I’m often asked what I think about investing in the rapidly expanding cannabis stock markets. My response is the same as what you’d get if you asked a dog for his take on the intricacies of German biodynamic farming—near zero comprehension, evidenced by a tilting of the head, and possibly licking the face of the person asking the question. (This ensures I am only ever asked for advice once.)
This isn’t to say I don’t understand how stocks work, but it also isn’t to say that I have a full and complete grasp of the turbulent cannabis stock markets, either. If I did, do you think I would continue to toil away at this column? Investing requires allocating a portion of income that, if lost, won’t negatively impact the investor. No one who works in the independent newspaper industry meets that criterion.
But for those of you who’ve made better career choices and do have the resources, it can certainly seem like investing your money in weed is all the rage. This is supported by the vast number of not-at-all-maddening online ads that pop up screaming, “Investing in this cannabis stock is like buying Amazon at $1.80 per share!” Great, because my investment fund this month is exactly $1.80, once I return these cans!
Among the many, many things I am not is a financial advisor, so don’t blame me if you lose your shirt, but do thank me, with cash, if you make big money.
Per Investopedia , “Global spending on legal cannabis is expected to grow 230 percent to $32 billion in 2020 as compared to $9.5 [billion] in 2017.” This research puts almost three-quarters of that amount coming from the US. There’s also something called the United States Marijuana Index, which, as of June 29, 2018, had gained 71.49 percent over the past year. Comparatively, Standard & Poor’s 500 have seen only a 12 percent gain.
Although 10 states and the District of Columbia have recreational cannabis programs, and 33 other states have medical programs, the feds still haven’t descheduled or rescheduled cannabis. That means cannabis grown in one state must remain in that state, full-service banking for businesses in the industry is still virtually unobtainable, and rules and regulations add both hassle and tremendous costs to producers. No other commodity listed on the stock exchanges has this burden.
2018 saw the New York Stock Exchange (NYSE) and NASDAQ both listing cannabis stocks for the first time. Numerous cannabis “penny stocks” are traded on Over the Counter (OTC) markets. OTC stocks have disclosures and filing requirements that are far less stringent than other markets. That isn’t an indictment of their legitimacy, but without more detailed investor information and disclosure of stocks found on other exchanges, the risks are higher.
The two Canadian stock exchanges—the larger Toronto Stock Exchange (TSX) and the Canadian Securities Exchange (CSE)—list cannabis companies, although only the CSE lists companies based in the US. The combined valuation of the Canadian cannabis stocks listed on TSX exceeds $20 billion, while the CSE has approximately 60 cannabis stocks, many US-based, with a valuation of those US stocks totaling $230 million.
Cannabis stocks cover three main types of businesses: companies that grow cannabis, biotech companies that develop cannabis-derived drugs, and ancillary services and products such as growing and product management systems. If the idea of investing in growers sounds too risky, consider companies that are hands-off the growing itself.
Ontario-based cannabis company Aphria is a powerhouse: third in size based on production, and fourth largest in terms of market value. It was a recommended “buy” until recently, when a short sellers report by Quintessential Capital Management and Hindenburg Research sent the stock plunging 25 percent in one day on accusations of recently acquired assets being considered “largely worthless” and controlled by “insiders.” Do your homework before investing in anything.