Cannabis Stocks Remain Hot, But Might Be Getting Overheated

Marijuana stocks stayed hot Monday after Novia Scotia Liquor Corporation named Tilray Inc TLRY and a number of other marijuana companies as its major suppliers.

What Happened?

NSLC announced Friday a major purchase order for marijuana products ahead of the launch of the adult-use marijuana market on Oct. 17. In June, Canada legalized recreational cannabis use nationwide.

NSCL’s first purchase orders have reportedly secured 3.75 million grams of the roughly 15 million grams the company plans to order in the first year of legalization.

In addition to Tilray, the first order includes the following suppliers:

• Canopy Growth Corp CGC
• Cronos Group Inc CRON
• Aphria Inc APHQF
• Aurora Cannabis Inc ACBFF
• CannTrust Holdings Inc CNTTF
• OrganiGram Holdings Inc OGRMF
• TERRASCEND ORD TRSSF
• Supreme Cannabis Company Inc SPRWF
• Up Cannabis Inc.
• Weed MD Rx
• The Flowr Group Okanagan Inc.
• Zenabis East
• Humble & Fume
• MedReleaf

Why It’s Important

Marijuana companies are competing fiercely to secure deals such as these as they vie to be the initial market leaders in the fledgeling Canadian recreational marijuana market. Investors seem to recognize the implications, sending shares of marijuana stocks soaring. In the past week, Tilray stock is up 46.8 percent, Canopy stock is up 24.5 percent and Cronos stock is up 65.9 percent.

The NSLC deal comes after Constellation Brands, Inc. STZ announced earlier this month that it would be making an additional $4 billion investment in Canopy. Last Friday, Bloomberg reported alcohol conglomerate Diageo plc DEO is also in the market for a cannabis partner. 

For marijuana investors, New Cannabis Ventures founding partner and author of the 420 investor, Alan Brochstein told Benzinga U.S.-listed cannabis stocks may be a bit overheated at this point given all the speculation.

“By several measures, speculation is ramping up and new traders are paying attention to the sector,” Brochstein said. “Tilray, Cronos and Canopy Growth benefit disproportionately, in my view, due to their U.S. listing status.”

When asked if these U.S. stocks are overvalued, Brochstein said the euphoria has gone a bit too far.

“They seem quite expensive to me. Tilray, especially, with its very tight float,” Brochstein said. According to Yahoo Finance, Tilray's float is just 920,250 shares.

What’s Next?

Traders will be watching for any signs of traders taking profits on the huge runs in marijuana stocks. However, they will also be watching out for more potentially bullish purchase orders and/or other deals that could help investors determine which companies will be best-positioned as market leaders as the Canadian marijuana market matures over the next several years.

Tilray and Cronos Group were both trading higher by around 20 percent Monday at time of publication.

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