Marijuana Stock: Is the Pot Industry on the Verge of a Bubble?

Canopy Growth
Photo: Drew Angerer/Getty Images

Are Marijuana Stocks a Bust? 

The wild ride of marijuana stock continues, now with some analysts claiming that marijuana stocks are overvalued and headed for a bubble.

With the drug slated to be legalized in Canada in 2017, investors are rolling in, their engines sparked, hoping to take advantage of what some predict to be a multi-billion-dollar industry with 3.8 million recreational marijuana users in Canada by 2021.

Factor in that the U.S. cannabis market is projected to rise from $6.0 billion in legal states in 2015 to $50.0 billion in 2026 according to data from Cowen & Co (part of Cowen Group Inc (NASDAQ:COWN)), and you have a lot of zeroes luring investors into marijuana stocks. (Source: “‘Oh, they’re going to pop’: The next big bubble could be in Canada’s soaring pot market,” Bloomberg, December 8, 2016.)

But for others, they’re worried that it could all just be smoke.

“Oh, they’re going to pop,” Nick Brusatore, the largest shareholder of Affinor Growers (CNSX:AFI), said to Bloomberg. Previously a mining company, the Vancouver-based firm now works in greenhouse technology for crops, including cannabis. “It’s going to pop hard.”

And Brusatore is not alone in his marijuana stock skepticism.

Chris Damas, an analyst at BCMI Research in Barrie, Ontario, sees marijuana stock less as a gold rush and more as a dotcom crash, according to Bloomberg. Much like today, those early Internet companies in the 1990s were seen as having huge growth potential despite many of them having no revenue, he said. Of course, we all know how that story ended.

He then added that many holders of marijuana stock are company insiders, and the market could be headed for a crash if they decide to go heavy into selling.

“It does smell like a real serious bubble,” Damas told Bloomberg. 

Of course, despite the naysayers, there are many analysts who are very positive on marijuana stock and the value contained within the market.

As countries across the globe are in various stages of discussion about the legalization of marijuana, Canada is going to be the first guinea pig of what the fully legal pot business will look like on a national level in an industrialized western country.