Marijuana Stocks Shunned by US Institutional Investors – For Now

1

With all the revenue flowing in support of the burgeoning cannabis market, one would think that US stockbrokers and big-time investors are plunging right in.

However, a cannabis gold rush in which brokerage firms are busily filling orders for marijuana stocks isn’t a reality – not in the US, anyway.

“It’s really a tale of two markets,” said Hadley Ford, CEO and director of New York-based iAnthus Capital, which through its wholly-owned subsidiary provides investors diversified exposure to licensed cannabis cultivators, processors and dispensaries throughout the US. “There’s Canada and the US, and Canada is probably two to three years ahead of the US market.”

Ford is a healthcare and technology veteran who has been an operating executive, entrepreneur and an investment banker, including stints with First Boston, Bank of America and Goldman Sachs.

Now he’s on board with bringing more capital into the cannabis market.

In Canada, where medical cannabis is legal nationwide, and recreational use is on the cusp of legalization under the pending Cannabis Act, there’s no shortage of interest from the investment community.

“You’ve probably got 30 public companies up there that have raised billions of dollars,” Ford said.

Turn to the US, where it’s legal in a handful of states, and the idea of further legalization is gaining more support in many more, but it’s illegal at the federal level.

A number of pink sheet, or over-the-counter stocks, are traded in the US. But very few domestic research analysts follow these stocks, and they are shunned by big investors.

“Right now I’d say 99 percent of the institutional money in the United States wouldn’t invest in cannabis,” Ford said.

In fact, some investment firms actively discourage financial managers from buying cannabis stocks for clients, or even giving research or advice on these stocks.

“I can’t recommend that you buy it,” said an investment adviser from a top-5 US brokerage firm, who asked for anonymity of their personal and their firm’s name.

While clients can approach adviser from their firm and ask about buying cannabis-related stocks, they must label the buy in the firm’s system as “unsolicited” — meaning the investor approached the firm with the specific purchase request, but the firm is blocked from from providing any accompanying research on the stocks.

Yet, the investment advisor says clients have requested to buy cannabis stocks.

When asked how many clients have expressed interest in cannabis investments, the adviser replied, “Tons, tons, tons.”

“A lot of clients are asking me ‘How do we invest in cannabis?’” the adviser added.

Therein lies the opportunity for investors who can put money into these stocks, which often have a low share price and a high upside, before the US federal government legalizes recreational use of cannabis, a step that Ford and others view as inevitable.

“I think it’s a once-ever opportunity to participate in this shift from a black market to a white market,” Ford said.

Enough research is emerging for investors to put money into cannabis stocks. Motley Fool, a widely read financial website, this week listed four promising NASDAQ traded stocks that are “swimming in cash.” Of course, all are Canadian.

The approximate cash balances, in US dollars, for the top projected cannabis producers in Canada are:

  •       Canopy Growth Corp. (TWMJF): $311.2 million
  •       Aurora Cannabis (ACBFF): $332.8 million
  •       Aphria (APHQF): $135.1 million
  •       MedReleaf (MEDFF): $192.2 million

The exchange rate was 1.28 Canadian dollars to $1 US dollar on Thursday, May 10, 2018.

Ford compares the upside to investing in cannabis with investing in other sectors. When investing in technology, for example, investors must keep in mind that firms have to develop a market around a product or a service amid a sea of other similar products and services.

“Cannabis? We’re pretty damned sure people are going to buy cannabis,” Ford said. “It’s about execution. It’s not about demand curve.”

IAnthus Capital is listed on the Canadian Securities Exchange (IAN) and the OTCQB Venture Market (ITHUF).

Its share price typically hovers around 4.50 Canadian dollars, or $3.52 US dollars, per share at the close of trading on the CSE, meaning even modest investors could buy numerous shares – regardless of whether they are in the US or Canada.

“The average investor can go on their Fidelity account, point, click and buy a share of our stock,” Ford said.

The anonymous adviser believes there’s a mounting tide of well-equipped equity waiting to jump in to the market one cannabis is legalized by the US federal government.

“They’re looking to get into cannabis too,” the adviser said.

Ford also views the current lack of institutional money and backing in the US as the calm before a bountiful storm.

“There’s only one direction that cannabis stocks can go, and it’s going to go up,” he said. “Right now there is a paucity of investors in the sector, and that will change.”

About Author

Don Jergler is the Regional West Editor for Insurance Journal and a veteran business and real estate reporter. He has contributed coverage for the Long Beach Press Telegram, Long Beach Register, Los Angeles Times Custom Publishing and a variety of trade publications.

1 Comment

  1. No wonder! CDN LPs have been employing questionable valuation accounting methods, essentially cooking their books. Also problematic is the insider trading, ongoing at Aphria (e.g. the so-called Nuvvera “takeover”), MariCann, Wheaton, etc., continues unabated due, in part, to Canada’s lax insider trading securities laws. Also in play are creepy A&Ms, like Aurora’s weird play for CanniMed, and now MedReleaf.

    I wouldn’t invest in ANY CDN MJ LPs until accounting law catches up with the entire industry. And maybe ethical practices?

Leave A Reply