Appetite for cannabis investments lowers after frenzied rush on pot stocks
As the euphoria surrounding the first legal sales of recreational cannabis fades, appetites for weed investments have dried up.
In the run up to the legalization of recreational marijuana across Canada on Oct. 17, there was a frenzied rush on pot stocks and much money was made by investors.
But since then shares in some of the biggest cannabis companies, such as Canopy, Aurora and Aphira, are all down more than 20 per cent.
"The cannabis stocks are not for the faint of heart,” Vivien Azer, cannabis analyst with Cowen & Co in New York, told CTV News.
The selling pressure now has some wondering if cannabis stocks are headed towards a dot com era burnout.
“We’re cautious overall on the industry because of what we found to be just exuberance in expectations,” Stuart Rolfe, an analyst with Veritas Investment Research in Toronto, said.
That exuberance has pushed up the value of largely unproven businesses into the billions of dollars.
But Azer added: "These companies are actually selling product and generating revenue, which is a far cry from what we had during the tech bubble.”
Predicting which companies will dominate remains hazy.
Research firm GMP found 95 per cent of cannabis customers surveyed on legalization day were unaware of the brands they had just bought, meaning companies trying to cash in will need to ace the retailing side of the business.
David Segal, co-founder of Montreal-based Davids Tea, added: “People know how to buy clothing. You walk into a clothing store and a person walks up to you and says ‘Hi’ and you go ‘just looking’.
“But when you go to buy cannabis a lot of people are new to this. There’s an education process.”
The real test will come as cannabis companies begin reporting their financial results, the stock market’s way of grading winners and losers.
---- With files from CTV News’ Jon Erlichman