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Canopy Rivers’ Volatility Highlights Risk in Pot Stocks

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Canopy Rivers Risk

Canopy Growth is one of the largest cannabis-focused companies that can be bought on a stock exchange. Pot stocks are hot with investors, but there’s every reason to be careful in a sector that’s still illegal in most countries. Canopy Growth spun off Canopy Rivers last month, but it’s been a bumpy ride.

Canopy Rivers is focused on cannabis Venture Capital (VC) investment, and their market cap initially jumped to nearly C$2 billion. The stock’s value has halved over the last couple of weeks, which should help investors realize how risky the cannabis sector can be.

Canopy Rivers

Canopy Rivers stock is up and down

There’s no shortage of cannabis companies more than happy to sell their THC-encrusted dreams. But making money selling legal dope is much harder. Despite the fact that many US states have legalized weed, the federal government is still not on board. This leaves companies like Canopy Growth and Tilray in a sticky spot when it comes to expanding into the USA.

Ok, How Do You Make Money Again?

Most drug dealers talk an amazing game. Their stuff is the best you’ve ever had, and after a few tokes, you’ll be talking to unicorns. Well, the legal cannabis space seems to be shaping up to be a lot more of the same. Tilray is currently trading at around $125 USD/share, which values the company at more than $12 billion USD.

For $12 billion USD investors will get a company that lost $.17 per share last quarter and has to contend with federal regulations in the US that are firmly opposed to their business model. The hopes that a publicly traded pot company will somehow take advantage of relaxed cannabis laws at a state level seem like a pipe dream.

US-based cannabis companies can’t even use the banking system, as they’re operating in violation of federal drug laws.

Canada is a more promising destination for cannabis development. Tilray has substantial Canadian operations, though that may not make as much money as investors hope.

The sale of medicinal cannabis in Canada is strictly regulated. It is unlikely that Canadian sales will match a state like California or Colorado, where cannabis is basically legal.

Too Early for Green Shoots

When Tilray went public, they were expecting to get around $15USD/share for their equity. The fact that a company that loses money in a field that was totally illegal a decade ago saw their shares rise to nearly $300USD (or a market cap of more than $20 billion USD), is a warning sign for the entire cannabis sector.

If cannabis becomes legal at a federal level in the US, the market will be enormous. But that hasn’t happened yet, and these high flying pot stocks won’t make much of a profit.

There’s nothing wrong with buying a little bit of best-in-breed issues like Canopy Growth, Tilray or Aurora Cannabis–as long as you understand they may drop to the ground before the legal cannabis industry takes off.

Canopy Rivers’ swoon over the last few weeks is a vivid demonstration of the volatility that pot investors assume in their portfolio, and there may be a lot more to come.

Featured image from Shutterstock.

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Getting High Is Now Legal in Canada

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marijuana in canada

As of midnight last night in Newfoundland (Canada’s most eastern province) recreational marijuana become legal. At the time of writing, marijuana in Canada is now legal across all provinces. “I feel great,” said Ian Power, one of the first people to purchase the drug over the counter. Is that great about making history, or great because he’d already taken a few tokes?

Recreational Marijuana in Canada Ends “Prohibition”

An active cannabis advocate for most of his life, Power went on to say, “the prohibition has ended right now,” and “the stigma ends tonight.” As of 12.01 a.m this Wednesday morning, adults in Canda are legally allowed to purchase, carry, and even share up to 30 grams of legal marijuana in public, the amount deemed suitable for recreation use. That is, enough to get high on but not enough to start your own drug cartel.

Cheers from the jubilant public about Canada making history showed how high emotions were at the scene. They also weren’t exactly accurate since Canada is not the first country to legalize recreational marijuana. In fact, their South American neighbors Uruguay legalized the production, sale, and consumption of the plant back in 2013. Although, Canada is the first G7 nation to do so.

Canadians will also be allowed to home-grow up to four plants, as well as make edible products for personal use–bring on the hash brownies! Interestingly, consumers of recreational marijuana will need to be 18 years old or more, compared to alcohol which is still illegal before 19 years of age in some provinces.

Marijuana in Canada will not be sold in the same places as cigarettes or beer. Consumers will have to go to designated sellers that are regulated and licensed.

What’s in Store for Pot Stocks Now?

Ever since the Senate passed the bill in June of this year, investors have been clamoring to join in the green rush, throwing money at cannabis producers such as Tilray (NASDAQ:TLRY) and Canopy Growth (NYSE:CGC).

Tilray Stock 1 day

Tilray Stock yesterday

 

Tilray Stock 5 days

Tilray Stock 5 days

One might have thought that stock would rally upon the legalization taking effect. However, there has already been a decent amount of hype surrounding pot stocks over recent months and Tilray actually saw its stock drop slightly yesterday compared to last week. Although, it’s definitely worth keeping an eye on it as Wednesday unfolds.

It seems that pot stocks have become so inflated it’s inevitable the bubble will burst once the actual demand is established. Many analysts predict that demand will outstrip supply in the beginning, forcing “sold out” signs to go up in many points of sale. This would serve to confirm investors’ belief of massive demand and hence, massive opportunity for cannabis producers.

However, this situation is unlikely to hold. According to Motley Fool, as supply eventually catches up with and outstrips demand, pot stocks will crash down from the epic high they’ve been on.

Featured image from Shutterstock.

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