As Canada prepares to legalize recreational marijuana, licensed pot companies north of the border are booming. But critics warn overly optimistic projections and a potential weed glut are making valuations way too high.
The pot bubble threatens Canada’s plan to become the Silicon Valley of recreational pot, according to this week’s cover story by Barron’s, with the country’s five largest publicly traded marijuana companies each valued at over C$1 billion.
Marijuana backers envision the industry eventually rivalling alcoholic beverages. Constellation Brands STZ, -0.95% , which owns such brands as Corona beer and Robert Mondavi wine, estimates cannabis products could rake in $200 billion in global sales within 15 years, and one pot-industry bull sees Canada’s marijuana retail sales reaching C$9 billion annually within a few years, Barron’s reported.
“This is a market that is simply way bigger than a lot of people believe,” Daniel Pearlstein of Toronto-based Eight Capital told Barron’s, predicting Canada’s marijuana market could be a once-in-a-lifetime chance for investors to get in on the ground floor of the next big thing.
But current sales and cash flows don’t match the sky-high valuations of Canadian pot companies, Barron’s notes, with some companies trading for more than 100 times their total 2017 sales, and exponentially higher than last year’s cash flows. “Some have market values that are larger than estimated sales for Canada’s entire recreational marijuana market,” Barron’s reported.
“The valuation of our industry in the stock market reflects a level of enthusiasm and optimism about the world market, which I think is warranted.”
By: Mike Murphy, Market Watch