With Canada legalising the recreational use of cannabis last month, a growing number of investors are asking themselves whether this could be the next growth area for their portfolios.
As of November 2018, recreational marijuana use is legal in Canada, 10 US states, Georgia, South Africa and Uruguay, while medical use is also legal in an additional 29 countries around the world, and 33 US states. At the same time, 62% of Americans support marijuana legalisation
Additionally, global legal marijuana use is projected to reach $23.4 billion in revenue and employ nearly 500,000 people across the US in 2022.
So what opportunities does this present for investors? Keep reading to find out.
Will cannabis hit a new high?
Bullish investors hope that the new Canadian legislation will prompt other countries to legalise recreational marijuana, and further open up investment in the drug.
In fact, earlier this year Constellation Brands (the brewer of Corona beer) invested an additional $4 billion into Canadian cannabis producer Canopy Growth, with plans to create a line of marijuana-infused drinks.
And brewers aren’t the only industry that could benefit from the legalisation of cannabis – as the Boston Globe wrote: ‘Heating, ventilation, and air conditioning mechanics to keep the plants thriving. Security guards to keep watch over the drug — and the cash used to pay for it. Lobbyists to beat back some regulations, and promote others. Scientists to test for contaminants. Chefs who know how to make a delectable marijuana treat.’
Even foodie influencers have discussed whether marijuana could become a regular item on restaurant menus!
With all of this interest, it’s easy to see why many investors are optimistic. However, as with any new market, there is also the possibility that the bubble will burst.
The possibility of market withdrawal
At this point, investments in cannabis company stocks are highly speculative, with many traders seeking to take advantage of the trending optimism while it lasts.
Canadian marijuana producer Tilray, for instance, went public at $17 a share on July 19 and climbed to $300 by September 19, only to close at $107.88 the following week.
Some analystshave also argued that key stock metrics like profitability and the increasing supply of marijuana stocks (which will negatively impact demand) are not being assessed by investors, which is a key sign that the market is experiencing a bubble rather than genuine growth.
How investors can take advantage of the trend
Having said all of this, market volatility provides many opportunities for traders, and those trading share CFDs can profit on both positive and negative market movements.
Additionally, the opportunity isn’t limited to the shares of cannabis companies – savvy investors can also consider other industries that might be impacted by the trend towards legalisation. Just some of the share CFDs that might be influenced by the growing marijuana market include:
- Scotts Miracle-Gro: This gardening products maker has plans to become the top supplier of hydroponics products to the cannabis industry.
- Heineken N.V.: In June, Heineken released a pot-infused sparkling water range, which will benefit from increased legalisation of cannabis.
- Molson Coors Brewing Company: Molson Coors has stated that legal marijuana is a risk factor to its business, and has since started talks to develop their own cannabis-infused beverages.
- Insys Therapeutics Inc: In 2017, Insys Therapeutics received DEA approval to develop synthetic marijuana, so the legalisation of the drug could have a negative effect on their plans.
- Neptune Technologies & Bioressources Inc.: Entered a multi-year agreement with cannabis producer Canopy Growth back in June to supplement the company’s extraction, refinement and product formulation capacity.
However, keep in mind that with increased volatility comes increased risk, so risk management should always be at the forefront of any investment strategy.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.