The economic and valuation impacts of cannabis pricing by organized crime groups - Lift News
Wednesday, Nov 30, 2016

My firm regularly advises clients in the cannabis space, providing services ranging from regulatory advice to due diligence for hedge funds looking to invest in the sector. Over the last several weeks, given the recent spike in valuations of cannabis stocks, I have seen an influx in the number of cannabis related inquiries.

My response to the recent run-up has been relatively straightforward. Based on the financial statements of most marijuana companies, the fact that most are in a position of negative to low cash flow and the fact that many of these companies have not shown any profitability, the recent valuations are the result of speculation and irrational exuberance — investor enthusiasm, not supported by fundamentals, which has driven price levels to unsustainable levels. This argument is supported by data that demonstrates short-sellers are significantly increasing positions in marijuana companies which, as The Globe and Mail recently highlighted, is reminiscent of the 2014 run-up in U.S. cannabis stocks that began with a mania for cannabis related companies but quickly resulted in a steep downward trend on the bets.