Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
When you hear the word cannabis, you might think of a criminalised drug that allows you to get high. However, in recent decades legalised cannabis is being viewed as a new and exciting investment opportunity. Why? Primarily, because the cannabis market is worldwide and there is an array of uses for cannabis. Moreover, countries, like Canada, are legally selling cannabis with great success.
For those who do not know, cannabis has two strands. Indica and Sativa. The Indica side produces Marijuana with high (> 0.3%) Tetrahydrocannabinol (THC), which causes the narcotic effect. Whereas, the Sativa side produces both Marijuana with high THC but also Hemp. Hemp has less than 0.3% THC. Marijuana with high THC has recreational/medicinal purposes. Hemp has industrial purposes.
The cannabis market has different segments. These include cultivation, testing, medicinal, recreational, and Industrial, to name a few.
Cultivating cannabis involves growing the plant. Cannabis can be grown either outside or inside big warehouses. Cannabis warehouses use artificial lighting to grow the plant. Thus, lighting companies could be a potential investment. Second, to that, fertiliser and seeds are needed to grow cannabis. Seed manufacturers could also be an investment.
Cannabis also has medicinal purposes. These can include treating chronic pain to calming seizures to even reducing arthritis pain. Medical practices would use cannabis to treat illnesses through cannabidiol (CBD), edibles, and even lotion.
Recreational cannabis involves your local corner shop such as a café selling loose leaf cannabis or edibles.
Companies who sell medicinal/ recreational cannabis must label what chemicals are inside. Primarily because patients, doctors, and consumers want to understand what is inside their cannabis. Thus, making cannabis testing companies an unapparent but an attractive investment.
Furthermore, the Hemp side of cannabis opens an industrial market. Hemp can be used to create rope, fuel, food (milk, flour the seeds themselves) and even clothing. Therefore, with Hemp having an abundance of industrial use Hemp companies are one to watch.
The Hemp, medicinal, and recreational cannabis markets are all exposed to universal risks. Firstly, all cannabis markets depend on the political environment. Legislation is macro, meaning these cannabis companies cannot change the law to give them the green light. Cannabis companies need federal legislation passed to have a license to cultivate, sell, or medically administer. State laws alone will not be enough, as seen with the ACT, but will push the trend towards federal. Secondly, the effectiveness of cannabis must be shown to the community. Luckily, with countries like Canada, America, and Malaysia legalising and medically administering cannabis, Australia can use their results as evidence.
Investors must realise that irrespective of which segment you invest in, the cannabis market is NOT a lottery ticket to get rich quick. Instead, investors could take a long term or intermediate investment approach however individual research is advised.
The cannabis market is not just a significant trend but also a permanent shift in our lives. Meaning that in decades to come the cannabis market will still exist but be more integrated into society. Therefore, investors should look to invest in stable cannabis companies. Primarily, because in the long term, within the decade, cannabis investors may be able to cash in on eye-watering returns if the market remains open to legalising cannabis – (Long term investing strategy).
The second strategy is what we call ‘riding the waves.’ In each segment, events will occur that create a surge in the stock price. These events (waves) act as a catalyst for stock growth. For example, if a government legalises the retail of recreational cannabis or a clinical trial for medicinal cannabis proves positive, then the stock price will skyrocket. Therefore, investors should look for penny stocks, buy, ride the wave, sell, then enjoy the smooth swim to capital gains. Extensive individual research is needed.
To conclude, this introduction into the cannabis market might have been a mouthful for some. However, we here at YIG will be creating a series for recreational cannabis, medicinal cannabis and, HEMP cannabis. Each series will include a breakdown of promising stocks within each segment and the critical macro (global and domestic) events. Ultimately, giving investors an edge in the global and surging cannabis market.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin , associate of YIG.