“Cannabis Bubble:” What the Cannabis Talk at the World Economic Forum in Davos Means for Pot Stocks

"Cannabis Bubble:" What the Cannabis Talk at the World Economic Forum in Davos Means for Pot Stocks
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Cannabis Bubble?

The World Economic Forum, the annual meeting of elites from across the political and business spectrum, for the first time included a talk on the cannabis industry.

While this is in and of itself positive news for marijuana bulls, one of the things mentioned after the talk was the possibility of a cannabis bubble.

Canopy Growth Corp (NYSE:CGC) CEO Bruce Linton says the pot sector faces a “massive inflationary bubble” and that investors have to be careful.

Many, many people are entering the cannabis space, which is terrific, but they actually have to have a purpose — they should be able to generate a business…Everybody wants to be in the cannabis space, and I think investors have to be selective because … there will be a new name every week.

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(Source: “The cannabis business is booming — but that’s not necessarily good if you’re an investor,” CNBC, January 23, 2019.)

These warnings are not uncommon, and they have some validity, but I think they are—for the most part— overblown.

The industry giants currently dominating the marijuana trade are here to stay. And that includes Canopy Growth. These companies aren’t fly-by-night operations looking to score big on hype alone.

The best marijuana companies have strong production capacity, an internationally-focused business plan, supply agreements signed in legal markets, innovative medical and marijuana research practices, strong partnerships with other industries, etc.

These companies, in other words, have the fundamentals to back up their lofty valuations, even if it may take a few years to hit those numbers.

There will be, of course, several duds in the market. That’s unavoidable. But there are also a lot of opportunities for younger companies to come in and stake out a claim on marijuana—much to the delight of marijuana bulls.

A perfect example is the huge success of Tilray Inc (NASDAQ:TLRY). The first marijuana initial public offering (IPO) on a major U.S. listing was an unqualified success.

Even if a good chunk of TLRY stock’s gains were given back in the months that followed, the stock gained hundreds of percentage points in a matter of weeks—and has kept those gains for months now.

That’s part of why I believe that the call of a cannabis bubble is overblown.

Medical Marijuana Expansion

Another topic that was mentioned at the World Economic Forum in Davos was the need for medical marijuana to lead the way.

As has been the case around the world, the cannabis industry often needs the medical marijuana sector to help ease regulation and open the door for recreational pot to enter the legal market.

Considering that medical marijuana is truly a global trade—while legal recreational pot is currently restricted to a few select markets—there’s no doubt that medical marijuana expansion will herald a future for recreational pot.

In any case, both segments of the market are highly lucrative.

A final note is that medical marijuana—or at least, cannabis products marketed as medicinal—are far more likely to breach the U.S. market before recreational pot.

Consider that hemp is now legal to cultivate in America. Couple that with the fact that the first prescribed medicinal cannabis product was approved for use in the U.S. last year and you have a market that is edging closer and closer to the acceptance of extracts like cannabidiol (CBD).

So, while marijuana legalization in the U.S. may be a few years away, the CBD market will likely expand many times over in that time.

Analyst Take

While nothing shocking emerged from the World Economic Forum in Davos (or at least, nothing that we’re not already aware of), the meeting once again showed that marijuana is gaining legitimacy around the globe.

And that’s good news for marijuana investors.