Canadian cannabis company Tilray Inc.’s stock surged as much as 8% before reversing those gains to trade down 4% on Thursday, prompting volatility in other stocks in the sector which is gearing up for Canada’s full legalization of the substance on Oct. 17.
Tilray TLRY, -12.00% had a roller-coaster day on Wednesday as the whole sector rallied, with trading halted five times for volatility. The stock is more susceptible than others to massive price swings as it has a small number of shares outstanding, is seeing strong short interest and few investors can loan the stock to short sellers, as MarketWatch’s Max Cherney explained.
But the sector has been on a tear for months and led some experts to compare it to the 1990s internet boom or the more recent movement in crypto-currencies, with new players and announcements of partnerships and alliances emerging all the time.
Stifel analysts said Thursday they expect the Canadian addressable market to be worth about CAD$10 billion ($7.8 billion) and suggested some of the recent stock gains are likely overdone——the top 22 Canadian cannabis stocks have gained 127% since Aug. 15, compared with a 3.1% gain for the S&P 500 SPX, +0.60%
“Clearly, valuations require global opportunities to be realized, though we question the pace of development and degree of advantage for these companies,” analysts led by Christopher Growe wrote in a note.
Still, headlines around the world show other countries are taking a “more constructive stance” on cannabis, said Growe, naming Germany, which is embracing medical marijuana, the U.K. and South Africa as examples.
The global market could be worth upward of $200 billion, which makes current valuations “more palatable.”
“While the Canadian Licensed Producers have an edge in attacking global market opportunities, they do not have, in our view, a definitive global first mover advantage even as the companies are providing exports throughout the world,” said Growe. “We believe any country that embraces cannabis legalization, in any form, will also likely look to create local jobs potentially favoring local production (requiring capital) or local companies (requiring partnerships for the Canadian producers).
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“Government action will likely be slow and deliberate; even Canada, which had a commercial system for medical marijuana and a ruling party that was focused on lifting prohibition as part of its platform, took deliberate action that delayed the process.”
Elsewhere in the sector, Cronos Group Inc. CRON, +1.11% shares rose 7%, after the company said it is teaming up with medical marijuana company Aleafia Health Inc. ALEF, +7.61% in a study aiming to improve the management and treatment of insomnia and daytime sleepiness. The study will be partly funded by Peace Naturals Project Inc., a licensed producer of medical marijuana that is wholly owned by Cronos. Aleafia is a medical marijuana company that is focused on patient care from “seed” to “sale” with more than 50,000 patients.
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Aurora Cannabis Inc. ACBFF, +4.27% ACB, +4.42% was up 6.8% and Canopy Growth Corp CGC, -1.57% was up 4%. Valens GroWorks Corp. MYMSF, -0.47% was up a more modest 0.5%. Aphria Inc. APH, +0.47% was up 1.9%.
Among U.S.-based stocks, Nevada-based Cannabis Sativa Inc. CBDS, +4.07% jumped 9%, while shares of Colorado-based farmer GrowGeneration Corp. GRWG, -2.16% were down 2%. Ianthus Capital Holdings Inc. ITHUF, -2.35% which owns cannabis cultivators, processors and dispensaries across the U.S., was down 1.2%.
The Horizons Marijuana Life Sciences Index ETF HMMJ, +4.00% which tracks more than 20 cannabis companies in North America and trades on the Toronto Stock Exchange, was up 5.6%.
