Investing in marijuana is gaining momentum after countries like Canada, South Africa, Uruguay and some US states took steps to legalise its personal use; and this isn’t even taking into account the multiple medical uses of cannabis.
Interest in these stocks is on an all-time high (no pun intended), with Canadian firm Tilray becoming the first cannabis company to go public in the US in July 2018 – followed by Chronos, Canopy Growth and Aurora Cannabis.
“There has been a lot of success in Canada because they went federally legal with cannabis [in 2018],” the founder of US-based cannabis-infused company, Botanica Global, told International Adviser.
Chris Abbot said: “Most people think of cannabis as a dirty drug. But when you see real companies and real investment money go into it, I think that really woke people up.”
However, while this market is receiving increasing attention, it still remains a very speculative and volatile one.
Seeing through the smoke
“I think there are a lot of people that want to invest in this space but, because of the barriers around legislation, they didn’t know how to,” Abbott added.
But this is not an investment solution for the faint-hearted.
Richard Smith, chief executive and founder of data-driven investment tool TradeSmith, told IA: “If people want to put money into cannabis, it’s not necessarily a bad idea, but it’s got to be money they are comfortable seeing fall by 50-75%.
“It is vital investors understand that, as exciting as this space is, and the bigger the opportunity is, if you’re investing into the stocks themselves, you have to be prepared to lose and not break a sweat.”
That is why Botanica is targeting high net worth individuals, Abbott said. “They are where the action is.
“I believe that there is a reward scenario within cannabis, but with that reward comes risk.”
Different sizes for different tastes
The growth the sector has experienced in just a couple of years is exciting, Abbot said.
For instance, Smith told IA that Chronos’ shares are trading at around $21 (£15.8, €18.6), compared to $0.20 when the company first started in 2016.
There are, however, less risky options for investors that want exposure to the potential growth of this market, such as ETFs, Smith said, naming MJ ETF as one example.
But he sees cannabis having the potential to be a long-term investment opportunity.
“It’s a three-to-five year timescale before you can see this market mature.” That is why Smith suggests investors start taking smaller positions if they are interested in this market; just so “they can sleep at night”.
The creation of an industry
“Volatility in cannabis happens because it’s a private market,” Abbott told IA.
“And I do believe it is a very risky investment because it’s a brand new industry.
“But, at the same time, I don’t think brand new industries are born in front of us very often, and this might be one of the few that we might see in our lifetime.”
According to Abbott, the opportunities that cannabis carries have made people realise that “it is not just about someone smoking a bong somewhere”.
