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If you are looking for some moral argument around Cannabis then this isn’t the article for you.   This article will dig into the pros and cons of investing in the new cannabis marketplace.  This has been one of the hottest topics in all forms of media across the nation.  Our neighbor to the north is light-years ahead of the U.S.  Some liken it to the gold rush era of the Wild West.  This market and laws around it move very, very quickly.  This can cause confusion and decisions based on false information.

From private companies to public, there are numerous ones out there to look at and consider.  Investment managers have built portfolios of cannabis companies that are stated to expand diversification and reduce risks.  Sectors of the economy expanding into Cannabis include medical, food and beverage, tobacco, security, transportation, processing, automation, real estate, chemical and fertilizer, and manufacturing. A new world has opened up and embraced Cannabis as a multi-billion-dollar industry to start. 

An investor can directly invest in a cannabis company that cultivates, manufactures, and sells its wares.  Another option is to indirectly invest in the industry through companies that support cannabis producers.  Mentioned earlier, this could be new plastic bags, or the RFID used to track-and-trace that states require.  There is a hub of businesses that are in the business but not in the business.  When building a position or selecting a company to invest in it is important to understand that you may already have exposure through an existing position.  For example, Constellation Brands (STZ), an alcohol company with operations worldwide that produces brands like Corona, Modelo, and Ballast Point, is in the business.  Constellation owns 38% of Canopy Growth, a Canadian Pot Producer.  The same is true for many companies.  It is hard for them not to push into a new high growth area.  After all there are two congressional bills moving through the Hill right now to allow cannabis companies to bank with FDIC institutions and to move it from a Class 1 to a Class 3 drug.  With the illegal becoming legal, a new opportunity has arisen and isn’t likely to go up in smoke.

Take GW Pharmaceuticals (GWPH), a British company known for its multiple sclerosis treatment product Nabiximols, which was the first natural cannabis plant derivative to gain market approval in every country, even ours.  Their latest drug treats pediatric seizures.  Breakthroughs are happening in every facet.   The key is to not jump into any company before you understand what you are buying their price movements. 

Concerns about the cost of cannabis and related products and where it is headed is a risk.  The cost will most likely be driven down and so may be margins as larger producers and market efficiencies occur.  This will force consolidations in the industry and sharp barriers to entry too.  What I have noticed is there is substantial volatility in pricing of these companies.  By being patient, you can pick up what you wish to buy on the dip and you shouldn’t have to wait long to get the opportunity. 

Pot’s passé and Cannabis is open for business.

Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC

For questions or investment topics, please email me [email protected].

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