Is the weed segment overvalued at the moment?

Is the weed segment overvalued at the moment?

Is the weed segment overvalued at the moment?

The investment craze surrounding the Canadian government’s legalization of cannabis might be getting too excited by just a bit, according to industry participants

“You might argue our valuations are a little bit ahead of our skis,” according to Paul Rosen, CEO of marijuana-financing firm Tidal Royalty Corporation.

“It’s still not a grown-up sector by a lot of portfolio managers’ standards,” StoneCastle Investment Management founder Bruce Campbell told Bloomberg. “The valuations are off the charts if you use any type of typical metrics, so that scares a lot of institutions.”

Tilray Inc., valued at nearly $9 billion, currently trades at a level more than 25 times higher (with a price-to-sales ratio of approximately 124) than the two most valuable entities in the S&P 500 – namely, Amazon Inc. and Apple Inc.

Read more: Canadian pot stocks are on a roll

And while consumer spending on cannabis is predicted to reach $32 billion worldwide by 2022, a Canadian trend towards such volumes has yet to materialize. Tilray’s Q2 2018 revenue stood at $9.7 million, and Aurora (valued at about $6.4 billion) posted sales of $12.2 million in the same quarter.

Investment in Canada’s recreational marijuana went into earnest this August with Corona beer marker Constellation Brands Inc.’s announcement of a $3.8 billion stake in cannabis giant Canopy.

Recently, multiple observers have assured that Canada’s industrial rental and retail property segments, especially in Ontario and Alberta, will enjoy generous windfalls once the federal Cannabis Act goes into effect next month.

 

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