With Legalization in Canada Now Behind Us, Investors Will Turn To Results

Earlier this week, the use of recreational marijuana in Canada became completely legal.

Over the past couple of years, investors and speculators have been salivating over the potential of the marijuana industry, with some predicting that the global legalized marijuana industry will be worth roughly $500 billion within a decade.

This led to speculators pumping up the value of companies such as Canopy Growth and Tilray, which led to eye-popping valuations.

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Two of Canada's biggest producers of marijuana, Canopy Growth Corporation and Tilray Inc., both command valuations of over $10 billion USD.

Tilray Inc., which has benefitted from a small float, has a particularly eye-popping valuation of over $13 billion.

These valuations are fine, providing that the companies can justify them through rapidly increasing revenues and eventual profits.

The problem is that speculators and investors have thrown themselves into an already frothy market, pushing the values of these companies up to incredible heights, despite the fact that the industry is still so young.

The first movers in the industry are enjoying a competitive advantage, though many companies will likely toss their hats into the industry, given the amount of money that there is to be made. That will mean, with each passing day, that companies like Canopy Growth and Tilray will have more and more competition.

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As Warren Buffett likes to point out, the first movers in the automobile industry almost all went under as new competition emerged.

The first mover advantage in the marijuana industry will likely be a short one, as more and more competition surfaces. This will likely mean good news for company insiders that sell out early and bad news for investors that are in it for the long haul.

Now that legalization is behind us in Canada, valuations in the industry will be put to the test as the hype from legalization fades and investors turn their attention to what matters most - profits.

Filed under: General Knowledge