Investors Getting High on Cannabis

By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

A year ago, you would hardly find even the most financially illiterate person in the world that had not heard of Bitcoin or cryptocurrency. Regardless of whether they know what it was — at least they know you can earn money with it!

Opportunities to earn easy money sometimes do appear, but they do extremely rarely, and in this light the crypto boom is often compared to the tulipmania that happened in the 17th century. At that time, speculators with no experience joined the tulip futures trading, which eventually led to a sharp increase in flower bulb prices, while a year later the overheated market collapsed, bringing huge losses to all.

The chance to earn huge profits for people who do not have a close connection with the markets does not appear so often. But for those who work with stocks, such opportunities arise almost every quarter.

The price of bitcoin at the peak of its popularity, when almost everyone knew about it, went up by 2,000%. In the stock market, some companies can yield a return of 1,000% within a week or a month, and there is no need to wait a whole year around.

The last sharp increase in share prices after an IPO, which broke all records this year, was shown by Tilray. Since the IPO on July 19 this year, the stock yielded a return of 1,300% over 2 months, and for those who follow the IPO, there was plenty of time to buy this stock, as the price was at about $20 for about a month.

Tilray is a Canada-based company specializing in cultivation and sale of medical marijuana to consumers and pharmaceutical distributors.

When a stock experiences such a rise, however, it usually falls afterwards, and Tilray was no exception as it lost 50% of its maximum value, although it continues to trade at 600% higher against the initial IPO price.

2018 was a landmark for marijuana manufacturers, as in January California legalized the use of marijuana for recreational purposes. Currently, medical marijuana products can be consumed in 29 US states. It is expected that, by 2022, the marijuana market in the US and Canada will have grown by more than three times.

Tilray is a clear indicator of investors’ interest in such companies. However, it’s not just traders who are interested in marijuana producers. Constellation Brands, one of the largest beer producers in the US, announced its intention to invest $4B into Canopy Growth, another Canadian company. This will allow it to increase its share in Canopy Growth from 8.70% to 38.00%. In the next 3 years, the US company will get the right to buy another 139.7M shares for $3.5B, thereby increasing its stake to the controlling one.

Meanwhile, Microsoft has partnered with the Kind Financial, a US based startup company which develops software for government agencies that control the production and sale of marijuana.

On September 17, rumor had it that Coca-Cola was negotiating with Aurora Cannabis to create a beverage containing cannabis. Most likely, this drink will be used to reduce inflammation, seizures, and as an anesthetic.

All this confirms the interest of large companies and investors in marijuana manufacturers. At this rate, finding a marijuana company and investing your money in it could seem a good idea, but there is a risk of high volatility, just like in case of Tilray, which can put your deposit under serious threat. An easier way would be investing in an ETF with the same companies stocks.

The most interesting ETF in the marijuana industry is ETFMG Alternative Harvest (NYSE: MJ).

According to some sources, since August 22, this fund recorded a cash inflow of $112M, which is about 20% of the total value of its entire portfolio. With the money supply growing, the trading volumes increased up to 10M shares, which is 3 times higher than the volume in July.

The interest towards this ETF was especially frantic when California passed the law early this year: at that time, ETF MJ price rose from $29 to $39. Then, in March, the price tried to go up further, but the volumes stayed low, so the price had to get back and even sank a bit. It was only in August when $27 got broken out, and then the price went well up to reach $45, this time also with increased trading volumes. Currently, the support levels are at $34 and $39. Given the increased volatility, the price is quite likely to go down to $34.

ETF investment has always been considered less risky, and in case we are now on the brink of a marijuana boom, this ETF is certainly going to be the best investment vehicle.



Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Having majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.