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Here's why the paddle bubble hasn't really burst



<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Pot stocks have taken an absolute shellac over the last few months Just look at the five Canadian cannabis producers. Shares of Canopy Growth (NYSE: CGC) Aurora Cannabis (NYSE: ACB) Cronos Group (NASDAQ: CRON) Tilray (NASDAQ: TLRY) and Aphria (NYSE: APHA) are all down more than 30% from the highlights earlier this year. 1
1 "> The potty stocks have taken an absolute shellac in recent months. Just look at the five Canadian cannabis producers. Shares of Canopy Growth (NYSE: CGC) Aurora Cannabis (NYSE: ACB) Cronos Group (NASDAQ: CRON) Tilray (NASDAQ : TLRY) and Aphria (NYSE: APHA) are all down more than 30% from the highlights earlier this year.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "My colleague George Budwell wrote recently that "marijuana stock bubble has officially burst." But does it really? I do not believe it – at least not in the sense that many investors think about how a stock bubble ends. "data-response time =" 12 "> My colleague George Budwell even recently wrote that" the marijuana stock bubble has officially burst. " But does it really have? I don't think so – at least not in the sense that many investors think about how a stock bubble ends. Here's why.

Floating bubbles with one hundred dollar bills shown in them. [19659015] More

Image Source: Getty Images.

It's been worse

Probably the most important thing is to know that all the top pot stocks have seen worse than they are experiencing right now. You don't even have to go very far back to see that this is true. Take a look at the following chart showing the percentage of highlights for the Canadian cannabis leading stocks in 2018.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb ( 0) – sm Mt (0.8em) – sm "type =" text "content =" Data of YCharts. "data-response time =" 49 "> Data of YCharts. [19659022] Apart from the Cronos Group, all four top Canadian pot stocks ended last year more than 50% of the high level. And during part of the year, Cronos was more than 40% off the highlights. Each of the largest five Canadian cannabis producers by market values ​​experienced a steep decline in 2018 than it had in 2019.

But there is also something else you need to know. Three of the top five stocks – Canopy Growth, Aurora and Cronos – are still up close to 30% or more so far this year despite the major falls in recent months. Afria is down to now, but just a little. Tilray is the only member of the "Big Five" who is experiencing a tough 2019.

Long-term prospects have not changed

Let's put off the stock listings for a moment. The reality is that the long-term outlook for Canopy Growth, Aurora, Cronos, Tilray and Aphria has not changed.

The Canadian adult market for adult use has certainly experienced some growing pain. The retail outlets have not opened as quickly as hoped. Supply constraints have been problematic. But these are temporary problems. As far as I know, no industrial observers have cut long-term forecasts for the Canadian cannabis market.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "Actually, several analysts increased their estimates of the global cannabis market will be . Cowens Vivien Azer predicts that the market will reach $ 75 billion by 2030. Jefferies analyst Owen Bennett believes the global cannabis market could hit $ 130 billion in annual sales in the future. "data-response time =" 55 "> In fact, several analysts have increased their estimates of the global cannabis market. Cowens Vivien Azer predicts that the market will reach $ 75 billion by 2030. Jefferies analyst Owen Bennett believes the global cannabis market could hit $ 130 billion in annual sales in the future.

If these predictions are even close to being in the ballpark of how big the cannabis market will be, it is a pretty good thing to do that the pot bubble has not cracked because there was no bubble in the first place . By definition, a stock bubble arises when stock prices rise far above the true values. The best Canadian cannabis producers have probably not been overvalued based on the potential market size.

Take, for example, Canopy Growth. It is by far the largest cannabis share in terms of market values. Let us assume that Canopy could capture 10% of a global cannabis market that spends $ 75 billion annually by 2030. Using a five-to-five price-to-sales multiple, Canopy should have a market share of over $ 37 billion if it generated an annual income of $ 7.5 billion. The company's market capital today is around $ 12 billion.

By the way, although George thinks it was a marijuana stock bubble and that it has now broken, he still has a favorable view of the industry's long-term prospects. He wrote: "The lawful marijuana industry has clearly started the way towards" big weed "- a powerful trend that is likely to be irreversible." He's absolutely right.

Legitimate Concerns

There are legitimate concerns that the global cannabis market may not grow as quickly as analysts expect. It is possible that the United States, which ranks as the largest cannabis market in the world, may not change federal laws in a way that allows the best Canadian cannabis producers to enter the US market.

<p class = "canvas-atom canvas -text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "I do not blame investors for being concerned for the management of some of cannabis Canopy Growth co-CEO Bruce Linton, was shown the door partly because he did not focus enough on the bottom line of Canopy's major partner and shareholder, Constellation Brands . his lead position after his company fought against the allegations of drastic overpayment for an acquisition. CannTrust interrupted the bond with CEO Peter Aceto after the company came under fire for cannabis cultivation in unlicensed rooms. " = "65"> I do not blame investors for being concerned about the management of some of the cannabis companies. Canopy Growth's co-manager Bruce Linton was partly shown the door because he did not focus enough on the bottom line of Canopy's major partner and shareholder, Constellation Brands . Aphria CEO Vic Neufeld surrendered his leading position after his company fought against allegations of drastic overpayment for an acquisition. CannTrust canceled the bond with CEO Peter Aceto after the company came under fire for growing cannabis in unlicensed rooms.

These issues, along with concerns that the Canadian marijuana leisure activities market is not expanding as quickly as expected, have contributed to a general disorder affecting potty stocks. But this accident will not last forever. If history is a guide, it won't even last very long.

<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-response time =" 67 "> More from The Motley Fool

<p class =" canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" Keith Speights has no position in any of the mentioned shares, recommends CannTrust Holdings and Constellation Brands. Motley Fool has a disclosure policy . "data-reactid =" 72 "> Keith Speights has no position in any of the aforementioned shares. Motley Fool recommends CannTrust Holdings and Constellation Brands. The Motley Fool has a disclosure policy.


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