With marijuana legalization across Canada a month away, the share prices of cannabis producing companies continue to rally on both Canadian and U.S. stock exchanges – prompting a growing number of analysts to urge investor caution.
The share price of Tilray Inc., (NASDAQ: TLRY) for example, rose 40% to $217.16 U.S. per share in New York trading Tuesday. This surge followed an interview that Tilray Chief Executive Officer Brendan Kennedy gave on CNBC. Tilray also reported that the U.S. Drug Enforcement Agency (DEA) approved plans for the company to supply a medical marijuana clinical trial in California.
Other marijuana stocks traded higher in early U.S. trading Wednesday, with ADRs for Cronos Group (TSX: CRON) rising 3.8% and Canopy Growth (TSX: WEED) increasing 2.3%. Even stocks of related companies got a boost on North American stock markets Tuesday and Wednesday, notably a 12% rise for New Age Beverages, which announced that it is now testing cannabis-infused drinks.
But not everyone is buying the hype around marijuana companies or their current stock prices. In an interview with BNN television network, Ryan Lewenza, Senior Vice-President at Turner Investments Raymond James in Toronto, urged investors to be cautious regarding cannabis companies.
"The stock prices have become completely divorced from underlying fundamentals and valuations are at nose-bleed levels. My view has changed in recent months in that I think prices are even more divorced from reality. While stocks could double from here given the mania, I’m very concerned about a future crash in stock prices," he said.
Brian Madden, Senior Vice-President at Goodreid Investment Counsel agrees, telling BNN "Cannabis stocks are the riskiest segment of the Canadian stock market."
Analysts are urging investors to scrutinize the fundamentals of marijuana companies, wait for a pullback or potential market correction, and only invest a small amount of their savings in the cannabis sector for the time being.
