Now that eight of these United States permit recreational cannabis use and over half of them allow it for medical purposes, investment opportunities abound with pot stocks.
Few industries have boomed as much as that of cannabis. Sales in North America are estimated to have grown by 34 percent. The investment firm, Cowen & Co, foretold $50bn of sales by 2026 – a growth of over 23 percent a year. In under four years, stock in GW Pharmaceuticals, purveyor of cannabinoid-based medicaments, has risen by almost 1,300 percent; this company is valued in excess of $3bn, making it the largest pot stock.
OK, so there’s reason to be cautious
Most of the dozens of companies that are pot stocks are mom-and-pop businesses and very small. They are risky and sometimes downright fraudulent: recently, the Securities and Exchange Commission complained that sham revenue had been booked by a Californian entity which claimed to be a leader in the industry. $12 million of penalties was coughed up, almost thrice the company’s market capitalisation.
Many pot stocks are for firms which don’t deal with the drug itself but supply goods and services to those that do. Examples are lawn-care product maker Scotts Miracle-Grow and Innovative Industrial Properties, which purchases buildings and leases them to companies that grow medical marijuana. The (Strilyan) Hydroponics Co Ltd manufactures lighting rigs and glasshouses, and its share sale is almost three times oversubscribed; it will have the ticker THC.
What about the guvverment?
US pot stocks have little access to financial institutions, which report to the federal government, whose disapproval of cannabis is well-known, so providing a bank account or loan could be seen as money laundering. So they deal purely in cash, making security an issue and inhibiting growth.
Gallup found that most US citizens – 60 percent – believe cannabis should be legalised, compared to 25 percent in 1995. Republicans are less so inclined – only 42 percent. Views are softening, but with Republicans in charge of Congress, progress will be slow. US Attorney General Jeff Sessions opposes the cannabis industry strongly, not seeing it as a cure for the opioid epidemic afflicting his nation. The Drug Enforcement Agency also disapproves and declined to change the status of cannabis from a schedule 1 substance, citing a lack of data regarding clinical benefits and safety, but trials are difficult while cannabis is schedule 1.
The good news
But it is possible to get rich from cannabis. In 2016, the value of the Sydney-based Tribeca Global Natural Resources Fund increased by 145 percent, making it the best-performing hedge fund in the world. 22 percent of the gain was from North American marijuana producers. Two were the medical marijuana producers, Aurora Cannabis Inc and Canopy Growth Corp, whose stock tripled in 2016. Ben Cleary, one of the fund’s two managers, is unfazed by the attitude of the US government because the relevant laws are state-level and “People have voted with their feet at the ballot box.” But with finance so hard to come by and the prevalence of mom-and-pop enterprises, the industry is “prime for consolidation.”