By The legalization of cannabis has generated a lot of excitement in the market which is, at present, characterized by high market volatility. High market volatility has resulted in investors reflecting on the similarities in market behavior between the cannabis industry and the crypto industry.
High Volatility and Market Behavior as Key Commonalities
Just as it did in the early days of the crypto industry, news and media hype, regulatory uncertainty and the newness of the industry is influencing the market volatility of the cannabis industry. Despite this and as with the crypto industry, there remains a large amount of interest and support of the cannabis industry not only from millennials but also from mainstream companies.
Tilray (TLRY), the Canada-based cannabis company, has seen a significant increase in its market cap, which grew by approximately 90% in mid-September of this year following an announcement that it was looking to partner up with pharmaceutical firms. Tilray’s market cap exceeded that of Tiffany and American Airlines for a short while, however, soon afterwards their shares went through a period of correction. Even after the correction, Tilray’s market cap was 40% larger than it used to be, dropping by 19% days later. Despite this decrease, Tilray’s current market cap is still 200% bigger than it was in July, after the company’s IPO. Tilray’s market behavior is not unique, however, as both Aurora Cannabis Incorporated (ACBFF) and Canopy Growth Corporation (CGC) have followed similar volatile patterns.
Fraud as a Common Concern for the Cannabis and Crypto Industries
Owen Donley III, the SEC Office of Investor Education and Advocacy’s chief counsel, stated that another similarity between the cannabis and cryptocurrency industries are high levels of fraud. According to Donley, the similarities in fraudulent behavior in these two industries relate to fake ICO offerings with guaranteed high returns, promises that are too good to be true, like zero losses, and goals to change the world in impossible and non-credible ways. He noted that these projects suffer from the characteristic that neither the cannabis industry nor the cryptocurrency industry has any hard deliverables to back their promises. Hence, he is of the opinion that comparing these two industries, at this level, is not surprising at all.
The SEC even went as far as issuing an investor warning early in September of this year stating that the cannabis industry is infested with fraudulent offers, that there is widespread manipulation of cannabis stocks and that scam artists exploit such “hot” industries to trick excited investors. According to the SEC, whenever news of cannabis legalization appears, fraudsters try to exploit the opportunity and trick investors willing to help out cannabis -related firms.
The SEC, despite issuing this warning, was also quick to point out that even though such behavior is not a new phenomenon, not all companies are trying to scam their investors. The SEC, therefore, endorsed the need for investors to do the necessary due diligence and background checks prior to making investments into such ventures. It noted that the hallmark of a scammer is to avoid routine checks. Fraudsters will often try to push investors into overhasty decisions by making impossible promises and raising investors’ hype and excitement in an attempt to conclude the deal as quickly as possible so as to avoid being discovered.
However, despite the current trends in the cannabis and cryptocurrency industries, Donley noted that fraud can be found anywhere.
Do you agree with the similarities between the cannabis and cryptocurrency industries? Is high market volatility and fraud a concern for you within these industries? Give us your thoughts in the comments below.
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