A Warning On Canadian Pot Stocks

Stocks of Canadian cannabis producers and sellers are on a wild run in 2018. A selection of talked about names have doubled or tripled in value the past few months, with others not far behind. Price action like that is bound to pique the interest of investors and traders who may be wondering what has caused the surge in prices, something that is looked at in the first part of this article. Other investors and traders already familiar with the space may be questioning the valuation of major names, which is a second major focus of this article. The final focus of this article is to provide a precautionary tale and some tips for anyone looking to get exposure, long or short.

Key developments that started the hype
The recent run-up in Canadian pot stocks comes off the back of announcements that major beverage makers had either made or were looking to make investments in Canadian pot stocks. However, such investments would likely not materialize were it not for legislative developments, and so we might argue that the passing of new laws is what is truly responsible for the run-up.

A landmark event for the space occurred on June 19, 2018, when the Canadian Senate voted to approve bill C-45 (The Cannabis Act), which received Royal Assent on June 21, effectively legalizing recreational use of marijuana from October 17, 2018. Those over 18 will be able to purchase cannabis products from a provincially/territorially regulated retailer (or from a federally licensed producer), carry and share (with other adults) up to 30 grams, and cultivate up to four plants in their homes. Royal Assent for the bill was actually met with a sell-the-news reaction by some Canadian pot stocks, which was likely due to the fact that approval of bill C-45 was largely expected and some names had already begun to run up approaching the news. The approval however, did clear the way for a number of deals.

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