Canada’s Marijuana Sector is Becoming More Attractive

Canada’s dynamic cannabis sector is getting more attention from investors, even as concerns of overvaluation and strained supply continue to weigh on stock prices. Beyond the ticker symbols, marijuana investors are envisioning an industry that could eventually rival alcoholic beverages, especially among younger cohorts.

The Marijuana Index

Marijuana investments steadied on Wednesday, bringing cautious optimism that the month-long downtrend could be coming to an end. Canada’s Marijuana Index, which is comprised of 25 companies worth a collective $21 billion in market cap, closed at $609.56, where it was virtually unchanged compared with the previous close.

The index experienced dramatic fluctuations throughout the day, reflecting a highly volatile North American stock market on Wednesday. The index touched a low of 546.46 after the open before rebounding more than 8% by the close.

In terms of individual stocks, WeedMD Inc (WMD) gained more than 18%. The penny stock is officially certified by Health Canada to produce medical marijuana, an industry that first achieved legalization almost two decades ago. Axim Biotechnologies Inc (AXIM) gained nearly 15.8% while CV Sciences (CVSI) added more than 7%.

More established marijuana stocks like Aphira Inc (APH), Aurora Cannabis Inc (ACB) and Canopy Growth Corporation (WEED) closed in negative territory.

The much smaller U.S. version of the index, which contains 17 constituents collectively valued at $5.3 billion, rose 0.6% to $73.33.

Canada’s Budding Pot Market

While favorable legislation has made Canada a top contender to become the Silicon Valley of marijuana, some say the sector is relying too much on hype and speculation. When the marijuana index was valued at more than $30 billion, it was worth half the market capitalization of the nation’s more established gold mining industry.

That said, other nations are watching Canada’s experiment with recreational cannabis very closely because they know it could mean big business. According to Daniel Pearlsteinof Eight Capital, Canada’s retail marijuana sector could hit $9 billion annually in just a few years.

Recently, Constellation Brands (STZ), a U.S. alcohol giant, predicted that global cannabis sales could reach $200 billion in 15 years. That’s a huge source of revenue for governments.

Constellation also estimates that U.S. cannabis sales already generate $50 billion every year, which is about $10 billion lower than wine and a$ 25 billion shy of tobacco. It therefore comes as no surprise that the company recently invested $191 million in Canopy Growth Corp.

As marijuana edges closer to full legalization, stocks that are involved in the sector will likely gain more legitimacy. Cronos Group made history earlier this year when it became the first Canadian weed grower to list shares on the U.S. Nasdaq exchange. The company also trades in Canada and Germany.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi