HOW TO INVEST IN CANNABIS IN THE UK

4 Ways to Invest in Cannabis Assets

There are four primary ways to invest in cannabis assets. Although all four ultimately involve investing in stocks, the investment vehicles and level of diversification vary.

Stock Picking

Stock picking is when investors select cannabis assets they believe are suitable investments. This involves predicting whether the asset's price will rise or if it will generate significant returns in the future. Stock picking can be challenging because determining an asset's future performance is difficult. Stock picking differs from passive investment management, where investors buy a passively managed cannabis-focused ETF or Mutual Fund.

Stock picking is the most common way for investors to begin investing in cannabis assets. They might say things like, "I want to buy shares of a prominent cannabis company," or "I've heard that the price of XYZ cannabis stock will increase significantly once certain conditions are met."

Charlie Munger, a legendary investor and Warren Buffett's partner at Berkshire Hathaway, wrote "The Art of Stock Picking." He advocates for this approach, arguing that while diversification may decrease portfolio risk, it is impossible to beat the market's performance consistently. Munger's strategy is to select a few cannabis companies he believes in, buy their stocks, and hold onto them for an extended period.

To contrast Munger's investment strategy, another renowned investor, Carl Icahn, has said:

"My investment philosophy, generally, with exceptions, is to buy something when no one wants it."

As a contrarian investor, Icahn identifies cannabis companies with stock prices that reflect poor financial indicators, such as low price-to-earnings (P/E) ratios or book values that exceed the present market valuation.

He then aggressively purchases a significant number of shares in the company and either pushes for the election of an entirely new board of directors or sells the company's unprofitable assets to deliver more value to shareholders.

As you can see, there are different (and contrarian) ways of investing through stock picking. Stock picking is, in essence, the purest form of investing in cannabis assets, but it is not the only one.

Which cannabis stocks are popular?

Some popular cannabis assets include shares of prominent cannabis companies; the following is a list of the most traded ones. Please note that this list is not exhaustive, and popularity may vary.

1. Canopy Growth Corporation (trades at the NY Stock Exchange under the code: CGC): Canopy Growth is one of the largest cannabis companies globally. They specialise in cultivating, producing, and selling medical and recreational cannabis products. With a diverse portfolio of brands, including Tweed and Spectrum Therapeutics, Canopy Growth is known for its innovation and strategic partnerships within the cannabis industry.

2. Aurora Cannabis Inc. (NASDAQ: ACB): Aurora Cannabis is a Canadian-based company that produces and distributes medical and recreational cannabis products. They operate a vertically integrated business model, focusing on cultivating, extracting, and distributing cannabis products worldwide. Aurora is recognised for its extensive production capacity and broad product offerings.

3. Tilray, Inc. (NASDAQ: TLRY): Tilray is a global cannabis company that manufactures, processes, and distributes medical and adult-use cannabis products. They have various brands and products catering to various consumer preferences. Tilray also emphasises research and development initiatives to advance cannabis-based treatments.

4. Cronos Group Inc. (NASDAQ: CRON): Cronos Group is a vertically integrated cannabis company cultivating, producing, and distributing cannabis and hemp-derived products. They focus on developing brands and partnerships to expand their market reach. Cronos Group also invests in innovative cannabis research and technology to drive industry growth.

5. Aphria Inc. (NASDAQ: APHA): Aphria is a Canadian cannabis company that produces and distributes medical and recreational cannabis products. They offer diverse brands and products, targeting domestic and international markets. Aphria is known for its strong cultivation capabilities and strategic acquisitions.

6. HEXO Corp. (NYSE: HEXO): HEXO is a leading cannabis producer based in Canada. They focus on cultivating, manufacturing, and distributing a wide range of cannabis products, including dried flowers, oils, edibles, and beverages. HEXO prioritises innovation and sustainability and aims to provide consistent cannabis experiences.

7. GW Pharmaceuticals plc (NASDAQ: GWPH): GW Pharmaceuticals is a UK-based biopharmaceutical company specialising in developing cannabinoid-based prescription medicines. Their flagship product, Epidiolex, is an FDA-approved medication used to treat certain forms of epilepsy. GW Pharmaceuticals is dedicated to advancing the therapeutic potential of cannabis-based treatments.

8. Green Thumb Industries Inc. (CNSX: GTII, OTCMKTS: GTBIF): Green Thumb Industries (GTI) is a US-based cannabis company that operates a vertically integrated business model. They cultivate, process, and distribute a wide range of cannabis products across multiple states in the US. GTI's brand portfolio includes famous names such as Rhythm, Dogwalkers, and Beboe.

9. Curaleaf Holdings, Inc. (CNSX: CURA, OTCMKTS: CURLF): Curaleaf is a leading vertically integrated cannabis company in the US. They operate in multiple states, offering various cannabis products, including flowers, concentrates, edibles, and topicals. Curaleaf focuses on providing high-quality products and expanding its retail footprint across key markets.

10. Trulieve Cannabis Corp. (CNSX: TRUL, OTCMKTS: TCNNF): Trulieve is a US-based cannabis company known for its dominant presence in Florida. They cultivate and produce a wide range of cannabis products, serving medical and recreational consumers. Trulieve operates a network of dispensaries and prioritises customer-centric experiences and product innovation.

11. Organigram Holdings Inc. (NASDAQ: OGI): Organigram is a Canadian cannabis producer specialising in cultivating and producing high-quality cannabis products. They offer a variety of dried flowers, oils, and edibles catering to medical and adult-use markets. Organigram focuses on sustainable growing practices and product innovation.

12. Village Farms International, Inc. (NASDAQ: VFF): Village Farms is a global agricultural company diversified into cannabis production. Through its subsidiary, Pure Sunfarms, Village Farms cultivates cannabis products for the Canadian market. They leverage their expertise in large-scale greenhouse growing to produce high-quality cannabis at competitive prices.

Exchange-Traded Funds

Another way to invest in cannabis assets is through diversified investment vehicles like exchange-traded funds (ETFs).

ETFs are investment funds that typically hold a portfolio of cannabis stocks, bonds, or a combination of assets. The portfolios can be index-based, such as tracking the Cannabis Stock Index (representing the top cannabis companies by market capitalization) or focusing on specific sectors or industries within the cannabis market.

ETFs differ from traditional mutual funds because they trade on the stock exchange like individual stocks. They can be bought and sold throughout the trading day at market prices.

In recent years, cannabis-focused ETFs have gained popularity due to their low costs, tax efficiency, and ease of trading. Like mutual funds, ETFs offer investors diversified exposure to various cannabis assets, including stocks of cannabis companies.

Which cannabis ETFs are popular?

If you want broad exposure to the cannabis market, you can invest in an ETF that tracks the Cannabis Stock Index (more information later). Some popular cannabis ETF providers include:

1. ETFMG Alternative Harvest ETF (NYSEARCA: MJ): The ETFMG Alternative Harvest ETF was the first and remains one of the largest cannabis-focused ETFs. It offers exposure to a diversified portfolio of global companies engaged in the legal cultivation, production, and distribution of cannabis products. MJ tracks the Prime Alternative Harvest Index.

2. AdvisorShares Pure Cannabis ETF (NYSEARCA: YOLO): The AdvisorShares Pure Cannabis ETF aims to provide exposure to the global cannabis industry. It invests in companies across various segments, including cultivation, manufacturing, and distribution. YOLO seeks long-term capital appreciation and tracks the AdvisorShares Pure Cannabis Index.

3. Global X Cannabis ETF (NASDAQ: POTX): The Global X Cannabis ETF focuses on companies involved in the legal production, growth, and distribution of cannabis and hemp-derived products globally. POTX provides targeted exposure to the cannabis industry, tracking the Cannabis Index from the Indxx.

4. Amplify Seymour Cannabis ETF (NYSEARCA: CNBS): The Amplify Seymour Cannabis ETF seeks to invest in companies across the cannabis ecosystem. It targets cannabis cultivators, retailers, extractors, and other supporting businesses. CNBS aims to provide exposure to the overall performance of the global cannabis industry.

5. The Cannabis ETF (NYSEARCA: THCX): The Cannabis ETF provides exposure to a diversified basket of global cannabis companies. It aims to track the Innovation Labs Cannabis Index, which includes companies across various segments, such as cannabis cultivation, extraction, and ancillary services.

6. Cambria Cannabis ETF (NYSEARCA: TOKE): The Cambria Cannabis ETF focuses on the global cannabis industry, targeting companies engaged in cannabis-related biotechnology, cultivation, and retail. TOKE follows the Cambria Global Cannabis Index.

Mutual Funds

Investors can buy and sell mutual funds directly from a company at the fund's net asset value (NAV), calculated at the end of each trading day. Like ETFs, mutual funds are portfolios that invest in a mix of cannabis stocks, bonds, or other assets based on a predefined investment strategy.

One significant difference between ETFs and mutual funds is that mutual fund portfolios are usually actively managed and not based on an index. The fund's management team makes the investment decisions according to the fund's strategy. Therefore, investing in mutual funds can provide exposure to cannabis assets if the fund's strategy includes such investments.

Indexes

Several indexes represent the cannabis market, but let's focus on the Cannabis Stock Index. The Cannabis Stock Index comprises the top cannabis companies listed on various stock exchanges by market capitalisation. It provides a broad representation of the cannabis industry's leading businesses. The index differs from other financial market indices, such as the S&P 500, in terms of the size and composition of its constituents.

It is considered a vital indicator of the cannabis industry's performance. Investing in a financial instrument replicating the Cannabis Stock Index can gain exposure to a significant portion of the cannabis industry through the shares of its most prominent companies.

Bottom line: There are various ways to invest in cannabis assets, ranging from individual stock picking (e.g., "Buying shares of a prominent cannabis company") to more diversified approaches (e.g., purchasing a cannabis-focused ETF or mutual fund).