The pros and cons of investing in cannabis stocks
Can you invest in marijuana and avoid a comedown? We take a look at cannabis stocks
- Investing in cannabis stocks
- Should I invest in cannabis?
- Cannabis industry stocks: what are the best to invest in?
- Global cannabis investment: marijuana stocks to buy
- Cannabis ETFs
- Should I invest in weed stocks?
- Why you might want to avoid them
Cannabis is one of the fastest-growing industries in the world, a growth likely to accelerate if US President Joe Biden delivers on a campaign pledge made when he stood as a candidate to look into federal marijuana reform, and bring it into line with existing state laws.
The cannabis research company BDSA projects that by 2026 the global cannabis market will be worth $55.9bn, growing at a annual growth rate of more than 17% until then.
But before you consider investing in cannabis, you need to be aware that there still is a high chance you may lose all the money you have invested.
Currency.com spoke to five UK-based investment advisers, all of whom urged investors to steer clear of cannabis-related investments.
Two agreed to speak to us. Neither wanted to be named. One said: “Because cannabis is not entirely legal, there remain concerns around this as an investable asset. It’s not to say you shouldn’t invest, it’s just I wouldn’t recommend my clients do so, at this moment in time.”
Another said: “If you invest in this sector, be prepared to lose all your money, so if you get it back, then that’s a bonus. We are keeping an eye on it, but we are telling our clients to avoid it for now.”
Investing in cannabis stocks
In the US, 18 states and Washington, DC have legalised marijuana for medical and recreational purposes, while another 18 states have done so for medical purposes only.
Canada is the world’s largest cannabis market. The cannabis flower was legalised there in 2018 and cannabis derivatives were made legal in 2019.
There are at least five other countries where it is legal, while the UK government legalised the use of medical cannabis in 2018.
Should I invest in cannabis?
While some cannabis-related stocks have done well, as the billionaire investor Warren Buffett, founder of Berkshire Hathaway, points out, even the most promising investments can often fall flat. Buffett advises all investors to do their research thoroughly before buying into a company.
More and more countries are opting to legalise cannabis, even so cannabis has been used medicinally for thousands of years.
Also known as “weed” or “pot”, cannabis is famous for its psychoactive benefits, but in recent years scientists have isolated its medicinal benefits, this means it can be used therapeutically without any side effects.
In the US, pressure to legalise cannabis has been driven by evidence that medicinal use of the drug could help wean millions of Americans off opioids – in 2019. 50,000 people are estimated to have died from opioid addiction in the US.
Healing the US of excessive use of presciptive opioids is already helping create business opportunities for the manufacturers of both pure cannabis (for medicinal purposes) and cannabis-derived pharmaceuticals.
According to Harvard Medical School, there are hundreds of cannabinoids contained within the cannabis plant, one of which is cannabidiol, known as CBD.
CBD does not bind tightly to the CB1 and CB2 nerve receptors in the brain, so does not produce the psychoactive effects associated with cannabis. However, it is reputed to have medicinal effects. Products containing CBD include topicals, used for dermatitis, eczema, psoriasis, acne, insect bites, burns, rashes, pain relief, epilepsy and inflammation.
CBD oils are used for mood alteration and form many of the self-medication uses described above.
Cannabis industry stocks: what are the best to invest in?
There are many routes into cannabis stocks. You may be inadvertantly investing in cannabis stocks already, as some large companies have been using CBD in their products. Or you could chose a “pure play stock” or perhaps an exchange traded fund (ETF).
Let us take a look at some of the companies that are leaders in the cannabis space.
Pure play cannabis stocks to buy or watch (UK)
Kanabo. This company develops medical treatment products, such as vaporisers, and a range of non-smoking "consumption solutions". Kanabo was the second medical cannabis company to list on the London Stock Exchange, in February 2021. By mid-afternoon on 16 July in London, Kanabo was trading at 16.27p.
Cellular Goods, is a consumer cannabinoid company, and has been marketed by the former England football player David Beckham. It manufactures cannabidiol (CBD) wellness products which claim to help inflammation and protect the skin. By mid-afternoon on 16 July in London, Cellular Goods was trading at 6.97p.
GW Pharmaceuticals has become a global leader in cannabis treatments since listing on the London-based AIM in in 2001. In the UK its product, Epidiolex, is used to treat severe forms of epilepsy. GW is a member of the Nasdaq Index in New York, which it joined in 2013. It is worth more than $6bn, and according to the spread betting specialist IG, the company is larger than the main North American cannabis stocks, such as Aurora or Tilray. By mid-afternoon on 16 July in London, GW Pharmaceuticals was trading at $219.01.
Associated British Foods is better known as the owner of Primark, but it is a very diverse company and the owner of a variety of agricultural and ingredients businesses, and one of the UK’s largest producers of legal cannabis. The company now produces cannabis in Norfolk, which is supplied to GW Pharmaceuticals to make its CBD-based medical treatments, specifically Epidiolex. By mid-afternoon on 16 July in London, Associated British Foods was trading at £20.39.
Futura Medical specialises in producing gels and creams used to deliver medicinal treatments through the skin. In 2019, it entered into a established a joint venture with CBDerma Technology to explore how its transdermal system could be used to make cannabis-based products for patients. By mid-afternoon on 16 July in London, Futura Medical was trading at 40.76p.
Global cannabis investment: marijuana stocks to buy
If you are prepared to take a risk then you might want to consider buying into a cannabis company. We have listed some of the world's largest cannabis stocks. This list is not exhaustive and you will need to do your research first.
GW Pharmaceuticals (GWP)
Innovative Industrial Properties (IIPR)
The Green Organic Dutchman (TGOD)
MediPharm Labs (LABS)
Tom Bailey, ETFs editor at Interactive Investor, said: “Cannabis use and possession remains illegal in the UK. However, it is not illegal to invest in companies that are involved in the medical use and sale of cannabis, provided it is in line with local laws.”
ETFs are used by investors to spread their risk, by tracking the movement of an index rather than individual stocks.
Bailey says the ETFs mentioned below have been approved by the UK’s Financial Conduct Authority and have been allowed to list on the London Stock Exchange (LSE), alongside other legal cannabis related investments.
He said for UK investors there are two main options. The Rize Medical Cannabis & Life Sci ETF (LSE:FLWR), which charges 0.65% to track the Foxberry Medical Cannabis & Life Sciences USD Net Total Return Index.
Alternatively, the Medical Cannabis and Wellness ETF (LSE:CBDX) tracks the Solactive Medical Cannabis and Wellness Equity Index, with an ongoing charge of 0.8%.
Should I invest in weed stocks?
Any investment comes with a risk. If you are investing for the long term or the short term you have to be prepared to lose your capital. Here are some reasons why you might want to invest in cannabis stocks.
Why you might want to avoid them
There are also a number of good reasons not to invest in the sector