Ever since the legalization of medical marijuana in Canada and in some of the United States, cannabis stocks have been on fire. Many of the companies have experienced a lot of interest from investors in both countries. In this regard, it needs to be kept in mind that it is still a nascent industry and while the demand for medical marijuana remains strong, investors have zeroed in on a range of companies they believe will be the industry leaders in the years to come. That being said, experts still believe that many of the cannabis stocks that blew up are still overvalued.
Optimism In The Cannabis Stocks
As soon as medical marijuana was legalized in Canada in October of last year, investors started putting money into cannabis stocks. Before long, the price of those stocks started exploding. It is also important to point out that many of those companies that had been listed on the stock exchange did not have enough shares to be sold. This acted as another trigger that pushed the price even further as the demand for those shares soared.
The primary trigger behind the optimism in the cannabis stocks was that the US would probably legalize marijuana following Canada. However, that has not come to pass, and it is unlikely that it is going to happen any time soon.
While the demand for cannabis has always been there, it is another matter when it comes to valuing specific stocks. This is the main problem with marijuana stock valuations. In addition, it is a new industry and could always be the victim of misplaced optimism. For instance, the dot-com bubble at the turn of the century was brought on by misplaced optimism.
Experts believe that something of that nature could happen to cannabis stocks. Investors are probably willing to pay a premium in order to own cannabis stocks. That being said, many cannabis stocks have come down in price over the past few months and it could point to a rationalization of these stock prices.