Written by Chris MacDonald at The Motley Fool Canada

The euphoria that surrounded the entire cannabis sector heading into Canadian legalization in late 2018 was truly remarkable. We saw valuations of a number of top players, including the likes of Canopy Growth (TSX:WEED), Aurora Cannabis (TSX:ACB), and others (charts shown below) see remarkable booms and busts over the past decade. I’d recommend readers look at the 10Y charts for both below.

Let’s dive into whether the volatility we’ve seen in the past is old news, and if these stocks could be raring up for a new impressive rally from here.

The only way to describe the cannabis sector looking back at the 2017–2019 era was really complete and utter euphoria. Companies were trading at incredible multiples, as investors looked to take advantage of what most saw as a future boom in the use and distribution of cannabis.

While we did see strong growth out of the gate, this growth was off of a base of essentially zero for legalized marijuana. In recent years, we’ve seen demand level off, and hopes that cannabis legalization would drive out the black market have been dashed. High taxation rates and prices well above the black market have made it difficult for legal producers to compete on the basis of volume and price.

That said, with regulatory dynamics changing globally, the hope for many investors in the Canadian cannabis space is that global markets (specifically the U.S.) will eventually open their doors to Canadian producers. The jury is out on that thesis, given the current trade dynamics in place, which have led to stark declines in Canopy, Aurora, and a host of other cannabis stocks in the market.

Market saturation, the strength of the black market, and a shifting geopolitical environment have been enough to push cannabis stocks to the back burner for most investors. That said, there are hopes that the Trump administration could do what the Biden administration couldn’t, and at least categorize cannabis as a less-harmful drug.

Such a move would certainly provide a boon to valuations across this sector. But the question remains whether Canadian producers will be the ones to benefit from such regulatory moves. Right now, I remain highly skeptical of this view.

I might be wrong, but cannabis stocks still look very risky at present. For those looking for exposure to this sector, I’d recommend looking at other major U.S. players in this space, such as TSX-listed Curaleaf (TSX:CURA).