Over the past year, the value of Canadian marijuana stocks has spiked. Many see this as a sign of a new and promising industry about to explode. But other analysts think this rapid growth could be a bubble that’s about to burst.
According to sources, the value of stocks in Canada’s three largest weed companies grew by more than 200 percent last year. Those three companies are Canopy Growth Corp., Aurora Cannabis, and Aphria Inc.
The combined valuation of these companies has grown to more than $14.5 billion, according to the article.
Much of this growth may stem from the perception that this is a young industry poised to take off—especially if the country successfully follows through on its plans to legalize weed this summer.
Already, there could be signs that this growth will continue into the future. For example, Canopy Growth Corp. reportedly saw a massive 225 percent spike in its stock value last year. And so far, that growth hasn’t shown signs of slowing.
Similarly, Aurora Cannabis could be poised to see ongoing growth. The company currently operates several production facilities throughout Canada.
It also operates in the EU through its Germany-based subsidiary Pedanios. And just last week, the company announced that it won a contract to supply medical marijuana to the government of Italy. All of this could equate to some significant international growth.
But at the same time, a growing number of experts warn that all this growth may not be sustainable. According to sources, the current massive valuations given to Canadian marijuana stocks and companies could be hugely inflated.
The site reported that while the three largest cannabis companies combined for a valuation of over $14.5 billion at the close of 2017, their combined revenues last year were less than $110 million.
And although legalization should help grow the cannabis market, it may not be enough to keep up with the rapidly-spiking valuations we’re seeing right now.
According to an official study published by Canada’s Parliamentary Budget Officer, the legal market is projected to generate between $4.2 billion and $6.2 billion in 2018. For many experts, that’s simply not enough revenue to justify such high valuations for Canadian marijuana stocks.
There are a number of variables that could affect how things play out. Some of the most important factors include:
Experts point out that it’s fairly common for publicly-traded companies to receive valuations around 10 times higher than actual earnings. Even with that as a benchmark, it looks like current valuations may still be too high.
At this point, it looks like it all hinges on if and when the Canadian government legalizes recreational cannabis. From there, it will be about how well the legal industry actually performs.
But for now, Canada’s cannabis industry is enjoying some big-time growth.
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