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Weed is the new blockchain

Myles Udland
Markets Reporter

There’s a new craze in the stock market — cannabis.

Over the last few weeks, shares of Tilray (TLRY), a Canadian cannabis company, have become a fascination among investors as the stock has gained more than 700% since being priced at $17 during its July IPO.

In early trading on Wednesday, Tilray shares were up over 40% after the company’s CEO Brendan Kennedy said on CNBC’s Mad Money that cannabis is a “hedge” for pharmaceutical companies and investors because it can replace prescription opioids and other painkillers. The stock has now more than doubled in the last week.

Tilray shares have exploded in price over the last month, giving the company a market value over $18 billion. (Source: Yahoo Finance)

Kennedy also argued that all alcohol companies should be in the cannabis space to hedge their business as well. On Tuesday, shares of Tilray rose 29% after the company received DEA approval to import cannabis to the U.S. for medical research.

With the latest move, Tilray’s market cap is now in excess of $18 billion, giving the company a valuation which exceeds that of Molson Coors (TAP), Conagra (CAG), and J. M. Smucker (SJM).

These kinds of stock moves also confirm that when it comes to rampant speculation among investors rabid to find the next big thing, cannabis is the new blockchain.

Citron Research, run by short-seller Andrew Left, said Wednesday that, “The move in Tilray is beyond comprehension. No one needs a market pundit to explain that. This is just the dynamic of trading low float stocks.” Citron added that it is short Tilray and will maintain a “manageable position until rationality sets in.”

Earlier this month, Citron had said Tilray’s post-IPO spike showed retail investors going mad and that the firm wanted to short shares. Since then, Tilray shares have roughly tripled.

Late last year, a number of companies saw their share prices rise sharply after “pivoting to blockchain,” most infamously among them Long Blockchain (LBCC), which had previously been a beverage distributor called Long Island Iced Tea but said in December it would shift its business to blockchain technology. This sent shares up almost 200% in a single day.

And on Yahoo Finance’s daily live show The Final Round in January, executives from Helios & Matheson (HMNY) — which owns the flailing movie service MoviePass — said they were considering an ICO and looking at blockchain technologies,  a statement which sent shares of that company up more than 30% in a single day.

At that point in the blockchain craze, even the hint that a company was exploring an initial coin offering and tacking a blockchain-type initiative onto any business would see investors get excited about a stock. This dynamic has gone away as the price of bitcoin (BTC-USD) and other cryptocurrencies have crashed this year.

But cannabis is not crypto

Unlike the largely speculative prospects of blockchain redefining how we exchange money and information, there is something real when it comes to cannabis companies even though the mania among investors has been similar to that seen around cryptocurrencies late last year.

Late last month, Canopy Growth (CGC) received a $4 billion investment from beverage giant Constellation Brands (STZ). Constellation CEO Rob Sands said, “Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space.”

Earlier this week, Canadian business network BNN Bloomberg reported that Coca-Cola (KO) had held talks with Aurora Cannabis (ACBFF) to develop beverages. Coke later said in a statement that it was “closely watching” the space but that it had not make any investment decisions regarding cannabis. This news sent shares of Aurora, Canopy, and Tilray higher.

And with so much enthusiasm for these stocks and so much attention being paid to the industry, the price of Aurora, Canopy, and Tilray shares are simply a function of demand outstripping supply. As Citron said, no one needs a market pundit to explain this.

The prospects and support for the medical use of marijuana are well known, with a Yahoo News/Marist Poll last year finding that 83% of U.S. adults support the legalization of medical marijuana. This same poll indicated that 49 percent of Americans support legalizing marijuana for recreational use, while 47 percent oppose it.

The discussion of marijuana legalization and the business opportunity that surrounds this space is certainly not new to 2018. It is just that at this moment investors are turning this conversation into a mania reflected in a few stocks with enough public market presence to make financial media headlines.

And the action in cannabis stocks should remind investors that for all of the concern being expressed by Wall Street about trade, the Trump presidency, and the state of the global economy, there is still plenty of irrational energy ready to be unleashed in markets.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland