Money Pot Stocks Are Falling: Has the Cannabis Bubble Finally Burst?

23:35  02 february  2018
23:35  02 february  2018 Source:   fool.com

Canadians spent $5.7B on marijuana last year, StatsCan estimates

  Canadians spent $5.7B on marijuana last year, StatsCan estimates Nearly five million Canadians spent money on marijuana last year, spending an average of about $1,200 each, according to Statistics Canada estimates.AMZN

It’s not just pot stocks that are down. The TSX has declined 2% and has dropped below 16,000 for the first time since early December. You’ll be hard-pressed to find stocks trading at higher premiums than what cannabis stocks are currently going for.

Aphria Inc. (TSX:APH) has plunged nearly 20% to start the year, and it's not the only pot stock that is in trouble.

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On Thursday, we saw pot stocks drop more than 10%, as we continue to see a big correction take place in the industry. Canopy Growth Corp. (TSX:WEED) has declined more than 7% year to date, which is a big drop for a stock that produced returns of more than 225% last year. However, it’s not the only one off to a bad start, and there’s reason to believe that more declines could be on the way.

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Canada exported $1.2B of illegal pot: report

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However, it's not the only Feb 2, 2018 A bubble may have just burst . Resist that temptation. The cultivation of the cannabis is currently legal in the sky is falling - when it finally drops he'll feel vindicated and brag about Feb 2, 2018 On Thursday, we saw pot stocks drop more than 10%, as we

Pot Stocks Are Falling : Has the Cannabis Bubble Finally Burst ? Fool contributor David Jagielski has no position in any of the stocks mentioned.

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Aphria Inc. (TSX:APH) is down a whopping 17% in 2018, while MedReleaf Corp. (TSX:LEAF) is down as much as 18%. Aurora Cannabis Inc. (TSX:ACB), however, has been able to achieve a modest 6% return since the start of the year after it reached a friendly deal to acquire Cannimed Therapeutics Inc. (TSX:CMED).

What’s behind all the selling?

It’s not just pot stocks that are down. The TSX has declined 2% and has dropped below 16,000 for the first time since early December. The once unstoppable cryptocurrency, Bitcoin, has also declined more than 30%, as investors have been selling off their speculative buys.

Why Cannabis Investors Shouldn’t Expect Significant Growth

  Why Cannabis Investors Shouldn’t Expect Significant Growth Aurora Cannabis Inc (TSX:ACB) has produced significant returns in the past six months, but is that just setting up for a big disappointment later?That’s not to say that there won’t be growth. There almost certainly will be, but it won’t be at the level needed in order to make stocks like Canopy Growth Corp. (TSX:WEED) and Aurora Cannabis Inc. (TSX:ACB) good buys today. Most pot stocks don’t make a profit and trade significantly higher than their sales.

Pot Stocks Are Falling : Has the Cannabis Bubble Finally Burst ? Fool contributor David Jagielski has no position in any of the stocks mentioned. Are Cannabis Stocks Cheap After Dropping Heavily in Value?

Pot Stocks Are Falling : Has the Cannabis Bubble Finally Burst ? Fool contributor Jason Phillips has no position in any of the stocks mentioned. Magna is a recommendation of Stock Advisor Canada.

Recent acquisitions in the cannabis industry have likely attracted investors’ attention as well, and that may have called into question the sky-high valuations that we’ve been seeing for some time now. While Aphria may have paid a significant amount for its latest acquisition, and Aurora also placed a high value for a company with just $15 million in sales, but the problem is that is just par for the course in an industry where valuations have ignored any and all logic.

Investors may finally be opening their eyes to these high values and have decided to sell their holdings to secure gains before a bigger correction comes around the corner.

Why more of a decline could be coming

Even after the big sell-off of Canopy, the stock is still trading at a price-to-sales ratio of more than 90. If investors are taking a closer look at valuations, then it could be a dangerous time to be holding pot stocks. You’ll be hard-pressed to find stocks trading at higher premiums than what cannabis stocks are currently going for.

Aphria sells stake in Copperstate Farms

  Aphria sells stake in Copperstate Farms TORONTO - Aphria Inc. has inked a $20-million deal to sell its stake in Arizona cannabis company Copperstate Farms to an affiliated U.S. firm as the Canadian licensed marijuana producer looks to reduce its direct involvement in medical pot south of the border. As part of the deal announced Friday, Aphria has agreed to sell its minority interest in Copperstate to Liberty Health Sciences Inc., an investor and operator in the U.S. medical cannabis market. Aphria, based in Leamington, Ont., holds a minority stake in Liberty.

Pot Stocks Are Falling : Has the Cannabis Bubble Finally Burst ? Fool contributor Karen Thomas has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify.

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Marijuana stocks have been very reactive to news and developments in the industry, and if we see a delay in the legalization of pot or any sort of hiccups along the way, the sell-off could quickly turn into a crash.

What’s an investor to do?

Investors would be well-advised to look for stocks with good fundamentals that aren’t built off hype. This is the best way to ensure that you’re not exposing yourself to the risk of a big market correction, especially if you’re paying a big premium for a stock. If you’re invested in a company that has strong fundamentals, at least you know the stock is still a good buy.

While safe, blue-chip stocks might not offer you astronomical returns in a short amount of time, you won’t have to ride the roller coaster either.

Marijuana stocks could very well recover from this recent sell-off, and there could be an opportunity to still make some strong, short-term gains. However, these are not investments I would hold for the long term.

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Pot Stocks Are Falling : Has the Cannabis Bubble Finally Burst ? Fool contributor Demetris Afxentiou has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway.

Finally , some pundits say the downturn in the cryptocurrency sector is triggering a movement of funds back into gold. What about headwinds? Pot Stocks Are Falling : Has the Cannabis Bubble Finally Burst ?

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Fool contributor David Jagielski has no position in any of the stocks mentioned.

Pot activist Jodie Emery 'distressed' after Royal Bank closes her account .
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