Canada and Uruguay are the only two countries to have legalised the recreational use of marijuana (the Netherlands has laws on the books against it, but they’re not enforced); the Canadian Securities Exchange has been transformed into “the cannabis stock exchange,” a latter-day NASDAQ filled with hyperinflated stocks in legal weed companies.
For example, Constellation Brands Inc (Corona and Modelo beer, etc) has invested more than $4 billion in Canopy Growth Co.
As the WSJ writes, “the optimism has grown beyond any reasonable fundamentals” — marijuana grower Tilray is valued at $4 billion on $11 million in revenue.
All told, listed Canadian weed companies have a market cap of $40B, a 1,000% increase in a single year.
Investors are betting that legal weed will hit the USA, and that this will open a Canadian export market (or that Canadian firms will be able to move quickly to establish US subsidiaries). These are both extremely long-shot bets!
“This is like a gold rush,” former Mexican President Vicente Fox said during a recent visit to Toronto to promote Khiron Life Sciences Corp. KHRN 11.92% , a Canadian medical-marijuana company where he serves as a director. Khiron, which reported a net loss of 6.7 million Canadian dollars (US$5.2 million) and no sales for its second quarter, raised C$13 million through a stock sale earlier this month.Jesse Pytlak, a Toronto analyst with Cormark Securities, estimates cannabis stocks are currently valued at more than 10 times the C$5 billion to C$9 billion market expected to emerge in Canada by consulting firm Deloitte after legal recreational sales begin. He warned investors are prematurely deciding which companies will dominate a new market before a single ounce of recreational pot is legally sold in Canada.
One lawyer who has advised banks and marijuana companies in recent deals said a shakeout is inevitable. “I believe there’s a great opportunity for our insolvency lawyers in this industry,” said Patricia Olasker, a partner at Toronto-based Davies Ward Phillips & Vineberg LLP. “There are going to be lots and lots of failures.”
Wall Street’s Marijuana Madness: ‘It’s Like the Internet in 1997’ [Jacquie McNish and Vipal Monga/WSJ]
(via Naked Capitalism)
(Image: Oren neu dag, CC-BY-SA)
