Cannabis bubble, THC cloud, and alternate reality
Publically traded Canadian cannabis companies are doing exceptionally well. Common shares of Canopy Growth Corporation (WEED), the biggest cannabis company in the world with a market capitalization of $7B, closed $37.48 on Friday, up $26.48 from $8.78 a year ago. Common shares of Aphria (APH) closed $22.19 on Friday, up $16.63 from $5.56 a year ago. Common shares of Aurora Cannabis (ACB) closed $13.48 on Friday, up $10.81 from $2.67 a year ago.
History is not kind to wannabe Notradamuses who claim divination powers. Therefore, I won’t risk being the Mayan calendar of cannabis investments.
Four years ago, when there was much speculation about the intentions of the Canadian government and the State of Colorado was headed toward legalization I was one of those naysayers who refused to risk a penny in cannabis ventures. The fundamentals were not there: no revenues, no cash in the bank, and massive regulatory risks. But like so many I changed my tune: contrary to traditional wisdom, cannabis stocks climbed and naysayers kept warning about the risk factors.
Data suggests that the cannabis run is unique: the democratization of cannabis marks a historical change in our society, a switch from the nanny state to personal freedom. I see four unique points of difference.
In 1999, during the dot.com bubble, shares of Qualcomm rose in value by 2,619% and 12 other large-cap stocks each rose over 1,000% (Source: Wikipedia). We are far from the same stratospheric valuations for cannabis stocks. Furthermore, the leading cannabis companies have serious cash in the bank to support operations and growth.
Second, the federally administered regulatory Canadian frameworks under the ACMPR regime and the upcoming Cannabis Act are the envy of the world. The rules on quality control and security provides a regulatory framework to ensure that product quality is maintained. Although, some Canadian license producers have used unregistered pesticides and had to recall products, but the fact that they have been found out demonstrates that the framework works. This affords a significant amount of credibility for Canadians to export globally, and expand their operations well outside the Canadian borders.
Get our daily investorintel update
Third, the cannabis industry addresses a fundamental need to stick it to the nanny state that fascinates all stakeholders. Fundamentally the cannabis prohibition was guided by nanny state principles: governments didn’t want people to get high because governments believed they had the right to interfere in people’s lives. This addresses a fundamental need that support retail investors. Add to this that growing and selling cannabis is easy for investors to understand as opposed to complex technologies with promises to change the world.
Fourth, cannabis stocks evoke the stratospheric rise of social media stocks. When Facebook appeared on the stock market, savvy investors thought that the social media stocks were a repeat of the dot.com boom and bubble. But social media stocks survived because they address a fundamental human need by facilitating instant communication between people. President Trump’s Twitter account is the ultimate demonstration of the power of instant communications. Evidently, the legalization of cannabis is not about communications, rather it excites our needs for freedom.
If the Canadian cannabis companies seem uniquely positioned, their US counterparts are in limbo. The revoke of the Cole Memo by Attorney General Jeff Sessions rattled the US cannabis industry with anxiety. While Mr. Sessions would have the entire recreational cannabis shut down, too many forces are at play. In this case I will make a simple prediction: Mr. Sessions is in an alternate reality and will be stuck in the weeds for a long time. I anticipate much trouble and litigation for Mr. Sessions.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>