Stock prices of cannabis producers are going down

Shares in the Canadian cannabis producer Tilray Inc. shot up by 50% extremely rapidly, reaching a price 600% higher than their IPO level.

The relatively steady period for stocks that we are currently experiencing comes after the market entered a short-lived tailspin following this earlier period of unparalleled growth. Overall, we can say that this sector is now looking rather stable despite the volatility it has seen of late.

As a result, many experts have compared shares in cannabis producers to Bitcoin. In a situation not dissimilar to that of cryptocurrency investors, shareholders in these companies made large returns. But then prices dropped sharply. Some investors have predicted that this market will experience a bubble like the one we saw with cryptocurrencies.

However, there are some basic features of the cannabis market that mean it remains attractive for investors. For one, shares in companies operating in this sector are backed by a tangible product. What's more, the market is sufficiently large. According to forecasts, the total global volume of legal cannabis consumption will reach $32 billion by 2022. The market is currently estimated to be worth $7.7 billion. Going forward, growing interest from global producers of alcoholic and non-alcoholic beverages (including Coca-Cola) may help to buoy cannabis producers' stock prices over the long term.

Shares in the sector's two largest and most stable companies, Canopy Growth and Aurora Cannabis, appear to remain the most attractive for investors until the end of the year. Canopy Growth's share price received a boost by a deal that will see Corona producer Constellation Brands invest $3.8 billion in the cannabis company. Meanwhile, Aurora Cannabis will collaborate with Coca-Cola to help the soda giant produce cannabis-based beverages.

Tilray's shares are also looking quite attractive to investors after the company received regulatory approval to export a large volume of its products to Germany.

Other companies, such as Aphria Inc. and Cronos Group, appear slightly less attractive, despite their stocks looking no worse than the rest of the industry's.