When Pot Smoke Clears, Profits May Be in Familiar Hands

Investors may be betting on marijuana in all the wrong places.

Enthusiasm for pot stocks reached a fever pitch last week when investors piled into British Columbia-based Tilray Inc., a developer of cannabis medicinal products, doubling its stock price over three trading days through Wednesday. Volume for Tilray’s stock had averaged 7 million shares a day since it went public on July 18. Last week, that average spiked to 20 million.

Investors were already plenty high on pot stocks before Tilray came along. Three of the biggest by market value, Toronto-based Cronos Group Inc., Vancouver-based Aurora Cannabis Inc. and Ontario-based Canopy Growth Corp., are hugely expensive. None are profitable, but their average price-to-sales ratio based on expected revenue for the 2018 fiscal year is a stunning 185, or 50 times that of the S&P 500 Growth Index’s P/S ratio of 3.6.

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