Are Cannabis Stocks Overhyped?

Speculation ranges from a bearish Green Bubble to Mr. Weed’s Wild Ride for investors, as experts suggest caution ahead.

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CYBERSPACE–Show host, founder of The Street, seasoned trader, and author James Cramer is not risk-averse and, lately, he’s feeling bullish on cannabis–but cautiously bullish. He explained his take on marijuana markets, regulatory obstacles, and insider opinions on a recent segment of CNBC’s “Mad Money.”

Affirming that the long-term outlook is undeniably optimistic, Cramer urged investors not to get carried away just yet, before putting all their green eggs (or ham) in the cannabis basket, so to speak. Pointing out the ongoing, obvious lack of change in drug policy by the U.S.–a glaring impediment for the U.S. cannabis industry’s participation in global trade–Cramer listed other more interesting, less apparent factors standing in the way of U.S. cannabis companies’ rise in legal markets.

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Cramer: Don’t get ahead of yourself with cannabis stocks from CNBC.

Ironically, cannabis going mainstream has created its own set of issues for the cottage industry that exists in the U.S. today, according to Cramer. Even two years ago, he said, financial insiders could not have imagined executives from blue chip corporate multinationals moving into cannabis. But he’s recently interviewed CEO Brian Athaide of Canadian cannabis company The Green Organic Dutchman, whose background is with Proctor & Gamble, as well as in the wine and craft beverage industry. Athaide also told Cramer investors should avoid a green rush mindset with cannabis investments.

An interesting insight passed on by the TGOD CEO, according to Cramer, is that the U.S. pharmaceutical and privatized prison industries are lobbying hard to keep cannabis on the DEA’s list of Schedule I narcotics. Expect a highly regulated industry once markets evolve, Cramer concluded.

Another CNBC article this week highlighted Canadian cannabis producer Tilray, and compared cannabis stock activity to recent volatility in crypto-currency markets. A six-week period that started in August saw Tilray’s valuation roller coaster up to $20 billion, then drop 50 percent in a three-day gut check for shareholders. The Canadian producers’ stock bounced back more than 15 percent on Tuesday, after the company announced it had exported medical cannabis to three Australian hospitals for use in treating critically ill children.

CNBC also offered readers advice on red flags for a possible cannabis bubble, while online business media platform Marketwatch offered tips on “how to survive the cannabis stocks roller coaster” after recent wild activity. Online pub Slate warned of the “Weed Bubble” in a piece posted last week, and financial online favorite Motley Fool, which has often been high on pot stocks, seemed decidedly bearish on weed this week with its list of Canadian cannabis shares not to buy.

Canadian producer Aurora Cannabis stocks also rose this week on a report of unexpected profits for Q4, which did not beat expectations for revenue but showed revenue had doubled over the same quarter last year. Financial publication Business Insider cited an increase in Aurora’s average per-gram price of dried flower, from $7.30 to $8.02 (CAD), for the increased revenue. The company reported sales of 1.6 million kilograms of dried cannabis in 2018.

On Tuesday, Aurora stock (TSE: ACB) was up more than four percent, after a all-day high of more than nine percent, on news of the report. The company, which trades OTC in the U.S., is reportedly also in planning stages to seek listing on either the NASDAQ or New York Stock Exchange.

(Video courtesy CNBC.com)

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