Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Pot Stocks Pummelled – Investors Dazed And Confused

Courtesy of ZeroHedge. View original post here.

Authored by Chris Woods via Grizzle.com,

The rug has officially been pulled out from underneath one of the largest bubbles in global equities: Canadian marijuana stocks.

RETAIL INVESTORS GONE WILD

Euphoric retail punters stratospherically bid up the sector over the last year, liberally opening their wallets to questionable management teams at even more questionable valuations. Investors had hoped that 2018 would be a ‘victory lap’ with the legalization of the Canadian recreational market set for the summer — it has been anything but.

The Global Cannabis Index is off -44% from the peak in January (see chart below). The market fully capitulated today with the three largest producers down significantly: Canopy Growth ($4 billion market cap) – 12.0%; Aurora Cannabis ($3 billion market cap) – 8.5%; and Aphria ($3 billion market cap) – 9.9%.

GLOBAL CANNABIS STOCK INDEX

Source: New Cannabis Ventures

FUNDAMENTALS FOR MARIJUANA STOCKS ARE AS SKETCHY AS THE MANAGEMENT TEAMS

In early February, Grizzle highlighted the risks in our deep dive report – Up in Smoke: The Overvalued Haze of Marijuana Stocks. We confronted the three inconvenient truths about the sector:

1. Legalization of marijuana always equals price deflation – In every legal market, retail and wholesale prices peak near the date of legalization due to lack of supply and then quickly begin to fall, driven down by new entrants.

SPOT LEGAL PRICES

Source: New Leaf Data Services

2.  The black market is the biggest competitor for licensed producers – The marijuana market is mature in Canada with the black-market supply already exceeding demand (Canada exported 20% of marijuana production in 2017). Legal supply will have to compete on a price basis for market share — the black market won’t magically disappear.

3.  Extreme valuations are reminiscent of the 2010 rare earth bubble. The bulls want to believe marijuana is a manufactured and branded product. It’s not. Marijuana is a commodity and always will be (see Colorado, Washington, and California).

Source: Bloomberg, Grizzle Estimates

MARKET WILL BE FLOODED WITH PLANNED LEGAL CAPACITY – 2X OF DEMAND

Grizzle compiled the planned capacity of the top 13 legal producers in Canada. Based on estimated consumption rates, Canada will be at least 850,000 kg (85%) over supplied by the end of 2021. Importantly this oversupply doesn’t account for smaller producers or the black market, which is already fully supplying the market.

Source: Public Filings, Grizzle Estimates

With no valuation support, marginal management teams, and a skittish retail investor base — the outlook for marijuana equities is bleak. A long summer awaits.


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!