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The investment bubble is inflated in the hemp securities market

18/03/2019 | hempmarket
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Unsatisfied interest in the cannabis medical market in our country leads to a situation of "muddy water" in which not very decent businessmen are trying to attract financial resources under "soon implemented projects aimed at using cannabis for medical purposes in Ukraine." It can already be argued that until the moment when the appropriate legal and regulatory framework is adopted in our country, the investment “bubble will burst” and the cost of the projects proposed for implementation will be reduced to a multiple.

On the pages of the profile electronic publication of Ukrainian hemp growers, the article “ Millennial investors prefer to invest financial resources in hemp rather than Apple ” focused on the rapid increase in the securities market of companies specializing in work with medical hemp in the first place. The information presented in this article is an attempt to analyze what exactly is happening on the securities market with shares of hemp companies, what period of time the hype will continue, around firms specializing in the work with medical hemp and which companies need to pay attention to in the case of planned investments in the hemp industry.

In the US, the need to use the therapeutic properties of cannabis is growing rapidly. At the moment, more than half of the administrative-territorial units of the United States have decided on the possibility of using psychoactive cannabis for medical purposes. According to BDS Analytics, global sales of cannabisa will grow from $ 16.9 billion in 2019 to $ 146.4 billion in 2025, i.e. market growth will be about 35% annually. At first glance it may seem that this kind of rapid growth of stocks implies the expediency of acquiring securities of companies operating in this market. However, a deeper study of this issue is not so clear.

Including the most optimistic proposals for future growth in the industry, stocks of cannabis companies specializing in medical use of cannabis are currently trading with discouraging leverage. The total market capitalization of therapeutic cannabis stocks in the United States and Canada at the moment is about $ 50 billion, despite the fact that sales are only $ 580 million. This means that the sales price is a multiple of 85. For comparison, the average technical stock share The S & P 500 index trades with a multiplicity of 4. High-value and fast-growing stocks of technology companies such as Zscaler, Okta and Atlassian trade at a factor of 20-30. None of the cannabis companies traded on the market has such incomes to correspond to the “virtual” market value attributed to them. This situation is so obvious that even the leaders of the cannabis companies themselves warn about the halo of madness that prevails around their securities.

For example, in February 2019, co-founder and CEO of Canopy Growth, Bruce Linton, gave a sobering assessment of this sector of North American hemp breeding. In particular, Mr. Lington said that "The absolute fact is that the investment bubble in the market around cannabis companies is increasingly inflated."

Changes in the regulatory framework relating to the collection of taxes also significantly affect the situation in this market. In particular, in California, legal cannabis sales in 2018 amounted to $ 3 billion, which is $ 0.5 billion less than in 2017. Many state consumers chose to buy cheaper cannabis on the black market, where taxes did not increase the cost as in the legal psychoactive cannabis market.

According to market experts, there are several reasonable options for acquiring securities related to the activities of hemp plants, given the fact that at the moment the quotes are significantly overstated. It makes sense to acquire the securities of companies that are indirectly related to the hemp business and whose shares have long been present in the investment market or companies that operate hemp businesses and are not dependent on the amount of raw materials grown. Significant overvaluation of hemp prices of companies specializing in the use of cannabis for medical purposes makes the acquisition of securities of these enterprises extremely risky.

Commentary of the Association "Ukrainian technical hemp"

The excitement around the medical sector of hemp business in Ukraine has recently been artificially fueled by information about “space-based” deals on mergers and acquisitions of hemp companies on the North American continent. So far, an unsecured interest in the medical cannabis market in our country leads to a situation of "muddy water" in which not very decent businessmen are trying to attract financial resources under "soon implemented projects aimed at using cannabis for medical purposes in Ukraine." It can already be argued that until the moment when the appropriate legal and regulatory framework is adopted in our country, the investment “bubble will burst” and the cost of the projects proposed for implementation will be reduced to a multiple.