Canadian weed stocks are skyrocketing as legalization looms: But should you invest?

Investors in Canadian weed shares are having a great start to the week as the cannabis sector continues to soar on the stock market.

Pot shares in Canadian companies Aurora Cannabis and Tilray surged Monday after BNN Bloomberg reported that Coca-Cola is in serious talks with Aurora to develop cannabis-infused beverages (Aurora has since denied these reports).

On Tuesday morning, the U.S. Drug Enforcement Administration announced a deal with a B.C.-based company, Tilray, for medical research — which could be the first export of a cannabis product from a Canadian company to the U.S.

Tilray will work with the University of California San Diego on a clinical trial to test whether the drug (cannabidiol and tetrahydrocannabinol, better known as CBD and THC) can effectively treat essential tremor, a common neurological disorder that causes uncontrollable shaking.

After the news broke, Tilray’s shares surged around 15 per cent Tuesday on the premarket trade. Aurora’s stocks were up 20 per cent Monday.

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The uptick in weed shares seems to have skyrocketed since Aug. 1., according to a recent IHS Marketing report. Since this time, pot stocks have gone up 30 per cent for U.S. and Canada stocks. By comparison, the S&P/TSX Composite Index has declined slightly over one per cent in the same period.

Those weed stocks currently have a market capitalization of US$48 billion, having increased by US$20 billion since the start of August. The combined market capitalization hit an all-time high of US$51 billion on Sept. 12, IHS Marketing reported.

Tilray seems to be riding the cannabis stock craze.

The company’s shares made their debut on the NASDAQ in July at US$17 a share. As of Tuesday afternoon, the company sits at $147 a share.

“Tilray Inc. has been the hottest stock in the sector in recent weeks, with the share price increasing more than 300 per cent from the start of August,” IHS Marketing reported.

Shares in Ontario weed giant, Canopy Growth also skyrocketed in August after the announcement of a $5 billion investment into cannabis-based products by Constellation Brands (which makes alcohol products like Corona and Svedka Vodka).

The same month, Canada’s Molson Coors Brewing struck a deal with Quebec cannabis company, Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages.

WATCH: Medical marijuana plant boosts Nanaimo, B.C. economy

Should you invest?

Cannabis stocks were among Canada’s best-performing stocks in 2017.

Tilray has now surpassed Canopy Growth as the top marijuana stocks in terms of market cap.

But experts warn that marijuana stocks are very volatile and speculative. As Canada’s Oct. 17 legalization date nears, there are concerns that cannabis stock prices could plummet, as legal pot starts to trickle into the market.

Kevin Mullane, a senior investment advisor with National Bank Financial, told Global News that investors should “be careful” when looking into these weed companies and stressed the importance of research.

Mullane called the cannabis stocks “speculative investments” as there are still a lot of unknowns until it is legalized across the country.

“Be careful if this is money you can’t afford to lose,” Mullane said. “If this is going to be your first investment, I can’t tell you how many times I’ve seen people, their very first investment is the most speculative stock they’re ever going to buy in their entire life, they lose money on it and they never come back to investing in the stock market.”

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But he added there is still potential to make money in this industry.

Marc Lustig, chairman and CEO of CannaRoyalty, agreed. He said investors should expose themselves to the cannabis industry as it’s a great opportunity.

But like, Mullane, his advice came with a warning.

“A lot of money has been made that is for sure,” he said. “But a lot of companies are probably overvalued and it’s risky for investors. Do your research first.”

But Lustig said it’s “no accident” that big companies like Coca-Cola or Constellation Brands are looking into the cannabis industry.

“The global industry is seeing the opportunity is cannabis, which could compete or replace the alcohol business,” he said, “Corporate entities would not be interested if there wasn’t supported by the public.”