The Strategist

Cannabis is the new Bitcoin

09/25/2018 - 15:39

Excessive demand for shares of cannabis producers resembles the fever around crypto currency in 2017.

Last Wednesday (September 19), the rapidly growing marijuana market experienced its "craziest day". Since the beginning of the trading session, Tilray shares have grown more than 40%, reports Bloomberg. Since the IPO in July of this year, the company's capitalization has soared by 1500%, from $ 20 to 300, but it almost halved for Thursday-Friday.

The rush around the new trend has already been compared to the "madness" that was going on in the market a year ago. Founder of Galaxy Digital Mike Novogratz is convinced that actions of marijuana producers demonstrate explosive growth, similar to dynamics of Bitcoin and Ethereum in December 2017. "The total capitalization of companies is $ 28 billion," he notes. "If I had a long position, I would hasten to close it."

In addition, as noted by Michael O'Rourke, chief market analyst at JonesTrading Institutional Services, "the current situation is very similar to the atmosphere around the dotcom bubble in the past." Value of Tilary's free float has already reached $ 6.5 billion and is second only to Amazon ($ 7.6 billion), the company which market capitalization is almost 47 times larger. "The promising industry that is just beginning its development and its advertising in the media is a dangerous thing for investors," O'Rourke said.

Tilray is not the only cannabis company, which business is growing rapidly. Already, capitalization of the legal marijuana market has exceeded $ 35 billion: the lion share of it is market cap of Tilary - $ 21 billion, followed by Canopy Growth Corporation ($ 12 billion) and Cronos - $ 2.7 billion, but it’s not all. "As if all at once decided to show their greed and their fear and invest in one asset," Michael Antonelli, Managing Director Robert W. Baird & Co, describes the situation. "It's funny to watch what's happening." The marijuana market is now going through a period of the Wild West."

According to Wall Street analysts, many factors will contribute to the further growth of the sector. Nick Moody, an analyst with RBC Capital Markets, believes that by 2032 the cannabis market can cost more than $ 200 billion through further legalization in the United States and other countries.

Rapid development of the marijuana market attracts companies from other industries. "We are closely watching the growing market of legal marijuana and are considering the option of making drinks on its basis," says Coca-Cola representative Kent Landers. "Nevertheless, we have not yet made any final decisions." According to Bloomerg, Coca-Cola is currently negotiating with the Canadian marijuana producer Aurora Cannabis, whose market capitalization is already approaching $ 12 billion.

In addition, Constellation Brands, the international producer and seller of beer, wine and spirits, announced its decision to invest $ 3.8 billion in Canopy Growth and thus increase its stake in the company to 38%, as a result of which Canopy shares soared to 52%. "Our company will become even more global," commented Bruce Linton, Chief Executive Officer of Canopy.