420: Should you invest your green in the cannabis industry?
The global cannabis industry is going through a growth spurt in April, with green shoots popping up across the world.
At the start of this month, Germany legalised weed, while Luxembourg, Thailand and a whole host of states in the US have also lifted their bans in the last couple of years.
Cannabis is now legal for recreational use in 24 of the 50 US states. with 38 allowing it for medical use.
Peter Garnry, head of equity strategy at Saxo, said that cannabis stocks were also “back on the radar” after US Senate majority leader Chuck Schumer had supported the SAFER Banking Act, allowing cannabis companies in the US to more easily file tax returns without worrying about the federal ban on the drug.
“The leading cannabis index has witnessed a 22.4 per cent rise this year, outperforming the 7.8 per cent increase of the MSCI World Index,” Garnry noted.
However, the index is still down over 95 per cent since September 2019.
In addition, recreational cannabis is illegal in the UK, though calls for it to become decriminalised or legalised have grown stronger in recent years.
This means that to be blunt, investing in the UK cannabis industry is quite tricky.
At the end of last year, the final cannabis exchange traded fund in Europe shut down, after its parent company, Rize ETF, was bought by ARK Invest, who looked to streamline its range.
Earlier in the year, HANetf merged its “no longer viable” $10m Medical Cannabis and Wellness UCITS ETF into the $9m HAN-GINS Indxx Healthcare Megatrend Equal-Weight UCITS ETF.
Meanwhile, the only investment trust in the UK focusing on medical cannabis and CBD changed its name in December 2022 and pivoted away from investing in marijuana.
Greencare Capital trust changed its name to MaxRS Ventures and began focusing on private equity style investing in tech after complaining that the cannabis sector was continuing to “perform poorly”.
So since there aren’t any investment vehicles cultivating a portfolio of cannabis-related stocks, investors have been forced to weed out individual stocks to invest in the sector.
The only large company involved in cannabis production in the UK is FTSE 100 listed Associated British Foods.
The owners of Primark and Kingsmill, the group is surprisingly one of the largest licenced cultivators of cannabis in the UK, due to subsidiary British Sugar signing a deal to provide marijuana for drug development purposes.
The group has since converted about 45 acres of greenhouse space to grow hemp plants.
Looking abroad, American companies like SNDL and Tilray brands are significant players. SNDL is expected to reach over $1bn in revenue next year, though has reported a loss of $115m annually.
Tilray is in a similar spot, forecasting over $800m in revenue this year, along with a $158m loss.
“The opening of the German market and the potential for easier financing access over time could improve conditions for the cannabis industry,” said Saxo’s Garnry.
“However, despite significant price drops in recent years, many cannabis stocks remain expensive, reflecting lofty future expectations. Therefore, investors are advised to conduct thorough due diligence before investing in cannabis stocks.”