Cannabis has historically not been closely associated with reliability and steadfastness, but coronavirus has highlighted the newfound durability of the herb's demand and supply chain.
What has also become clear, is that many investors still seem to need to be educated on the difference between medical cannabis and smoking weed.
When the outbreak spread west and from late February and throughout March governments began enforcing a lockdown of businesses around the world, cannabis was of the industries that was declared an “essential business” to stay open in all Canadian provinces and 21 US states during the shutdown.
Across Canada and in that large handful of American states, marijuana is legally allowed for medical or adult use, meaning cannabis operators and the whole supply chain was deemed an essential service, allowing for producers and dispensaries to remain open even as the majority of the retail economy are shuttered.
Cannabis investment pricing
This event was a “watershed moment” for the industry, say analysts at HANetf, and is part of what has been a critical few weeks for cannabis as an investment.
The huge stresses that have been put on financial markets are pretty much unprecedented — while the medical marijuana and wellbeing industry as it currently exists had never been through such an experience before.
Investors and the financial side of the industry have in the past couple years been dragged like a rag doll through what the HANetf analysts call a “price-discovery phase” for the sector after it became legalised and regulated, with rocketing valuations and rapid discounts providing an unwanted association with volatility and speculation.
While stock markets around the globe collapsed, with cannabis stocks not escaping the carnage, the analysts said a “silver lining” from the pandemic has been “the importance placed upon medical cannabis being available to patients […] showing solid support from regulators of the definitive future of the medical cannabis industry”.
“This silver lining has defined what we believe to be the valuation floor for medical cannabis,” the analysts said.
While headlines were made by bankruptcies in the Canadian adult-use cannabis sector, ie weed smokers, the Medical Cannabis and Wellness UCITS ETF (LON:CBDX) is not focused on this area of the market.
The ETF, which was Europe's first exchange-traded product focused on medical cannabis when HANetf launched it in January, is made up of companies working in the medical cannabis, hemp and CBD industries, including producers and suppliers of legal medical cannabis, biotechnology companies that are engaged in research and development of cannabinoids and other legal tertiary companies.
“For medical cannabis and CBD wellness, the support of regulatory bodies in providing access to patients is the affirmation investors have been awaiting to finally start believing the secular story again,” the analysts said.
Looking at the outlook for the ETF and the sector, the analysts acknowledge that macro headwinds will define the future of cannabis operators.
“We anticipate lots of bankruptcy noise to take over headlines and the media will continue to milk ‘fall from grace’ of cannabis.
“We think it is important to distinguish between the challenges facing medical cannabis and adult use cannabis.
“Canadian adult use market has seen valuations fall precipitously as too much capital was applied too fast and this has meant excess capacity, exuberant compensation packages and led to lack of long-term foresight.
“The medical cannabis market continues to have much more stable patient growth and consistent progress in pharmaceutical formulation.”
There is likely to be more attention on the industry on Monday, 20 April, which is a significant and rare occasion when the interests of sensible investors and stoners may collide.
While cannabis has been cultivated as a medicinal herb for more than 5,000 years, the date of 4/20 has been embraced as a celebration in US counterculture since the 1970s and has since spreading across the globe as World Cannabis Day (although Rastafarians see the following day as the true celebration as 21 April was the date in 1966 when emperor Haile Selassie returned to Jamaica).
With the UK last month joining an increasing number of countries and easing import restrictions for medical cannabis, its clear that the industry is growing in prominence and is worth looking at, whatever your religion or investment strategy.