Pot Stocks Bring Out the Worst in Investors

More than a few commentators are talking about how the rally in marijuana stocks has officially become a bubble. Just take a look at Canadian cannabis company Tilray Inc., whose shares about doubled on Wednesday to $300 each before a series of trading halts late in the day sent the stock back down to around $200. Time will tell whether this is a bubble, but all the ingredients are in place.

Three factors typically drive stock prices: fundamentals, trading patterns and human behavior. As the strategists at Richardson GMP pointed out this week in a research note, fundamentals tend to be the driving force of long-term results, while trading patterns, or as some might say technical analysis, can help identify turning points. But both of those can be trumped by human behavior, driving prices far beyond rational explanation. So, consider whether this is rational: Tilray and fellow cannabis companies have a combined stock market value of more than $35 billion. Then consider that Market Research/BDS Analytics forecasts legal cannabis spending globally is only expected to hit $32 billion by 2022, according to Bloomberg News's Joe Weisenthal.