Stocks prices of cannabis producers are going down

Stocks prices of cannabis producers are going down


12 Dec 2018

A sharp price increase affected stocks in cannabis producers following the legalization of cannabis for recreational purposes in Canada, but these have now settled somewhat. Shares in the Canadian cannabis producer Tilray, Inc. shot up by 50% extremely rapidly, reaching a price 600% higher than their IPO level.

The relatively steady period for stocks, which we are currently experiencing, comes after the market entered a short-lived tailspin following this earlier period of unparalleled growth. Overall, we can say that this sector is now looking rather stable despite the volatility it has seen of late. As a consequence of this, many experts have compared shares in cannabis producers to Bitcoin. In a situation not dissimilar to that of the cryptocurrency investors, shareholders in these companies made large returns — but then prices dropped sharply. Some investors have predicted that this market will experience a bubble like the one we saw with cryptocurrencies.

cannabis bucksHowever, there are some basic features of the cannabis market that mean it remains attractive for investors. For one, shares in companies operating in this sector are backed by a tangible product. What’s more, the market is sufficiently large. According to forecasts, the total global volume of legal cannabis consumption will reach $32 billion by 2022. The current size of this market is estimated at $7.7 billion. Going forward, growing interest from global producers of alcoholic and non-alcoholic beverages (including Coca-Cola) may help to buoy cannabis producers' stocks over the long term.

Shares in the sector's biggest and most stable two companies, Canopy Growth and Aurora Cannabis, look to remain the most attractive for investors until the end of the year. Canopy Growth's share price received a boost by a deal that will see Corona producer Constellation Brands invest $3.8 billion in the cannabis company. Meanwhile, Aurora Cannabis will collaborate with Coca-Cola to help the soda giant produce cannabis-based beverages.

Tilray's shares are also looking quite attractive for investors after the company received regulatory approval to export a large volume of its products to Germany.

Other companies such as Aphria Inc. and Cronos Group appear slightly less attractive, despite their shares looking no worse than the rest of the industry's stocks.

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