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Cannabis: The Next Mining Killer?

Kitco News

(Kitco News) - Miners have to just wait out the cannabis frenzy until the bubble pops for investor capital to flow back into the metals space, this according to mining executives and fund managers.

Marijuana stocks are approaching pre-2001 Nasdaq levels of overvaluation, and it's not a matter of "if," as much as it is a matter of "when" the cannabis space collapses on the same scale as the last tech bubble, said the experts during a panel debate at the Mines and Money Conference in Toronto. 

Following such a bust from cannabis, a transfer of funds to the mining sector is likely because the retail investors interested in junior miners are the same high-risk speculators attracted to the cannabis stocks, said Warren Irwin, president and CEO of Rosseau Asset Management.

"There will be a point where all these retail guys will run away, scared of the cannabis market and you'll have a pile of money. And where are they going to go? They need their fix," he said. "Cryptos are dead, cannabis will be dead, where are you going to get your fix? And I think they're going to get their fix in the junior mining sector."

Irwin noted that even as the cannabis craze eventually dissipates, a "massive" new discovery in assets and deposits is needed to bring the flow of funds back into the mining sector.

He added that junior miners are the most viable alternative for cannabis investors owing to the miners' attractive valuations.

The VanEck Vectors Gold Miners ETF (GDX) has declined 14% year-to-date and is currently at the lowest level since December 2016.

In contrast, the Horizons Marijuana Life Sciences ETF (HMMJ.TO) climbed 6% on the year and is up 126% since the fund's inception in April 2017.

On the cryptocurrencies front, the panelists agreed that while the bitcoin craze has fazed out for now after the coin's fall from its December 2017 highs, blockchain technology still has value due to its potential to be integrated into mining technologies.

"Blockchain and mining go hand in hand. It will just be interesting to see how exactly it plays out, but we are firm believers that there is value in that data," said Michael White, president and CEO of IBK Capital.

While millennials have historically been the largest demographic behind the growth of cryptocurrencies, convincing that group to invest in metals will require a lot of changes in terms of simplifying mining information and the way investment opportunities are presented, according to White.

"The onboarding has to be simple. We have to figure out a way that millennials can very simply onboard and buy these mining stocks," White said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.