Supply glut could limit upside for Canadian cannabis stocks

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Valuations of Canadian cannabis stocks are sky high on expectations Canada will become the Silicon Valley of recreational pot. If approved by the House, recreational cannabis sales would start this summer. Barron’s cover story this weekend asserts there are holes in the bull case: Stocks trade for more than 100x 2017 sales, and several hundred times 2017 cash flow. Bullish predictions fail to recognize the large price drops states like Colorado and Washington experienced after legalizing cannabis. These could be exacerbated by massive inflows of cheap cash the companies have used over the past few years to ramp up production. Bulls say the cannabis market is “way bigger than a lot of people believe,” and are convinced cannabis presents investors with a “once-in-a-lifetime chance to get in on an industry that will boom like the internet.” Supply glut could limit upside for Canadian cannabis stocks

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