Is it time to invest in cannabis?

As the legality of cannabis starts to change, can it be considered an investment opportunity?

Article updated: 15 January 2019 10:00am Author: Michael Baxter

Cannabis used for recreational purposes is illegal in the UK, but components of the cannabis plant, which collectively are known as CBD or Cannabidiol, are not, or at least they can be legal. It is also legal for medical uses, up to a point. But in certain parts of the world, such as California and Canada, it is legal even for recreational use. So is it time to invest in cannabis?

To start with, I am giving two warnings. First warning: if you are hoping to come across lots of puns about investors being high on bubble stocks, or something similar, then you will be disappointed. I thought that would be too easy. No legal high jokes today.

Second warning is a tad more serious: there has been a lot of hype in this business, and some stocks look massively overvalued. This is exacerbated by passive funds that have moved into this space, spreading their investment across a large number of cannabis players, some good, others little better than Ponzi schemes. As a result, some companies are grossly overvalued. If you are considering investing in cannabis, I would say, do your research.

The legal arguments

For what it’s worth, as far as the arguments for legalising cannabis are concerned, I sit, rather uncomfortably, on one of those fences. One of the arguments made in favour of legalising cannabis is that it is no worse for you than tobacco or alcohol. Speaking as someone who is anti-smoking, that argument does not cut much ice with me. Making tobacco illegal is not practical, but I am pretty sure that if smoking was only just discovered, but we knew about the health risks, it would never be made legal. As for alcohol, well I am afraid I am a hypocrite. I like it too much to countenance it being made illegal. I gather there are issues regarding cannabis and how it can affect the mental health of some users.

Be that as it may, recreational use of cannabis is legal in certain pockets of the world, for example California and 12 other US states, as well as in Canada and Uruguay. There is limited enforcement in Holland and Spain.

Regarding medical use in the UK, the debate came to a head when Billy Caldwell, a 12 year-old boy had his cannabis based medication, used to treat his epilepsy, confiscated at Heathrow airport.

In November 2018, the medical use of cannabis was legalised in the UK, but there is ambiguity over the definition of medical use.

Then there is Cannabidiol, or CBD, a cannabis derivative compound that theoretically does not contain the elements of cannabis known as THC that make you high. As I understand it, many CBD products do contain some THC, the key lies with how much. I understand that for a CBD product to be legal, it cannot contain more than 0.2 per cent THC. For some reason, I think of a can of shandy; every time I buy a can of shandy from my local chip shop the bloke there asks if I am driving, a very well worn out joke. I guess, anyone who tried to get drunk by drinking shandy from cans would feel ill long before the alcohol had reached levels that would disqualify you from driving. I guess, it is much the same for legal CBD products.

Investing

Canada is where the big bucks lie, but this industry is very risky; many Canadian companies look seriously overvalued to me.

If you want to delve into investing in cannabis, do your research, look for companies with solid management and which publish their results on time. Diversify, but not too much, there are a limited number of companies worth serious consideration. The majority of the companies listed below can be purchased through The Share Centre, upon completion of a W-8BEN form for US investing.

For medical use of cannabis, the leading player is British: GW Pharmaceuticals, listed on the NASDAQ, with a market cap of $3.6 billion.

Companies that farm marijuana include Canopy Growth Corporation, Aurora Cannabis, Tilray, Aphria, MedMen Enterprises, Cronos, and the Green Organic Dutchman. All are valued at over a billion dollars, or at least were back in October. Most are Canadian companies.

Two other UK companies, which invest in companies that produce cannabis products for medical use, are Sativa Investments and Anando Developments. Both are listed on the NEX Exchange and are relatively small. Anando recently raised just shy of a million pounds, Sativa is worth around £29 million.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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