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Advisor: investors need to be careful in Canada’s pot market

February 22, 2017


As the valuations of Canadian marijuana companies soar, more investors are placing their funds into the country’s burgeoning weed production industry. The demand for medical weed is rising rapidly and companies like Canopy Growth, Aphria and Aurora Cannabis are reaping the benefits. Some of the country’s pot firms are even struggling to meet demand, with Canopy Growth being forced to expand its production capacity and acquire other producers after seeing its patient base triple last year.

Although growth is strong and demand is only expected to increase, the marijuana market is considered the country’s most volatile with wild swings in stocks not uncommon. So, who exactly is buying marijuana producers: is it just day-trading speculators or are longer-term investors joining the party too? “Although we have fielded a lot of questions on marijuana stocks because of their parabolic growth, it’s something that, as value investors, we would have a tough time with,” explains Grant White, an Investment Advisor at National Bank Financial. “We don’t currently own any marijuana stocks in our portfolios and I think it’s an area that investors have to be very cautious about.”

White jokes that Canada’s weed stocks are like financial ‘weapons of mass destruction’ because of the way people are getting caught up in the hype. He gives the example of being at a recent family dinner and having a family member (who has little interest in finance or investing) give him marijuana stock tips. “That type of thing is usually a big red flag for me!” White says. “It’s so easy to get caught up in the story but there’s a lot of risk there and, frankly, not a lot justifying the valuations from our perspective. It reminds me a bit of the technology bubble; there is a type of euphoria going on.”

Many of his clients have been following the marijuana stock story over the past year and many are approaching with questions about whether to invest, but White is quick to caution them about the risks that surround these companies. “Most people are trying to buy-in after the fact; after all the growth has happened,” White says. “Although I’m fairly confident that marijuana will be legalized at some point, I think the biggest benefactors will not be the companies that people are buying today. It remains to be seen what will happen and there are just too many variables; it’s not a risk we are willing to take with our clients’ money.”

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