Here Is How to Trade the Volatile Pot Sector After Legalization

(Bloomberg) -- Marijuana legalization is here in Canada and stocks have already reaped the benefits of the speculative trades, yet the volatility isn’t likely to go away over the next several years, according to Eight Capital analyst Graeme Kreindler.

Investors will need to take a more “tactical approach” to play the industry as the sector reacts and readjusts over the next 12 months, Kreindler wrote in a note Wednesday. He sees the market growing steadily in the first year as retailers expand, before giving way to more rapid growth in the second year as retail networks are established and other cannabis derivative products -- such as edibles -- hit the market in late 2019, Kreindler adds.

Kreindler’s top picks at the start of this legalization are Canopy Growth, CannTrust Holdings, HEXO Corp., Organigram Holdings and Emblem Corp. The sector has already started off to a shaky start in early trading. Medical pot producer Tilray Inc., Cronos Group and Canopy Growth Corp.’s U.S.-listed shares all traded lower. The next few quarters will perhaps clarify the winners and losers in the sector and investors will have to become more selective as the days of highly correlated stock moves draw to a close.

To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.net

To contact the editor responsible for this story: Courtney Dentch at cdentch1@bloomberg.net

©2018 Bloomberg L.P.