Canadian investors have lost an estimated CAD$130 billion on marijuana stocks since “pot” was legalized by the Trudeau government on October 17, 2018. Buoyed by nonsensical rhetoric that Canadians would immediately embrace this “recreational drug” Canada’s estimated 3 million active retail investors climbed aboard, their enthusiasm encouraged by sell-side “advisors” in Canada’s banking and brokerage industry. Companies went public claiming a long history (odd when the product had been illegal for decades) in growing marijuana and promoting rapid growth and high profititability.
The entire “pot” market in Canada is about CAD$4.8 billion in sales (~CAD$400 million a month more or less) according to Statistics Canada data. Private company estimates say the market is more like CAD$13 billion. Call me old-fashioned but it cannot be both.
Canopy Growth, the darling of the Canadian industry, likes to say its roots date back to 2014 when it was a reverse takeover of a company at the time called “Tweed”. Pot was not legal in 2014 in Canada and that date of inception is nonsensical. The company was first listed on the NYSE on May 24, 2018 and traded north of US$30 that day. Today Canopy Growth stock is trading at about CAD$2.40 and sports a market value of about CAD$1.2 billion. Canopy’s operations have so far lost over CAD$2 billion. Canopy investors seem to have been smoking pot when they bought into this dog.
Tilray Brands, another Canadian pot “leader” traded at CAD$147 a share in October 2018. Today it trades at CAD$2.80 a share and, like Canopy, has yet to show a profit.
The only investment that might have been worse than the Canadian cannabis companies was the parallel “crypto” fad which has cost investors trillions over the past couple of years. What pot stocks and “crypto” have in common is a lot of promotion by sell-side brokers and analysts who have made millions in commissions and fees selling these “junk” investments not only to retail investors but also to the large pension funds managed by multimillionaire “professionals”. Ontario Teachers Pension Plan and Caisse de Depot et Placement both took a bath on “crypto” losing some CAD$250 million combined in what can only be described as a reckless gamble devoid of any professional due diligence. Canadian pension funds piled into “pot” stocks in 2018 climbing on that bandwagon with about the same degree of common sense.
Marijuana is grown in greenhouses like tomatoes or lettuce. It is hard to imagine a lower technology industry. See if you can name a Canadian produce grower with a market value in the billions arising solely from growing vegetables or fruits. Spoiler alert - there aren’t any, just a plethora of smaller companies and private businesses. I once was the controlling shareholder of Dominion Citrus Limited, one of Ontario’s largest distributors of fresh produce and don’t recall any of my suppliers that alone or in combination with all of them had values large enough to lost CAD$130 billion for Canadians but I can assure you that Canadians consume more fresh fruit and vegetables than marijuana.
But the sell-side analysts can’t stop themselves from promoting these money-losing investments. After all, they get their fees and commissions if they can persuade you to trade and you get to hold the bag if they are wrong.
The outlook for pot stocks is only bullish if you believe three things are likely - one is that United States and European countries will eventually legalize pot, another is that people in those countries are too stupid to grow their own pot and will look to Canadian companies for supply, and the last is that the unprofitable history of Canadian pot producers is an anomaly and growing pot can be a growing and profitable business. Good luck with that.
Jodi Butts, wife of Gerald Butts, is on the Tilray board (formerly Aphria).
Some of players involved in Aphria/Tilray pump & dump recently sued by the SEC related to similar scams in Cool Holdings ($AWSM).