when we say too fast, we mean it. The TSX Venture Exchange activated its “circuit breaker,” halting trading in extremely active issuers for 10 minutes. This is meant to cool transactional volume as the stocks surged.
“Aphria Inc., Mettrum Health Corp., Organigram Holdings Inc., Supreme Pharmaceuticals Inc., Aurora Cannabis Inc. and Canopy Growth Corp. were all halted for five-minute intervals Wednesday — some of them multiple times,” reported Sunny Freeman on Wednesday. (Source: “‘The valuations are really stupid’: Marijuana stocks spike trip circuit breakers, temporarily halted,” Financial Post, November 16, 2016.)
But just because marijuana stock is a hot commodity right now, it doesn’t mean there aren’t investors who are more bearish on the shares.
Some are concerned over just how high the valuations have shot up. Canopy Growth Corp—Canada’s largest marijuana company—reached a valuation of $2.0 billion (double its worth) on Friday when it reached the $1.0 billion mark for the first time. While analysts are confident that, in the long term, marijuana stock will rise, right now it might be trading at too high a price for short-term investors.
Others are concerned about the volatility of the market. For instance, political constraints could hamper the success of marijuana stock. While the current Canadian government has promised to legalize the product, the legislative process is slow and there are a number of treaties that prevent the government from trading the good internationally. Not to mention that only four of the G20 nations have legalized marijuana, constraining the market for international trade.
On top of that, there’s the issue of marijuana stocks’ value not reflecting the current size of the market, which could ultimately lead to the shares’ downfall.
All in all, there’s a lot to consider when thinking about going all-in on marijuana stocks. The question is whether this is the ground floor of lucrative investment or instead a case of over-hype by investors.