Legalization Set to Test Canada’s Cannabis Stock Prices

Canada’s publicly traded cannabis businesses are booming thanks to Justin Trudeau’s vow to “legalize, regulate, and restrict access to marijuana” in order to displace the illegal market. Legalization will make Canada just the second nation to legalize cannabis after Uruguay. The Canadian cannabis market is estimated at $5.7 billion a year, with 90% of that for non-medicinal purposes.

The two market leaders are Canopy Growth and Aurora Cannabis which recently had a successful hostile takeover of medical provider CanniMed Therapeutics for $850 Million dollars. Each company currently holds market caps of well over CA$6 billion dollars and climbing.

They Must Be Killing It Then Right?

Well not so much… The market cap of Aurora trades at about 260 times their annual revenue of $23 million in sales. That’s a pretty insane valuation purely being pushed by the thought that legalization will send those revenues sky high.

In addition to the unjustified market valuation, a U.S based hedge fund estimated that Canopy Growth’s entire production capacity can be recreated for less than $150 million and Aurora’s for less than $100 million.

Only time will tell if these two leaders can justify their current market caps when legal cannabis hits Canada around summer 2018.

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