Marijuana bubble worries grow in Canada
The surge of capital into Canada’s nascent marijuana industry has sent stock prices soaring — and brought warnings it’s a bubble that could soon burst.
The value of 26 marijuana stocks listed in Canada has swelled to almost $4 billion from close to nothing in the past two years, as investors rushed to bet on the country’s move toward legalizing recreational use.
Canopy Growth Corp. became the first marijuana unicorn, reaching a valuation of $1.24 billion on Wednesday. Other producers, including OrganiGram Holdings Inc. and Aurora Cannabis Inc., saw their share prices surge more than 250 per cent this year.
While investor optimism is being fuelled by analysts’ estimates that there could be about 3.8 million recreational marijuana users in Canada by 2021 and billions in sales, there’s mounting concern companies are overvalued. How Canada will regulate, tax or distribute the products remains unknown, and some of the publicly traded companies have yet to make a sale.
Canada is on track to become the first Group of Seven country to legalize pot for recreational use if it pushes forward with introducing legislation in 2017. It would join eight U.S. states where it won’t be a crime to use the drug recreationally by January and follows Uruguay, the first country to legalize (2013).
In the U.S., the cannabis market in legal states totalled $6 billion US in 2015 and is expected to reach $50 billion US in 2026, according to data from Cowen & Co. But the drug remains illegal at the federal level and publicly traded companies are largely in auxiliary industries selling things such as seed kits and lotions, or raising investment funds for the industry. That makes Canada a destination for investors who want to focus on producing and distributing the drug, said Brendan Kennedy, CEO of Seattle-based Privateer Holdings Inc.