Regulators try to take heat out of cannabis market as Canada acts

ANALYSTS and regulators are attempting to throw cold water on retail investors’ interest in cannabis companies as valuations soar ahead of Canada’s plans to legalise use of the drug next month.

Listed stocks in such cannabis companies have become hot property over the summer, leaving the combined market valuation of some of them – mostly Canadian companies listed in the US – far above the estimated current value of the legal marijuana market, which is estimated to be around $8bn (£6.2bn). The black market is expected to be many times larger.

The US Securities and Exchange Commission warned investors this week about the threat of scams in cannabis trading amid fears of a new bubble to rival the cryptocurrency boom.

On Thursday, analysts Northland Capital downgraded shares in Tilray, a Canadian marijuana company that listed in New York in July, whose share price is up 258pc this year.

Another Canadian company considered the market leader, Canopy Growth Corp, which trades under the ticker code “WEED”, has seen its share price rise 560pc in the past 12 months to a market valuation of $15bn.

The interest has also fuelled a raft of “initial coin offerings” (ICOS), cryptocurrency-style investments in cannabis ventures, which can promise high returns but come with significant risks attached. The SEC said: “Fraudsters may try to use media coverage about the legalisation of marijuana to promote an investment scam.”

The regulator added: “In addition to the potential for investment schemes associated with marijuana-related stocks, some marijuana-related companies may be at risk of criminal prosecution because of the business they are in.”

The SEC also said it had charged one company, Greenview Investment Partners, for defrauding investors.

On the social messaging app Telegram, some cryptocurrency forums, where users trade investing tips and advice on the anonymous network, have now turned their attention to shares in cannabis growers.

“Our cannabis private equity fund has been approached by 50 or more crypto players,” Merida Capital Partners said.

Merida, a New York investment firm, added: “They are looking at cannabis and crypto as an emerging sector.”

Merida managing partner Mitch Baruchowitz said: “They might not be connected as industries but they are seen as outside the traditional investment field. High risk and high reward.”

Investment advice website Proactive Investors has also started a dedicated Telegram channel for investors interested in cryptocurrency, blockchain and cannabis.