MONTREAL — It's been a wild ride for Canada's marijuana companies, whose stocks enjoyed an exhilarating high in recent days before mellowing out.
Last week, marijuana stocks suddenly skyrocketed, leaving market analysts bewildered. The enormous upswing in stock prices was even more amazing given that the government is giving every indication it plans to go slow in its promise to legalize recreational marijuana use — a move that the government estimates would unleash a $5 billion to $7 billion Canadian industry.
Stock in the largest marijuana company, Canopy Growth Corp., leapfrogged last Wednesday to a high of $17.86, from $9.75 Canadian. The increase happened so fast that the Toronto Stock Exchange issued four stop-trading orders during the day after the stock rose more than 10 percent in five minutes. More than 24 million shares traded that day.
The trading drove the company’s market cap to more than $2 billion Canadian even though its most recent quarterly financials showed total revenue of only $8.5 million.
Canada’s other four publicly traded pot stocks also showed large increases, but nothing like front-runner Canopy.
While the increases may have gotten a boost from pot legalization votes in four U.S. states, Neal Gilmer, a marijuana stock analyst for Mackie Research Capital in Toronto, said nothing in the fundamentals accounts for the sudden upswing — which was followed days later by a drop back to more normal levels.
“There is no fundamental change in the outlook for the industry,” he said. “It’s obviously just a sign that there is a lot more interest. There’s more buying and selling that drove the prices up, no one particular event.”
The price increases come a few weeks before the Canadian government’s nine-member Task Force on Marijuana Legalization and Regulation is scheduled to deliver its report.
Comprised primarily of medical and legal experts who have in the past expressed their support for legalization, the task force has received about 30,000 submissions from groups and individuals and has visited U.S. states such as Colorado and Oregon to study their legislative experiences with marijuana.
The government has promised legislation to legalize marijuana next spring. In Canada, marijuana comes under federal jurisdiction, unlike in the United States, where regulation is shared by the states and federal government. Since 2000, Canadians have been allowed to possess and grow small amounts of pot for medical use. The government began licensing such companies as Canopy Growth in 2014 to grow mass amounts of marijuana to meet a growing demand from patients suffering from diseases that cause chronic pain, seizures and nerve problems.
“The task force will use what it has heard to advise the government on the design of the legislation and the regulatory framework that will include a new system of strict marijuana sales and distribution," Justice Minister Jody Wilson-Raybould has promised.
Anne McLellan, the task force's chairwoman and a former Liberal cabinet minister who now is an adviser to a law firm that has pot-related companies as clients, recently stated that she believes the government should tread lightly with legalization.
“One of the things we have learned, or we have heard . . . from states like Washington and Colorado . . . is take your time because it’s much harder to pull something back,” she told the Toronto Star.
She said that she was particularly concerned about packaging in Colorado that makes edible pot resemble candy.
The Canadian Medical Association also has recommended a “go-slow” approach. Although it has not taken a stand on legalization, it said in a recent report to the task force that recreational use of marijuana should be banned for people under 21.
It also recommends that levels of THC, the main psychoactive ingredient in pot, should be restricted for people under 25 because their brains are still developing.
The Canadian Association of Police Chiefs has also recommended a minimum legal age limit but has left the designation to health professionals.
A joint submission to the task force by the Arthritis Society, Canadians for Fair Access to Medical Marijuana and the Canadian AIDS Society recommended that regulations would ensure that supplies of medical marijuana held priority over recreational use.
EDITOR'S NOTE: An earlier version of this story incorrectly reported that Canopy had never made a profit.