Is the Pot Bubble About to Burst?

Canopy Growth Corp (TSX:WEED) is up nearly 40% in just the past five trading days and it might seem like ages ago when the stock was trading at below $10 a share, which is where it started off the year. The phenomenal growth that cannabis stocks have been on this year appears to be unstoppable.

What’s remarkable is that it’s not just Canopy Growth, either. Aurora Cannabis Inc (TSX:ACB) has seen its value rise more than 220% in just the past three months. Aphria Inc (TSX:APH) might seem like a laggard with returns of just 188% this year.
Pot stocks have been all the hype this year with legalization of recreational marijuana expected to take place next summer. However, a recent report from Statistics Canada estimated the black market for pot was a little more than $6 billion. If Canopy Growth continues to rise in price it will soon eclipse that valuation all on its own.

The euphoria that is surrounding cannabis stocks is leading to astronomical valuations and making it harder to ignore the bubble that is forming. Canopy Growth has had just $58 million in sales in the past twelve months, and its market cap is 100 times that amount.

Rational investors everywhere will say that these stocks are well overdue for a correction, but it hasn’t happened yet. The danger for investors that buy today is that as quickly as these stocks shot up in price, they could just as quickly crash back down.

Pot stocks are definitely a speculative buy at these prices.

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Marijuana stocks are getting slammed after reports that Jeff ...

Markets Insider-7 hours ago

Marijuana stocks slumped after the Associated Press reported Thursday that US Attorney General Jeff Sessions plans to roll back Obama-era federal policies that paved the way for states to legalize marijuana, citing anonymous sources familiar with the matter. He is expected to announce the policy shift later Thursday.

Pot stocks slide amid fear Sessions taking aim at cannabis
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Don't believe the pipe hype: Marijuana stocks could burn you

The Globe and Mail-Jan. 3, 2018

Could pot stocks keep climbing from here? Certainly. Junior resource companies soared for years, and they made a lot of people rich. But then they tanked. Fast. The TSX Venture Exchange, where most junior resource companies get traded, soared to nearly 2,500 in 2010, then crashed and lost more than ...

Online brokerage customers complain of glitches amid crash in pot ...

TheSpec.com-1 hour ago

TORONTO - Traders using at least two major online discount brokerage platforms are complaining of sporadic outages and expressing frustration that the latest glitch has tied their hands amidst a broad plunge in marijuana stocks. Clients of TD Bank's WebBroker and Royal Bank's RBC Direct Investing ...

As hedge funds and sell-siders tango, regular investors foot the bill: James Saft

 SAFT ON WEALTH As hedge funds and sell-siders tango, regular investors foot the bill In the financial market race for information, hedge funds, it seems, are the winners. This of course raises the salient issue of who the losers are, but you probably already know the answer to that. Hedge funds, company stock analysts and shareholders form an ecosystem in which the hedge fund is the apex predator and the sell-side analyst is just the enabler. The average shareholder is the poor sap who makes the whole exercise profitable for the other two. That’s the implication of a newly revised study by the Federal Reserve which investigates the way in which information flows in financial markets: who gets it first and who trades on it when. Read Full Article Here



TRADING AGAINST ADVICE Unlike all the other types of investors in the study, hedge funds actually trade in the opposite direction to the advice of sell-side analysts, selling in aggregate in upgrades and buying on downgrades. “I find that hedge funds are unique: they trade in the opposite direction as the sell-side reports recommend,” Swem writes. “For example, after sell-side analysts publish upgrade reports I find that hedge funds sell. 

These patterns suggest that hedge funds anticipate sell-side reports, and then reverse their trades after market prices have adjusted to the information contained in, or coinciding with, the analyst reports.” What’s more, the more heavily a company is covered by analysts the better the risk-adjusted returns hedge funds generate on these trades. When analysts issue reports, the stocks at issue have an abnormal return of 3 to 4 percent up or down, depending on whether the report contains positive or negative news. Sometimes the sell-side analyst reports themselves contain new information but often they are issued just after a piece of news about a company breaks. 


http://www.reuters.com/article/us-markets-saft-idUSKBN1772QW