/ 5 October 2018

Investors eye the volatile pot bubble

Forget crypto
Forget crypto, pot is the hot new thing. (Michael Kooren/Reuters)

Forget crypto, pot is the hot new thing. Call it dagga, ganja, zol, pot, weed, grass, cannabis or marijuana, these stocks are the new momentum stock, with some calling it the latest in the long line of bubbles stretching back to the days of tulip mania several centuries ago.

South Africa is not even in the starting blocks for this particular business opportunity — the recent Constitutional Court ruling allows you to consume the stuff so long as you do not buy it — but we have by, many accounts, a natural zol endowment that can make us a world leader.

READ MORE: Stoners guide to #dagga judgement: It’s not safe to smoke

The stock making the running is Canadian company Tilray, which listed on the Nasdaq mid-year this year at $17 a share. Its price in September tripled in three days, hitting highs of $300, valuing the startup, which employs just 313 people, at $28-billion.

Tilray offers cannabis for both medical and recreational use. Canadian law will allow the sale of cannabis for recreational use through licensed dispensaries from October 17.

Tilray’s focus is on supplying medicinal marijuana to 12 countries on five continents.

Forbes reported ahead of Tilray’s listing that 30 states in the US allow some form of legal cannabis.

In the days that followed its rapid ascension, Tilray would lose roughly two-thirds of its value, investment company The Motley Fool reported: “It was a ride reminiscent of internet stocks before the popping of the dot-com bubble, and the stock has remained volatile ever since.”

Tilray’s price spike followed an interview chief executive Brendan Kennedy had with CNBC’s Mad Money host Jim Cramer, who said cannabis is a “great hedge” for alcohol companies, as more countries legalise the recreational use of pot.

Kennedy said he was not interested in being taken over by a large consumer company, claiming Tilray may one day be worth more than $100-billion.

The news sensitivity of the stock is shown, though, in its share price falling by 20% this week after PepsiCo said it has no plans to invest in pot, CNBC reported.

“I think the difficulties in investing in that category, particularly in the United States, where federally these things are still not legal, are quite a considerable challenge,” PepsiCo’s chief financial officer, Hugh Johnston, said.

Tilray is by no means the only pot stock available to investors. There is even an exchange-traded fund, or ETF, which invests just in these stocks.

READ MORE: Parliament will consider ‘introducing a new bill’ following cannabis ruling

Horizons Marijuana Life Sciences Index, the world’s largest marijuana ETF, expanded its portfolio and doubled its stake in Tilray after coming under fire for not holding one of Wall Street’s hottest pot stocks, Bloomberg reported.

Tilray’s stock price volatility is in part because the company floated a limited number of its shares.

Challenges it faces, according to The Motley Fool, include that it is nowhere near as big as the largest three such companies (Aurora Cannabis, Canopy Growth and Aphria), that it will not show any profits for at least two to three years, that the original investors can sell their shares after a 180-day lock-in period and that demand/supply patterns in the Canadian market are by no means certain.