BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
May 10, 2018
Cannabis stocks have calmed down lately. But as we approach the anticipated legalization of recreational marijuana in Canada later this year, we expect to see renewed interest in the sector.
Are cannabis stocks expensive? Yes, but much less so than they were at their peaks. Unquestionably, there are risks to investing in a budding industry. More and more entrants are doing similar things and wondering how to set themselves apart – which is quite a challenge given the advertising and branding challenges surrounding the product (similar to tobacco).
Some projections say the legal cannabis industry could reach USD $75 billion in annual sales by 2030, making it potentially larger than the soda pop market1. However, think of this industry, from an investing standpoint, as similar to that of the ‘dot-com’ era. During the late 1990s, there were many investors who rushed to invest in just about any dot-com company regardless of profit prospects (or even revenues!). Any ‘gold-rush’ will quickly bring participants who want to join in, and cannabis will be no different. The wannabes will be numerous, but not everyone can survive. Leaders will continue to emerge from this big melee.
I believe it is not wise to pick stocks at this point. I believe it is potentially a better idea to pick the larger sector, such as through investing in the Horizons Marijuana Life Sciences Index ETF and/or the Horizons Emerging Marijuana Growers Index ETF. Consolidation could make owning some of the smaller players very interesting, while larger players will likely use rich stock values to broaden their reach. Owning a cross-section of the different kinds of businesses that are involved in the industry can help ensure that you participate in a more diversified way. This is a great story that will take years to unfold. In the meantime, there could be some nice green to be made.
You can put that in your pipe and smoke it.
1Source: Cannabis Sales May Surpass Soda by 2030, Bloomberg.com, April 4, 2018.
Is HMMJ Poised to Break Out?
Chart Source: Thomson One, as at May 3, 2018.
The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.