Canadian cannabis stocks are enticing serious investor interest, and it is this surge in investments that is making some traders slightly suspicious.

A prime example of a cannabis stock that has experienced major growth as of late is Tilray Inc. Boasting a total value of almost $9 billion and a price-to-sales ratio that exceeds Apple Inc. and Amazon Inc., Tilray just received a license to export medical cannabis.

Then there’s Canopy Growth Corp, with its $11 billion market value and recently announced partnership with Constellation Brands.  

As a sector that is still in its early stages, these valuations are quite astonishing and for a lot of institutions, the infancy of the high-valued cannabis market is pretty scary.

Canada’s legal cannabis industry has evolved quickly

In November of last year, the Cannabis Act was passed by the Canadian House of Commons. The royal assent of Bill C-45 occurred on June 21 of this year, with Canada’s cannabis legalization set to officially kick off on October 17.

Within the space of a few years, Canada’s legal cannabis industry has blossomed into one of the world’s most lucrative markets. With the emergence of cannabis reform comes stock investor interest. Significant revenue growth is essential for Canadian cannabis stocks if they are to justify their colossal market caps.  

Between mid-2016 and now, share prices for Canadian cannabis stocks have cascaded. As demand for cannabis products rises, more mainstream investors in the alcohol and tobacco industries are likely to capitalize on the opportunity.

Canadian cannabis stocks: Penny stocks are high-risk

Investors ought to proceed with caution when investing in Canadian cannabis stocks. While the idea of purchasing speculative cannabis penny stocks might seem like a good idea at first, (these stocks tend to provide a sizeable return for short periods of time,) low-quality penny stocks can be rather volatile.

Instead of getting lured in by low prices and promises of high financial yields, investors need to remember that “pot-of-gold” penny stocks are much easier to manipulate and so, the risk is just that – a high risk.

Canadian cannabis stocks: Investors must make wise choices to turn over a profit

It is not easy to predict what will happen with Canadian cannabis stocks. Valuations are high and sales are just kicking off, therefore investors must sit tight and wait to see what happens.

Something that investors can be certain about is the rapid rise in demand and production for cannabis. On that note, the safest bet may be to invest in ancillary cannabis businesses, since they represent the largest and broadest sector of the industry.