MR MONEY MAKER: Cash in on cannabis craze

What’s happening? 

I can almost hear the ‘harrumphing’ from the shires that we are even considering the possibility of investing in marijuana. However, the fact is we can invest. What we need to consider is whether we should. 

There are two categories of cannabis products. First, there is medical marijuana. Currently this is broadly legal in 35 US states, with New Jersey shortly to be added. Additionally, you can include more than 30 further countries. Typically this would be by prescription only for the treatment of anxiety, depression, pain and stress. 

Secondly, there is recreational marijuana. So far 15 US states have legalised it for adult use, including the political centre that is the District of Columbia. It has been legal in Canada since October 2018 and in Uruguay since 2014.

Why Does It Matter? 

Simply, this is a relatively new investment area with known demand, limited current capacity and some interesting opportunities. We should split this market into three areas to better understand the businesses. 

One segment is composed of the cannabis growers and retailers. Another is made up of the biotechs that develop drugs. Then finally there are the companies providing ancillary products and services. These companies support growers with products and services such as hydroponics – growing plants without soil – and lighting systems. 

What Should I Do? 

The global market for the legal cannabis trade is valued at £13bn and growing. One sign of growing interest was the $7.2bn takeover of British-based GW Pharma, which makes cannabis-based medical treatments, by rival Jazz Pharmaceuticals. 

The sector is certainly fashionable. David Beckham’s company, DB Ventures, has a stake in Cellular Goods, a cannabinoids company whose initial public offering was 13 times over-subscribed. 

Others will follow and some of them will go up in smoke – but that goes with the product, I suppose. Please remember that this year’s fashion fad is next year’s tank top. This shows all the signs of a sector which will attract some very high risk and low quality businesses. 

Any Suggestions?

One company to consider is Canopy Growth, listed on the NASDAQ market in the US, which has grown successfully, operating through well-regarded brands. 

Then back here there is MGC Pharmaceuticals, a medicinal cannabis company. Its areas of scientific interest lie in developing treatments for epilepsy, Alzheimer’s and Covid-19-infected patients. 

The share price is up 180 per cent since listing in London recently, but it would seem to have longer term attractions as it builds credibility ahead of the competition. 

For a less risky approach there are now a couple of London-listed exchange-traded funds, Rize Medical Cannabis & Life Sciences ETF and Medical Cannabis and Wellness ETF although both have jumped 50 per cent and 46 per cent respectively so far this year. High risk, high return – or maybe just high? 

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.