Should you invest in cannabis stocks? We look at the pros and cons

In March, Alphagreen Group, which claims to own Europe’s largest consumer marketplace for legally certified cannabis (CBD cannabidiol) products, secured £500,000 in its first equity funding round.

Several tech angel investors were behind the deal alongside cannabis-focused investment company Enexis AB, which has backed several cannabis industry businesses in the past.

While some angel investors and investment companies have invested in the CBD industry, is it a good idea for amateur investors to get in on the game as well?

Legal: CBD use in Britain was legalised in November 2018 – smoking cannabis is still illegal

Six million people in the UK have tried CBD, according to claims by the Centre for Medicinal Cannabis and its report for 2019.

This year has seen a particular acceleration in CBD product use as lockdown has resulted in many suffering from stress and anxiety, the industry also claims.

CBD is a chemical compound found in cannabis. Unlike the illegal form of marijuana, it doesn’t contain tetrahydrocannabinol (THC) – this is responsible for the ‘high’ from the plant. CBD is marketed as having health and wellness benefits.

The CMC says almost 90 per cent of users purchase CBD online in Britain. 

Sales already outstrip those of Vitamin C with €336m (£301million) versus €133m (£119.22million) respectively, according to the statistics from CMC.

Going green – George Vincent director of Handpicked CBD says he’s seen record sales of CBD products during lockdown

CBD retailer, HandpickedCBD.com, says it’s seen record online sales of CBD in May. 

Sales in that month were 125 per cent higher than in February and website traffic has shot up by 67 per cent since lockdown began in March.

George Vincent, director of Handpicked CBD, says: ‘While CBD sales have been soaring since the country went into lockdown, this nascent market was already seeing exciting growth before Covid-19 struck.

‘A great deal has been written about the benefits of using CBD with many advocates using it to help relieve stress and anxiety.

‘And that could explain why sales have been so strong during April and May, as large swathes of the country have been house-bound, and stress levels may well be at breaking point.

‘CBD is one of the most exciting products to enter the wellness market in years and we expect to see rapid growth in the next few years.’

Potential for the CBD market

Cannabis was legalised for medicinal purposes on 1 November 2018 in Britain, while recreational use of cannabis is still illegal.

Surprisingly, only around 153 prescriptions have been issued in England since medicinal use was legalised according to global consultancy Prohibition Partners. 

It says patient access has been mired by limited specialists able to prescribe the medicine.

Promotion of medical cannabis has also been hampered by the lack of clinical evidence showing cannabis’ effectiveness in treating various conditions, including chronic pain.

It is estimated that 7.3m people use CBD in the UK every year and more companies are listing on exchanges with cannabis as their core offering

But there are promising signs that this will change. Prohibition Partners points out that more clinical trials are being carried out. 

One notable trial Project Twenty21 aims to recruit up to 20,000 patients to the UK’s first ever medical cannabis registry by 2021.

By 2024 the UK medicinal cannabis market is predicted to be worth nearly $1.3billion (£1.03billion), servicing nearly 340,000 patients, according to lofty predictions from the CMC. 

The health and beauty industry are also getting in on the act with increasing number of consumers using brands containing CBD. 

The food industry is still somewhat restricted in creating edibles that contain CBD and this is thanks to EU foods regulations. 

This, says Prohibition Partners, could change once the UK exits the European Union where it could then emulate the Canadian edibles market which, according to reports, is leading the cannabis market this year.

Michael Klein, CEO of God’s Greenery and cannabisMD.com says that the UK is seeing more companies listed companies with cannabis as their core business

More UK listed companies

When the industry was initially legalised for medicinal use, a few operators dabbled in the product, but it was by no means their core offering. Things have changed now though.

Michael Klein, chief executive of God’s Greenery and cannabisMD.com says that the UK is seeing more companies listed on the public markets with cannabis as their core business.

He points out that on the New Securities Stock Exchange (NEX) has a few medical cannabis companies listed on it such as Freyherr International Group and Sativa Group.

Klein adds: ‘More companies have been raising capital with the potential to list in the near future. 

‘Cannaray announced plans to list on the London Stock Exchange in summer 2020.

‘The CBD marketplace continues to expand with fourfiveCBD, founded by rugby players Dom Day and George Kruis, with significant retail expansion in Boot’s stores in the UK.’

Cannabis is said to have many health benefits and can help people who suffer from stress and anxiety

Should you invest?

CBD stocks have suffered thanks to panic created by the pandemic. 

While products sold online have seen a surge in sales, the same can’t be said for those that need a prescription.

This means that listed UK pharmaceuticals have seen a drop in sales as the pandemic has prevented patients from seeing their doctors. Clinical trials are also affected by Covid-19 social distancing measures.

Klein points out: ‘There is a lot of disruption in the market right now. Which means there are a lot of opportunities.

‘Consumers should do their research on companies beyond recent stock performance to unlock those opportunities. 

‘Consider if the company has a unique proposition and a clear execution plan. And, crucially, is it supported by a premium management team.

‘Vireo Health International Inc. recently closed on a new round of funding to accelerate growth under the leadership of executive chairman, Bruce Linton.

‘I have been impressed with Trulieve, a vertically integrated medical cannabis company in Florida. Strong management team and vision, with consumer need, is at the core of what they do.

‘GW Pharmaceuticals PLC signalled the power and potential of cannabis with the FDA approved Epidiolex.

‘Halo Labs have been doing a number of thoughtful acquisitions and partnerships to create value, including international expansion in Canada and South Africa.’

Investing in marijuana stocks is not for the faint hearted and performance can is volatile.

For example, in late January pharmaceutical and cannabis company Tilray’s share price dropped by nearly 97 per cent price (see below). 

Whether it will return to its former highs is not certain as it has reported large net losses, but it did enjoy a bounce of 22.4 per cent in May this year according to reports.

Clem Chambers, chief executive of ADVFN, which owns InvestorsHub, says CBD stocks among private investors that have proved popular include CBD Life Sciences Inc, Grow Solutions Holdings Inc., GRN Holding Corp., OWC Pharmaceutical Research Corp., Global Consortium Inc., Cannabis Strategic Ventures and Amfil Technologies Inc.

He adds that marijuana stocks that could be considered in the UK include Sativa Group, Ananda Developments, Zoetic, Spinnaker Opportunities and GW Pharmaceuticals – but, they will require plenty of research and it won’t be for the fainthearted. 

GW Pharmaceuticals is known for its multiple sclerosis treatment, nabiximols, which was the first natural cannabis plant derivative to gain market approval in any country.

Dejan Ilijevski of Sabela Capital Markets thinks investing in cannabis is a bad idea because there is uncertainty around the sustainability of cannabis cultivation companies 

Once you’ve narrowed down your options, investing can be relatively straightforward. 

Howard Lee, chief execitove of Sorse Technology says: ‘After doing their research, investors can buy stock through a broker or use an online broker. 

‘Both will allow someone to buy and sell stocks once they’ve registered and funded the account.

‘Most brick and mortar brokers charge a brokerage fee for investment accounts. 

‘It is possible to avoid these charges depending on the broker you choose. These days, more online brokers offer investors commission-free trading.’

However, Chambers warns that this sector is still one for speculators. He says: ‘Investors should think twice before considering any shares in this sector.’ 

Dejan Ilijevski, investment advisor and president at Sabela Capital Markets agrees that investing in cannabis stocks is a bad idea. 

He explains: ‘This doesn’t deny the exciting potential of cannabis for medical use. The question is whether you’ll get anything in return. The answer is no.

‘We don’t know which cannabis cultivation companies will survive, which among them will consolidate and which will prosper. Secondly, we don’t know how regulation will play in all of this.’

For those still keen to invest in this sector, Chambers advises hanging on until the crash has played out before buying any shares. ‘That means waiting for perhaps a month after the initial fall we are seeing.’

Industry commentators concur that if you are going to invest in marijuana stocks its best to think of it as part of your overall portfolio, which means not putting all of your money into it.

Chambers says he’d recommend that investors put no more than 2 per cent of their portfolio into it. 

He adds: ‘Diversification is always rule number one for successful investing. If [these] shares make you at all nervous do not buy these kinds of shares.’

Could investing in psychedelics be the next investment opportunity? 

Could the next investment with potential for good returns be in psychedelics? Christian Angermayer, founder of Atail Life thinks psychedelic medicine will become mainstream

Christian Angermayer, a German investor who has recently founded biotechnology company Atai Life Sciences, believes the next decade will be remembered as the decade where psychedelics medicine hit the mainstream. 

His company is the largest shareholder in Compass Pathways, the UK biotech exploring magic mushrooms in treatment resistant depression.

In May the company raised a $24million (£19.04million) convertible note – drawing new investment from Silicon Valley venture capitalists such as Peter Thiel, Steve Jurvetson and Maryanna Saenko of Future Ventures. To date Atai has raised $100million (£793, 394).

Angermayer says: ‘This round demonstrates that interest in mental health solutions is not a trend. Rather, it reflects growing awareness that existing therapeutics are not meeting patients’ complex needs – and COVID-19 has only exacerbated the situation.’