Is Cannabis the New Cryptocurrency?

Cannabis stocks like Aurora Cannabis Inc. (TSX:ACB) are seeing returns almost comparable to cryptocurrencies in 2017.

| More on:

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Investing

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Tech Stocks

Why Nuvei Stock Jumped 26% on Monday

Nuvei (TSX:NVEI) stock saw shares surge today as the company confirmed it's in talks to go private through a buyout.

Read more »

consider the options
Investing

Better Buy for the Dividend: Enbridge or Nutrien?

Enbridge (TSX:ENB) and Nutrien (TSX:ENB) are great dividend plays for new investors going into April.

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Happy diverse people together in the park
Tech Stocks

A Once-in-a-Generation Investment Opportunity: Artificial Intelligence (AI) Growth Stocks

Canadian tech companies like Kinaxis (TSX:KXS) are doing big things in AI.

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Arrowings ascending on a chalkboard
Investing

This Canadian Blue Chip Is Trouncing TSX Returns, and It Still Has Room to Run

Alimentation Couche-Tard (TSX:ATD) stock looks quite frothy heading into earnings, but there may still be upside.

Read more »