Saxo Group
Summary: How is the cannabis industry performing compared with other common equity themes? We explore the top traded cannabis stocks & the reason for their popularity.
Investing in the cannabis industry has been a source of debate among retail traders for some time. The legalisation of recreational and medicinal cannabis has been on the agenda for several countries in recent years, leading many to anticipate an investment surge in the pioneering cannabis stocks on the exchanges worldwide.
However, only Canada and Uruguay have formally legalised the commercial sale of cannabis for recreational use thus far. In the Netherlands, the drug remains illegal outright, but is legal for commercial sale in licensed cafes as well as personal use.
In the US, the policy towards cannabis has been developed on a state-by-state basis, with Joe Biden’s inauguration as President yet to commence federal legalisation nationwide. Nevertheless, medical cannabis is now legalised in over 50 nations globally, and it’s this trend which is helping to power the leading cannabis stocks from an investment perspective.
Below, we explore a host of cannabis stocks available to invest in as part of the Cannabis Equity Basket at Saxo Bank. It's worth noting that the Cannabis Equity basket is one of the lesser performing Equity Baskets at Saxo this year-to-date, being outranked by high performers like our Commodities and Defence Baskets. However, the development within the Cannabis Equity basket is still worth exploring.
It has been far from plain sailing for investors in the cannabis industry in recent years. Since the performance of cannabis stocks peaked at an average value of $142 in January 2018, it has been a downward trend ever since, falling to average lows of $17.25 in March 2020.
2019 was a particularly turbulent year for cannabis stocks. This was the year that cannabis investing was meant to evolve from pure speculation into legitimate long-term investments. Delays in licensing application approvals by Health Canada, the nation’s regulatory agency, inhibited recreational sales and stunted production of mainstream and derivative products. Meanwhile hefty taxation on US cannabis companies - coupled with the US being no closer to federal reforms of its cannabis legislation - and the hemorrhaging of money by many brand-name cannabis stocks, created continued uncertainty in the financial markets.
As of March 2022, the three biggest players in the cannabis industry by market capitalization are Curaleaf (CURLF), Green Thumb Industries (GTII.CN) and Trulieve Cannabis (TRUL.CN). All three of which are American cannabis stocks.
Curaleaf is one of the leading medical and wellness cannabis producers and distributors in North America. With dispensaries now open in 23 US states, Curaleaf has grown to a market cap worth approximately $5.36 billion.
Meanwhile Chicago-based Green Thumb Industries and Florida-based Trulieve Cannabis have market caps valued at $4.44 billion and $4.67 billion, respectively.
Looking at the investments in cannabis stocks made by Saxo customers of late, Tilray Brands Inc. (TLRY) stands out as the most traded cannabis company in the year to date, with almost a third (30.82%) of clients trading within this equity basket trading Tilray as of 25 March 2022.
In the last 12 months, Tilray Brands (29.05%) was second only to Sundial Growers Inc. (SNDL) (33.56%) as the most traded cannabis stock among Saxo customers.
If you’re an investor that’s increasingly focusing on equity themes as opposed to individual equities, it’s fair to say that cannabis stocks won’t have caught your eye in the last 12 months especially. The industry’s overall performance in the stock market is down 59.7% in the last year (as of 19-4-2022), making it Saxo’s poorest performing Equity Basket. It’s in the bottom ten of equity themes for the year-to-date too.
Delays and uncertainty surrounding the decriminalization and amendment to federal laws surrounding cannabis in the US have certainly played a key role here. Investors have grown increasingly jittery at the lack of recurring profitability among the leading cannabis stocks. There is no certainty that America’s legalization would push these companies firmly into the green either.
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