Nicholas Cosentino, who lives in Calgary with his family of three, started investing in cannabis stocks two years ago as part of his retirement strategy.

Like other investors who have flocked to the nascent sector, he has been on a wild, white-knuckle ride of lows and tremendous highs.

When taking a look at his portfolio in the past year or so, Cosentino did something that previously would have been unthinkable — he sold off all of his oil and gas investments and moved the money largely into cannabis.

"Most of my oil and gas holdings were either in the red, stagnant or (had posted) very modest gains," said Cosentino, who has made six figures in value with his cannabis investments over the past two years.

An index of the 24 top-performing Canadian cannabis stocks on the website The Marijuana Index shows a massive surge in share prices since the fall — and some recent volatility. (The Marijuana Index)

"In comparison, my cannabis sector holdings were doubling, tripling, quadrupling and so on."

High times for cannabis investors

Cosentino isn't alone in feeling uneasy about Canadian energy stocks. The oilpatch witnessed a decline in investor interest after the recent downturn.

Martin Pelletier, a Calgary investment analyst, said it's difficult to estimate how much capital has been diverted from the oilpatch to pot.

He said investors who are involved in speculative, risky plays had previously flocked to junior oil and gas firms, which "offered some tremendous returns, but that's certainly not the case where we are today."

For these investors, other risky bets such as cannabis have become far more attractive.

"If you're an investor looking at your Canadian portfolio, for example, let's say you had energy stocks. You wouldn't have done that well last year," said Pelletier, founder of TriVest Wealth Counsel Ltd.

"There's a lot of euphoria in certain areas of the market and, within Canada, a lot of that euphoria right now happens to be in cannabis."

Some pot stocks have seen their share prices quadruple since early September, but they aren't soaring because of their financial performance.

The five biggest Canadian cannabis stocks by market value — Aurora Cannabis Inc., Aphria Inc., MedReleaf Corp., Cronos Group Inc. and Canopy Growth Corp. — have a combined value of $20 billion, but most of them haven't posted quarterly sales above $10 million.

The 'mother room" at Canopy Growth's cannabis facility in Smiths Falls, Ont. (Evan Mitsui/CBC)

Instead, cannabis share prices in the past several months have been lifted in part by Corona maker Constellation Brands' $245-million investment in Canopy Growth, which helped legitimize the sector and fuelled speculation that other big corporations would follow suit, said analyst Greg McLeish.

Stocks have also been lifted by provincial governments approving plans for recreational sales, boosting confidence the country will be ready for legalization this summer, said McLeish, of Mackie Research Capital.

Among other factors, the analyst said a mix of institutional and individual investors feared "they had missed the cannabis run" and started flocking to the sector, helping to boost prices.

Fraught with risk

Still, McLeish said the industry is fraught with risk.

He said there's uncertainty around whether the industry can hit high production targets that have never been reached before, and whether retail prices will compete with the black market. Another concern is that "a lot of companies have very lofty valuations."

"What we see is, I think, investors are underestimating the amount of risk," McLeish said.

While cannabis stocks have been dogged by talk of a big green bubble, McLeish said he believes the sector is viable and that many companies will thrive, especially as they expand around the world.

"There's also going to be companies, both public and private, that are going to fail, either due to lack of funding or lack of execution."

Cosentino said he's aware of the risks, and he's comfortable with riding it out. He believes, "there's going to be a heck of a lot more gain involved with the cannabis sector, versus the oil and gas sector."

Although investor enthusiasm has started to return to the oil and gas industry with oil prices hovering above $60 US per barrel, Cosentino said he's sticking with pot until he sees a big run in energy.

"These aren't blue chip companies," he said, referring to pot stocks. "This is a fledgling industry. It is at its infancy. And sometimes you have to go with your gut."