Can soaring cannabis shares stay high?

Canada-based Tilray was particularly volatile in a magic-carpet-ride kind of day that saw shares nearly double, briefly slip into negative territory and experience five trading halts at the Nasdaq.

"It's completely crazy," Gregori Volokhine, president of Meeschaert Financial Services, said of Tilray.

"It's extraordinary to see a serious market with a casino and drug behavior. It shows that there is still room for fantasy in finance."

Shares of Tilray, which went public in mid-July at $17 a share, finished at $214.06, up 38.1 percent.

Cronos Group, another cannabis company, finished up 9.8 percent, while Canopy Group ended down 4.9 percent.

Shares in the sector were lifted by Tuesday's announcement that Tilray had won approval from the US Drug Enforcement Administration for a medical cannabis study in California.

Tilray chief executive Brendan Kennedy told CNBC that pharmaceutical and beverage companies need to be watching the industry he predicted will reach $150 billion in all.

"Cannabis is a substitute for prescription painkillers, prescription opioids, and so if you're an investor in a pharmaceutical company or you're a pharmaceutical company, you have to hedge the offset from cannabis substitution," Kennedy told the network Tuesday night.

Likewise, "I think all the alcohol companies need to enter this industry. It is a great hedge for them, whether you are an alcohol company or an investor in an alcohol company," he added. 

"This is global opportunity."

But the outsized gains in Tilray had left some market watchers feeling uneasy even before the stock began to sell off in the afternoon.

Tilray's "stock is now up over 1,100% in two months since the IPO," said Briefing.com in a note early Wednesday. "The surge seems rather unsustainable as momentum can reverse itself on short notice."

Going mainstream

Tilray's announcement this week further propelled the sector after a series of other positive developments involving mainstream companies.

Beer giant Molson Coors announced August 1 it was teaming up with Canadian medical marijuana grower The Hydropothecary Corporation to develop cannabis-infused non-alcoholic beverages.

Two weeks later, spirits company Constellation Brands announced a new $4 billion in investment in Canada's Canopy Growth in exchange for a 38 percent stake in the firm. 

Constellation chief executive Rob Sands touted Canopy's potential "global leadership position in the medical and recreational cannabis space." 

On Monday, Coca-Cola became the latest big company to wade into space, confirming that it is studying drinks with cannabidiol (CBD), a chemical in cannabis that does not have the intoxicating effects of THC, the major active ingredient that causes the "high."

Further legalization?

The flood of activity comes as Canada is set to legalize cannabis on October 17 after both houses of Parliament voted to make the drug available for recreational use.

That move has been seen as a potential prelude to further legalization in the United States, where recreational use of marijuana is only permitted in a handful of states. Medical marijuana is allowed in 29 states.

A bill backed by Senate Majority Leader Mitch McConnell could formally permit the sale of CBD products, but the current legal status of the products is a "little murky," DataTrek Research said in a note.

"Bottom line, CBD is a very important market opportunity for companies like Coca-Cola, where their existing offerings show little growth and consumer preferences continue to shift," the research firm said.

Still, some remain skeptical about soaring valuations for companies like Tilray. 

"The move in Tilray is beyond comprehension," said Citron Research, which often places "short" bets against companies.

"This is just the dynamic of trading low float stocks," Citron said on Twitter. "Yes we are short and will hold a manageable position until rationality sets in."