Canada's legal weed stock-bubble is a re-run of the dotcom bubble

Canada and Uruguay are the only two countries to have legalised the recreational use of marijuana (the Netherlands has laws on the books against it, but they're not enforced); the Canadian Securities Exchange has been transformed into "the cannabis stock exchange," a latter-day NASDAQ filled with hyperinflated stocks in legal weed companies.

For example, Constellation Brands Inc (Corona and Modelo beer, etc) has invested more than $4 billion in Canopy Growth Co.

As the WSJ writes, "the optimism has grown beyond any reasonable fundamentals" — marijuana grower Tilray is valued at $4 billion on $11 million in revenue.

All told, listed Canadian weed companies have a market cap of $40B, a 1,000% increase in a single year.

Investors are betting that legal weed will hit the USA, and that this will open a Canadian export market (or that Canadian firms will be able to move quickly to establish US subsidiaries). These are both extremely long-shot bets!

"This is like a gold rush," former Mexican President Vicente Fox said during a recent visit to Toronto to promote Khiron Life Sciences Corp. KHRN 11.92% , a Canadian medical-marijuana company where he serves as a director. Khiron, which reported a net loss of 6.7 million Canadian dollars (US$5.2 million) and no sales for its second quarter, raised C$13 million through a stock sale earlier this month.

Jesse Pytlak, a Toronto analyst with Cormark Securities, estimates cannabis stocks are currently valued at more than 10 times the C$5 billion to C$9 billion market expected to emerge in Canada by consulting firm Deloitte after legal recreational sales begin. He warned investors are prematurely deciding which companies will dominate a new market before a single ounce of recreational pot is legally sold in Canada.

One lawyer who has advised banks and marijuana companies in recent deals said a shakeout is inevitable. "I believe there's a great opportunity for our insolvency lawyers in this industry," said Patricia Olasker, a partner at Toronto-based Davies Ward Phillips & Vineberg LLP. "There are going to be lots and lots of failures."

Wall Street's Marijuana Madness: 'It's Like the Internet in 1997' [Jacquie McNish and Vipal Monga/WSJ]

(via Naked Capitalism)

(Image: Oren neu dag, CC-BY-SA)