The joys & sorrow of microcap investing! Spring 2015 through MicroCap.com & Stockhouse.com I was the first independent equity analyst to publicly recommend Aurora. BUT with VERY little interest for months I dropped coverage as no one cared about an Alberta marijuana producer. The stock is now up 1600% …. and this is why I sometimes hate my job. 🙂
Here is a link to that original report (13 page PDF – hosted on Stockhouse).
But two years into this, I often wonder if Canadian marijuana stock investors even LOOK at financials? The following table includes the majority of public marijuana (MJ) growers that are listed on the TSX, TSXV, and CSE. Since the summer of 2016 they have produced incredible gains for investors, but after the most recent rally (which began the end of October), valuations have now hit an extreme.
These 18 Companies have a combined market cap of $10 Billion. Only Two made money in the last quarter and the combined revenue was < $60M.
Valuations are so far ahead of company fundamentals, that when this sector euphoria dies off (and inevitably it will), it will take a long time for financials to catch up with valuations.
The public companies are euphoric as they are raising enormous amounts of money from the general public. Even if stocks in the sector collapsed, they will be producing and should have sizeable bank accounts. BUT investors who have been buying at these high valuations, will likely see enormous losses.
The early industry leaders should do well, but Health Canada in June had 428 MJ applications in progress and another 1,665 received. Since then, more will have been submitted. Based on the valuations of the public companies, do investors think that (in a country with only 36 million people), every man, woman, and child is going to be smoking, vaping, or eating marijuana on a regular basis?
Here is a snapshot from the Health Canada website:
The supply alone is going to drive down prices in a highly competitive environment and yet the stocks “already” reflect incredible revenue and earnings growth. It’s herd-mentality at its finest.