Is Marijuana the New Bitcoin? Cannabis Stocks Spark Investor Frenzy
The recent surge in demand for shares of marijuana producers is reminiscent of the cryptocurrency craze of 2017. On September 19, the rapidly growing marijuana market experienced its “craziest day yet.” According to Bloomberg, shares of Canadian marijuana producer Tilray soared by more than 40% at the start of the trading session. Since its IPO in July of that year, the company’s market capitalization skyrocketed by 1,500%, from $20 to $300 per share, though it nearly halved in just a few days.
The hype around this new trend is already being compared to the “collective madness” that swept the cryptocurrency market a year earlier. Mike Novogratz, founder of Galaxy Digital, is convinced that marijuana stocks are showing explosive growth similar to Bitcoin and Ethereum in December 2017. “The combined market capitalization of these companies has reached $28 billion,” he notes. “If I had a long position, I’d be quick to close it.”
Michael O’Rourke, chief market strategist at JonesTrading Institutional Services, also points out, “The current situation is very similar to the atmosphere around the dot-com bubble in the past.”
Tilray’s freely traded shares have already reached a value of $6.5 billion, second only to Amazon ($7.6 billion)—a company whose market capitalization is nearly 47 times larger. “A promising industry that’s just beginning to develop, combined with media hype, is a dangerous thing for investors,” says O’Rourke.
Tilray isn’t the only company in this sector experiencing rapid growth. The legal marijuana market capitalization now exceeds $35 billion: Tilray accounts for $21 billion, followed by Canopy Growth ($12 billion) and Cronos ($2.7 billion), with more companies joining the list.
“It’s as if everyone suddenly decided to show their greed and fear and put it all into one asset,” describes Michael Antonelli, managing director at Robert W. Baird & Co. “It’s pretty amusing to watch. The marijuana market is going through a Wild West phase right now.”
According to Wall Street analysts, many factors will contribute to further growth in the sector. Nick Modi, an analyst at RBC Capital Markets, believes that by 2032, the marijuana market could be worth more than $200 billion, thanks to ongoing legalization in the United States and other countries.
The rapid development of the marijuana market is also attracting companies from other industries. “We are closely watching the growing legal marijuana market and are considering the possibility of creating beverages based on it,” says Coca-Cola representative Kent Landers. “However, no final decisions have been made yet.”
Bloomberg reports that Coca-Cola is currently in talks with Canadian marijuana producer Aurora Cannabis, whose market capitalization is approaching $12 billion.
Additionally, Constellation Brands, an international producer and seller of beer, wine, and spirits, announced its decision to invest $3.8 billion in Canopy Growth, increasing its stake in the company to 38%. Following this news, Canopy’s shares jumped by 52%. “Our company will become even more global,” commented Bruce Linton, CEO of Canopy.