It’s been a blazing-hot few years for Canada’s cannabis industry. Earnings are up, legalization is coming, and top cannabis stocks are up as much as 300% over 12 months.
Incredibly, some say the best is still yet to come. While legalization is coming to Canada in October, most other countries still aren’t ready for it — although many are expected to be in the years ahead. As more countries (and U.S. states) opt for legalization, the market for Canada’s cannabis manufacturers will grow. As a result, Canada’s early move to legalize may give Canadian cannabis companies a “first-mover advantage” on the world stage.
In light of this, it’s no wonder that Canadian cannabis stocks like Canopy Growth(TSX:WEED)(NYSE:CGC), Aurora Cannabis (TSX:ACB), and Aphria (TSX:APH) are riding high. Each of these stocks is up significantly since this time last year. Two of them (Canopy and Aurora) have more than doubled in the past 12 months. All of them have been beating the pants off the TSX average in the past five years.
In fact, the five-year returns of Canada’s “Big Three” cannabis stocks call to mind another asset class. One that, at first glance, has little in common with cannabis. But when we look more closely, we see that it shares several similarities with Canada’s growing cannabis industry.
That asset class is cryptocurrency.
Cryptocurrency and cannabis: like peas in a pod?
The first similarity between cannabis and cryptocurrency requires no explanation: both have delivered enormous returns over the past five years. Bitcoin is up over 7,000% in the past five years. Smaller cryptocurrencies like Ripple rose upwards of 10,000% in 2017 alone. And cannabis stocks, for their part, are riding high as well. The Big Three Canadian cannabis companies are up more than 1,000% on average, and one in particular (Aurora) is up 21,800% since 2014!
But the similarities don’t end there.
Another big similarity between cannabis and crypto is that both have gained from regulatory changes. In the case of cannabis, it’s the coming legalization that will increase the size of the legal cannabis market. In the case of crypto, it was the increasing regulation of the financial markets that led people to look for an unregulated alternative.
Another similarity is culture. Cannabis and cryptocurrency are not mere “industries”; they are global subcultures with devoted, near-fanatical fanbases. Both topics have dozens of subreddits dedicated to discussing them. Both are favourites among journalists and market commentators. And both have customers (in the case of cannabis) and investors (in the case of cryptocurrency) with a level of “brand loyalty” rarely seen elsewhere. This helps explain how both of these asset classes have outperformed the markets by orders of magnitude.
Yesterday, crypto; today, cannabis?
Both cannabis stocks and cryptocurrency have outperformed the market in the past five years. In that same period, crypto has also outperformed cannabis stocks. But that may change. This year, cryptocurrency took a major stumble, with Bitcoin falling by nearly 50%. Cannabis stocks may have better days ahead of them. When legalization hits on October 17, that could increase all three major Canadian cannabis companies’ sales significantly. And if and when other countries choose to legalize, that could create a whole new export market for Canada’s marijuana mavericks.
Either way, for cannabis and cryptocurrency fans alike, these are interesting times.