Overvalued stock concerns marijuana investors
Industry ‘moving quickly’ but shares are tumbling due to worry about demand
WINNIPEG— There’s one bummer question haunting all the marijuana businesses popping up between British Columbia and Newfoundland.
How much do Canucks like weed, eh?
Ayear before recreational cannabis is expected to become legal in Canada, there’s an explosion in companies cultivating the stuff. At least 10 marijuana outfits have new listings this year on the TSX Venture Exchange and Canada Securities Exchange. Some 51 enterprises have gotten the green light to grow pot and 815 applicants are in the queue. All told, it could be enough to raise the country’s raw weed output more than tenfold.
This is where skeptics see froth. “If you ask people today why they don’t use, it’s a small percentage who say ‘because it’s illegal,’ ” said Neil Boyd, a criminologist at Simon Fraser University in Vancouver. “In many respects, there might be an overestimation of demand.”
Longtime users and growers insist he’s wrong, but investors aren’t so sure. Producer MedReleaf Corp. tumbled as much as 28 per cent last month in the worst debut for a Canadian IPO in 16 years amid concern pot stocks are overvalued. Shares of Canopy Growth Corp., the country’s first billion-dollar marijuana startup, are down 21per cent in the past three months.
The North American Medical Marijuana Index, which tracks leading cannabis stocks in the U.S. and Canada, has plunged 21 per cent since Prime Minister Justin Trudeau’s government in April unveiled its plan to legalize the drug by next July, 16 years after Canada permitted it for medical use.
Of course, some of the decline may be attributed to the situation in the U.S. Many in the Trump administration, Attorney General Jeff Sessions in particular, are no friends to the industry. For Canadian companies, the risk isn’t political.
“There seems to be a little bit of investor fatigue,” PI Financial Corp. analyst Jason Zandberg said. He said they’re having trouble differentiating between the producers, new and old, and what might give them competitive advantages.
That’s to be expected, according to marijuana bulls, in a brand-new market that hasn’t even arrived yet. Parliament still has to pass the recreational law (though there’s little question it’ll do so). Then the federal government will have to write rules on taxation and each province will have to decide how to regulate distribution.
“Nothing is going to be perfect right off the hop,” said Jon Bent, a licensed medical marijuana grower who has been cultivating plants on his 4.5hectare farm outside Winnipeg for five years. “It’s baby steps — and the industry is moving quickly.”
He said the oft-misunderstood reefer is definitely going mainstream. Even his cousin, a “religious librarian,” became a convert after experimenting in Denver, he said. “These are people who would never, ever try it” if it were illegal.
“It’s really gaining popularity and really starting to lose that stigma,” Bent said. “I see a lot of money being spent.”