13:43 Friday 26 October 2018

Last Wednesday, Canada joined many US states in legalizing the adult use of marijuana and became the first G7 country to do so. So called ‘pot stocks’ have seen a surge in value as they started to become listed on the NYSE and even more so in the build up to last Wednesday’s historic moment, however since then, the market has not been so high on these producers as investors cashed in on their bets.


Despite the initial losses following the legalization of cannabis in Canada, many pot stocks regained value before a big drop off this week following the negative global trend towards equity, however, the sector in general remains of great interest to investors with the risk factors involved. While legal usage of marijuana has become more open in North America, many financial institutions still remain hesitant to back businesses due to stigma that still exists. Another note that must be made, is that whilst you may draw comparisons between the marijuana industry and others, perhaps alcohol or tobacco, there is no direct reference point to determine if a stock is overpriced or not.



Three of the major players in the pot stock world are Tilray, Canopy Growth and Aurora Cannabis. As you can see in the chart below, there is volatility in the market as it begins to find its feet. A spike on the eve of Canadian legalization was followed by a sharp drop, especially for Canadian based Aurora, and this continued on the back of news that they will be trade on the NYSE.



All of the 3 major producers have seen rapid growth since their recent listings and many are speculating on the future of the industry. Despite some of the drastic losses in the past few days, since Tilray IPO’d in July, their stock has seen an astronomic rise from $17ps to today’s value of $106. Canopy Growth has seen a 52% rise in their value and Aurora Cannabis has shot up from $1.75 to over $12.50 before their recent drop.


As mentioned before, there is no way of directly linking current prices to an industry average in these early days of the sector, however this is half of the attraction to many investors as they seek to gain from speculation. One must also factor in the current mood of the market and whether the recent slump in the cannabis producers values are due to that or a reflection of the industry itself.


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