The rise of cannabis investments

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Across much of the world, you might not be allowed to smoke it recreationally, sell it, or grow it without a license. But opportunities are growing to make money from cannabis.

There’s no longer any doubt that the global cannabis market is seeing explosive growth. Gavels are falling across nations to legalise its use - medicinally if not recreationally. The global legal marijuana market is expected to reach US $73.6 billion by 2027 and compounding annual growth is estimated at 18.1%.

Cannabis has been legal for use in health and science capacities in Australia since 2016, and the UK since 2018. It’s been legal across the board in Canada since 2018. New Zealand is still divided, with ‘legalise’ voters outnumbered by just 2.1%. Even the US is cautiously overturning criminalisation, in 14 states so far, a number likely to increase under a Democrat administration.

Whatever your local laws or personal politics, the way is paved for cannabis stocks to be taken seriously by retail and professional investors alike.  

What are some examples of cannabis stocks?

The so-called ‘green wave’ has made cannabis companies like Canopy (TSX: WEED), Aurora (NYSE: ACB), and Tilray (NASDAQ: TLRY) major stock market contenders.

Canadian company, Canopy is a clear market leader. This is perhaps because it has the most comprehensive plan for expansion, with a view to acquiring 70% of Acreage Holdings (CNSX: ACRG.A.U) as cannabis progresses towards USA-wide legalisation. In the words of CEO David Klein, its existing US infrastructure positions Canopy as a ‘hemp and cannabis powerhouse’. Its market value is estimated at $15 billion.

Another one to watch is Melbourne-based Releaf, which aims to follow in Canopy’s footsteps. The first cannabis franchise group in Australasia, Releaf’s unique business model centres on a more premium and professional cannabis experience. Currently raising funds via STAX, they plan to install 200 branded locations across APAC, South Africa and the UK over the next 5 years, and have an expected revenue of AUD $300m+ by 2025.

Benefits of investing in cannabis stocks

Legalisation is spreading globally. America’s new Democratic administration is likely to herald an increase in ‘green states’. New York, the home of the NYSE and a powerful global influence, is said to be ‘very close on [legalising] marijuana’.  

Scientific evidence is gathering steam. The data dispelling negative beliefs about cannabis and confirming positive ones is becoming difficult to ignore. Despite modern stigmatization, cannabis has been used in pain and disease management and the promotion of wellbeing for millennia. Academically-backed support is emerging for the use of CBD and THC for treatment of psychiatric disorders and as effective analgesics.    

Increasingly popular ETFs. Picking a stock to back in such a new industry can be daunting. Cannabis ETFs are one way to avoid stock-specific risks. YOLO is an actively-managed fund, meaning it can adapt to tumultuous markets with constant rebalancing. POTX focuses more heavily on the pharmaceutical side of the industry.

You don’t need to make international trades though. If you’re looking to keep it local, you can find a list of cannabis-related companies listed on the ASX here.

Are there downsides to investing in cannabis stocks?

Cannabis stocks have not been immune to the impacts of the pandemic. Stemmed cash flows have meant limited development. Lack of access to non-urgent care means fewer prescriptions filled for CBD. However, as vaccinations increase and our global focus on health and wellbeing is renewed, optimism remains strong that the industry will bounce back.

Some market commentators maintain that we won’t see true growth breakthrough until the US legalises at federal level. Although New York as well as states like Connecticut, New Mexico, and Virginia are close to legalising in moves that will no doubt prompt continued reform, this is yet to be seen. There are no guarantees, especially considering the strong protest and religious objection seen in America’s red states.  

As with any stock, due diligence should be done. Consider if the company has a unique proposition, clear execution plan, competent management, and any planned acquisitions.

The cannabis market is still met with varying degrees of humour, scorn, and stigma across the world. But its raison d’être is far bigger than getting people high. The higher design of cannabis research is to address serious diseases and preventable health conditions like multiple sclerosis, seizures, and depression showed incredible results. The world is on the cusp of embracing cannabis.

Cannabis stocks are an increasingly popular way to diversify portfolios across a range of asset classes. Those who have tech or biotech-heavy portfolios may like to add something a bit more bio-based. Those with funds in utilities or minerals may like to hedge their investments with something a little more renewable.

The easy diversification enabled by the STAX platform is one of the biggest draws for our clients. You can browse and compare live campaigns, and manage multiple investments within one singular platform. Click here to see the live opportunities we have waiting.

James Brannan

Director of Operations at STAX

All views, investment or financial opinions expressed are those of the author and do not necessarily reflect the official policy or position of STAX. The information contained in this post is not investment advice or a recommendation to buy or sell any specific security.

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