Pot Stocks Too Pricey, Says Aswath Damodaran

Aswath Damodaran, NYU Stern School of Business, on pot stocks being too pricey and the impact of the Canadian marijuana legalization event. With CNBC’s Aditi Roy and Melissa Lee, and the Fast Money traders, Tim Seymour, Karen Finerman, Steve Grasso and Guy Adami.

H/T Dataroma

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Pot Stocks Too Pricey, Says ‘Dean Of Valuation’ Aswath Damodaran

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Transcript

We are just hours away from a key moment in Canada. We will be legalized across the land of our neighbor to the north. But check out the move in Potsdam today Kano’s canopy till right or all getting hit. So will the events in Canada end up being. A news event. Looks like a tan.

What do you think. I think you have a lot of different dynamics. The Canadian LPs the big integrated companies up there are not cheap on any multiple. There are some that are cheaper than others. Obviously I don’t think we know the global total addressable market. That’s one of the things that I think the bulls are going to say you have no idea what consumption trends are and where there’s ultimately goes what’s really happening right now if you look at the market today. Those big LPs sold off hard then names like Mad Men are Charlotte’s Web was higher. So us over Canada is the trade right now. Old school versus new school. valuations are significantly cheaper and this is a function of the capital markets this is not necessarily necessary. We’re a better company being made. Bottom line here the industry is starting to split and become more sophisticated what I mean by that. Pfizer if they’re coming in this industry they’re totally different than Biagio are totally different than God forbid Procter and Gamble The point is these verticals are taking shape in this market. It needs to take a breath. And so wouldn’t be a surprise that you sell the news but you can’t paint every stock with the same brush right now. And fortunately even today’s price action you saw which companies are actually the newer flavors of the month significantly outperforming.

All right well our next guest says pot stocks are simply too pricey here. Let’s welcome back the Dean evaluation Ocelote to modern finance professor at NYU. Professor thanks so much for joining us once again. I read your latest blog on the valuation of these stocks and it sounds like you’re extremely skeptical about this whole space.

I think that there is a basis for the pricing which is the market’s going to be big. I think we can concede that it’s going to be a big market. The problem I have with any of these companies is none of them are compelling enough stories and that’s all you have right now. The numbers are not there. You’re buying a story. None of the companies that I see out there are compelling enough stories that I would jump onto that story and say that’s what I’m going to ride to make money on this market.

So when you take a look at the potential uses when it comes to medical when it comes to recreation you know when it comes to nutraceuticals consumer productsetc. It’s just simply too early to say. The potential market for each of these sectors is X and that means this company should be valued at why.

I think it’s not too early to make a judgment that the overall market especially on the medical side. I think it’s a little too early to decide which of the companies that’s out there if any if any of them is going to be the company that benefits from that trend. Because let’s face it they’re going to be more companies coming into this space and they don’t have to be part companies many conventional companies are going to jump into this business as we go along. One reason I thinkU.S. companies have held back is because of the fact that you have this to level regulation one at the state level where nine states allow it for recreational purposes and one at the federal level until we resolve that. companies are going to be handicapped.

OK. So you’re saying right now not to buy even the ETF. And also the companies that are related to pop but may not be a direct pot stock such as a GW Pharma and Scotts Miracle-Gro. They have been swept up in this whole pot mania. You don’t like those either.

But I’m closer to buying those than I would hope to be buying pot stocks. I think Scott Miracle-Gro 20 percent lower. I’d be inclined to add it to my portfolio it’s a small play but it’s still a much more promising play for me. It’s clear on the way to me I read your piece which I thought was great by the way you talk about.

Perhaps some disappointment in in if states do more and more states legalize pot that actually it won’t grow as quickly as the market might think.

You talk a little bit about that. I’m speaking from the experience of being California where parred was legalized on January 1st 2018 and what people have been.

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