Future Industry ETFs Part 2: The Marijuana Industry
2 July 2018 | World Views | Ricki Allardice
 


Also Read: Part One | Part Three

Let’s face it, trading the JSE for the last 3 years has been tough. Broadening your horizons to offshore markets is one way to get around this, but what if I told you there are some market sectors that have been booming, yielding far greater returns than the rest of the market. Times are changing and those who are investing in the future are reaping phenomenal gains. One major mover over the past 12 months has been the marijuana industry, returning over 100%. Keep reading to learn how you can invest in this booming market!

Regardless of how you feel about marijuana on a personal level, legalisation of the plant for both medical and recreational use is sweeping across the globe. This once black-market industry is coming into the light in a big way and fortunes are being made in a short space of time.

Globally, authorities are feeling the pressure from their citizens to decriminalise the plant. Countries like the Netherlands, Uruguay and Bangladesh have already legalised the plant, with Canada most likely to join them in August. South Africa also recently decriminalised the cultivation of limited amounts of plants within the homes of individuals. Most of South America as well as parts of Europe and the USA have also decriminalised it to various degrees.

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Figure 1. Legal status of marijuana around the globe.

Despite global liberalisation of laws surrounding the plant, it is clear that culture precedes politics in this regard. Globally, the utilisation of the plant for recreational purposes is both widespread and relatively high. The chart below details the prevalence of marijuana use across the globe. Clearly there are numerous countries where usage is widespread but the plant remains illegal. Thus, it is to be expected that a domino effect of legalisation should occur once large countries such as the USA, Canada and Australia liberalise their stance on the plant, as the export market will be too lucrative to ignore.

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The largest domestic market for marijuana remains the Unites States, which has a population of over 350 million, of which more than 8% (>28 million) utilise the plant recreationally. Within the country, more than half of the states have already decriminalised or legalised the plant for recreational and medicinal use. These include the highly populated states of California, Florida and New York.

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Figure 2. The legal status of marijuana within the united states of america.

Many companies which specialise in the cultivation and processing of marijuana have already listed on stock exchanges across both America and Canada. These companies have created lobby groups for the industry, which are now both well-funded and actively campaigning to strike down prohibition laws.

Thus from a macro-economic perspective the future looks bright for the industry, however there are still significant risks associated with purchasing stock in individual companies, as this is still an emerging industry. The safest route for an investor to take is by purchasing a bundle of shares, such as an index fund.

Investors who have taken long positions on the entire industry have enjoyed returns over the last year which have exceeded 100%.

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Figure 3. An index tracking etf of the marijuana industry over the past 12 months.

I struggle to see how this industry will not perform well over the next five to ten years, based on the above mentioned macro-economic conditions. Incorporating this sector into your long-term portfolio could be a very lucrative decision.

How do I invest?

Sharenet offers our clients exposure to the marijuana industry through an ETF product, which tracks a basket of companies. Should you wish to gain exposure to this industry, please contact us now and we will set up your trading account. The minimum portfolio size is R50 000.

Contact the author directly here: ricki@sharenet.co.za

Also Read: Part One | Part Three

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Ricki

Ricki Allardice

Ricki specializes in the field of wealth management with a focus on holistic financial planning. He has a keen interest in the investment fields of property, technology, precious metals and cryptocurrencies. Ricki also holds a Masters degree in Science from the University of Stellenbosch.


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