Analyst On Cannabis Stocks: You Have To Be Careful With Valuations

Ivan Feinseth, chief investment officer at Tigress Financial, joined Benzinga’s Premarket Prep trading show on Wednesday morning. Feinseth discussed the extreme volatility among marijuana stocks in recent months and whether or not cannabis share prices are out of control.

'It's A Bit Of A Mania'

When asked about the crazy price action in stocks such as Tilray Inc TLRY, which skyrocketed from $20 to $200 in a matter of weeks, Feinseth said he doesn’t follow the marijuana group too closely or endorse smoking of any kind, but there’s certainly growth potential in the global cannabis industry.

“Like we saw in the mid-to-late 90s with the internet stocks, there are not a lot of them and everybody is interested in them, so you get a lot of money chasing a few names,” Feinseth said. “It is a bit of a mania, and we’ve seen this before.”

Feinseth warned that these periods of market over-exuberance tend to “end in tears.”

He said just because a company has a good concept and a bright future doesn’t mean its stock price can’t also lose touch with reality. In addition, these cannabis companies still have plenty of hurdles to clear in the U.S. market, including not being allowed to use federal banks.

“There is obviously a lot of interest, but you’ve got to be careful with valuations in these things where they just go crazy,” he said.

Others Weigh In

Feinseth isn't the only one to question the big gains in the cannabis space.

“There is a positive fundamental story going on, it’s just hard to tie the valuation into where we are right now," New Cannabis Ventures founding partner and 420 Investor author Alan Brochstein recently said. While conceding that cannabis stocks are dangerous shorts, famed short seller Whitney Tilson recently said there's no way to rationalize current valuations.

"Valuations are completely unsustainable," Tilson said.

Tim Seymour, co-host of CNBC’s "Fast Money" and CIO of Seymour Asset Management, recently told PreMarket Prep the cannabis market can be a solid long-term investment even if it's experiencing a short-term bubble in valuations.

"Are valuations at a place that people could say this makes no sense to me? Sure, no question... But there’s an obvious argument why an investor looks at a global cannabis producer right now and takes their valuation multiple looking out to 2021, 2022 or 2023 if you really want to get aggressive because you have to at least begin to factor in growth. That’s the whole story here,” Seymour said.

Price Action

In addition to Tilray’s 421-percent gain in the past two months, U.S.-listed Canopy Growth Corp CGC is up 70 percent and Cronos Group Inc CRON is up 40 percent in that time.

Listen to the full interview with Feinseth at 35:25 in the clip below.

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Even Marijuana Bulls Are Becoming Skeptical Of US-Listed Cannabis Stock Prices

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