‘The Valuations are Really stupid’: Marijuana Stocks Spike Trip Circuit Breakers, Temporarily Halted
TORONTO — Volatile share prices of Canada’s publicly traded marijuana companies triggered numerous circuit-breaking halts in trading Wednesday as buzz surrounding the nascent sector pushed valuations to record intraday highs.
Aphria Inc., Mettrum Health Corp., Organigram Holdings Inc., Supreme Pharmaceuticals Inc., Aurora Cannabis Inc. and Canopy Growth Corp. were all halted for five-minute intervals Wednesday—some of them multiple times.
The Investment Industry Regulatory Organization of Canada said the halts were triggered by single stock circuit breakers “due to volatility in the stock prices.” It did not comment further.
Circuit breaks are tripped when a stock climbs or falls at least 10 per cent in a five-minute period, which appears to have been the case with the six marijuana stocks Wednesday.
The halts seem to have put the brakes on for overly enthusiastic investors as five of the six stocks closed lower. Many were halted again after seeing a similar tumble on their way down.
Canopy Growth — Canada’s largest marijuana company — was halted four times, after reaching a valuation of $2 billion, double its worth on Friday when it first reached the $1 billion mark for the first time.
That hefty valuation comes despite the fact the Smiths Falls, Ont.-based company has yet to report a profit and earned $8.5 million in revenue during the most recent quarter. Seen as a bellwether for the sector, the stock turned around to close 15.2 per cent lower at $11.40. It was the most actively traded stock on the TSX Wednesday, with more than 24 million shares changing hands.
Vancouver-based Aurora Cannabis was the first to trigger the circuit breaker after its stock price gained 46 per cent in the half hour after the opening bell. It was the only one to remain in positive territory at the close—up 11.8 per cent to $2.94.
The heightened volatility comes ahead of a Task Force on Marijuana Legalization report to be delivered at the end of the month, which will provide a roadmap for how the Liberal government goes about implementing a legal recreational marijuana market. The market, which could be worth as much as $10 billion, is expected to launch in 2018.
The share price momentum — despite the fact that most of Canada’s licenced medical marijuana companies have yet to turn a profit — has some analysts asking if a cannabis bubble is on the horizon.
“I certainly wouldn’t be surprised if we’re seeing some sort of euphoric top today,” said Bruce Campbell, portfolio manager at StoneCastle Investment Management. “When they trade at this kind of volume and spike up like that and the valuations are sort of off the charts, it’s sort of indicative of that.”
Valuations are running wild as investors clamour to get into the suddenly desirable sector, especially after four U.S. states voted to legalize recreational marijuana during last Tuesday’s presidential election.
The legalization votes south of the border have made more investors pay attention to cannabis, said John Fowler, CEO of Toronto-based Supreme Pharmaceuticals, which reached a new intraday high of $2.05—a 60 per cent jump from Tuesday’s close.
However, he added, they are reluctant to invest in stocks in the U.S., where the drug is considered criminal at the federal level, seeking out opportunities north of the border.
“We talked to many U.S. investors who get excited about the headline news in the U.S., research the market and realize that the only place in the world that you can safely invest in cannabis production and sale is Canada.”
Many Canadian companies have announced they’ve secured millions of dollars of funding in the past week, which is also “adding fuel to the fire”, said Khurram Malik, marijuana stock analyst at Jacob Securities Inc. in Toronto.
Leamington, Ont.-based Aphria announced Friday it has secured a $35 million bought deal round of funding, while on Tuesday Moncton, N.B.-bsaed Organigram announced similar financing, while Supreme said it had secured $50 million in funding.
Malik added that though the exact reasoning for the halts is unclear, recent activity in the sector qualifies as “unusual.”
“The fact that three companies have announced some pretty significant financing in the last 48 hours, you definitely have a lot of trading activity and the valuations are really stupid.”
As for talk of a bubble?
“They are probably trading higher than they should at this very moment,” he said.
“But unlike the past tech bubble there is a fundamental business to support here. People want recreational cannabis … If you have a longer investing horizon then you’ll do fine — these stocks will be trading higher a year from now than where they are trading today.”