Click here to learn more about the subject «Cannabis – a billion-dollar business».
A market on the move
The legalisation of cannabis has been a hotly disputed topic for a long time. More and more doctors and scientists are highlighting the medical potential of marijuana, whilst others see it as a legal recreational drug. Politicians in many places are also coming round to these views and could thus help a new industry to boom. Increased takeover activity in recent times shows that the sector is already on the move. At the end of January, Aurora Cannabis – previously Canada's second-biggest marijuana producer – acquired rival company CanniMed Therapeutics for the huge sum of 852 million dollars. The deal propelled the company to the position of market leader. One thing is for sure: the billion-dollar marijuana market is music to the ears of investors.
The anticipation of legalisation in California, America's most populous state, with effect from 1 January 2018 produced a "gold rush" fever in the capital market, with prices soaring in short order. A more sober mood has taken hold in the meantime, but the medium-term performance is still impressive. Aurora Cannabis is still set to double over a one-year period despite the correction. Canopy Growth, a heavy hitter in the Canadian stock market, even reports growth of 234 per cent. Cronos failed to get off to such a good start. The company was listed on the American technology exchange NASDAQ at the end of February, and the stock has since taken a 40 per cent tumble.
Diversification is the key
The example shows that investors who would like to invest in the booming cannabis market would be well advised not to put all their eggs in one basket. It is still not possible to say who will come out in front in this young market. It therefore makes sense to have a diversified portfolio in order to seize the opportunities in the cannabis industry, which is why Swissquote Bank has launched an actively managed portfolio. Experts at Swissquote are mainly concentrating on North American pure players with high growth potential. The business activities of the underlying stocks range from cultivation, sales and distribution to consumption for private or medical purposes. This approach covers the entire value creation chain around the "magic plant". Nothing is left to chance: quantitative and qualitative filters ensure that only the most promising companies are included in the portfolio. Examples of qualitative selection criteria include the income of the businesses, most of which must be generated in the cannabis trade. The potential candidates must also meet minimum criteria with regard to market capitalisation, which must be over 50 million US dollars, and daily trading volume, which must exceed 100,000 US dollars. The price of a share must not be listed at less than 10 US cents. The basket is automatically adjusted every three months to ensure that it stays fresh in the highly volatile cannabis market.