Commercial Cannabis: Bitcoin Bubble?

On Tuesday 18th September, the US Drug Enforcement Agency gave the Canadian cannabis producer Tilray permission to export its cannabis to the United States for medical research. The next day Tilray Inc. shares were halted five times from trading in less than one hour as the market neared its close. After being the first marijuana company to go public on the NASDAQ Exchange earlier this year with an opening share price of $17, the company was trading at a record high of $300 that Wednesday – a daily gain of 94% and an increase of more than 400% in the past month! The company is now worth more than a high number of large cap companies including American Airlines and pharmaceutical company Mylan. The Vancouver based company, according to its website, “is a global leader in medical cannabis research, cultivation, processing and distribution”.

This type of activity signals great investor expectation of future growth in this lucrative industry. Even Coca-Cola is researching the market for cannabis-related products. ArcView Market Research and its research partner BDS Analytics see that over the next ten years the legalisation of marijuana will see much progress around the world. Despite Tilray’s revenues of just $20 million in 2017 the upcoming legalisation of marijuana in Canada means its business potential has dramatically increased. Additionally, consumer spending on legal cannabis in North America is expected to rise from $9.2 Billion in 2017 to $47.3 billion a decade later. However, the worldwide recreational cannabis market remains contained by the U.N.’s Single Convention on Narcotic Drugs. ArcView think that not much can be done to change U.N. attuides until the US Government federally legalize the drug, which ArcView’s CEO, Troy Dayton, believes will happen potentially after the 2020 presidential election. Nevertheless, there is still a huge potential market for medical use of marijuana especially in Europe. With a health care spending budget of $1.3 trillion, European government subsidised health care institutions can potentially bring the medical cannabis market to become the largest in the world (Italy is expected to have $1.2 billion in sales by 2027).

Don’t think though this is risk free, investing in cannabis remains precarious. Tilray’s recent market activity has drawn comparisons to the swings Bitcoin experienced at the end of 2017. “It’s like the supply and demand that drove Bitcoin up,” Jason Spatafora says, “it’s just limited supply and over demand”. Leslie Bocksorm, who has invested in multiple cannabis companies, thinks that from a fundamental financial perspective there is no justification for Tilray’s current valuation. However, he said the short sellers could have it wrong and Tilray may be the Amazon of the cannabis industry; “Only time will tell”.