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.