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Posted by Nawan Butt on Dec 2nd, 2020

Why the Cannabis Trade is Just Getting Started Beyond Canada

As Canadians, we’ve been pioneers in the cannabis space. That puts us in a great spot to succeed elsewhere.

Key points:

  • Canadians have largely been at the forefront of the cannabis trade across the globe
  • Now, US investors are paying notice and finding ways to access the market
  • The cannabis trade is at an inflection point in the US and the stage is set for years of growth to come

For many years now, we have had the privilege as Canadians to be the first to invest in a structural shift of legislative action catching up with consumer behaviours. The first Canadian cannabis company went public in 2014 and, since then, Canadians have been at the forefront of investing in the global cannabis infrastructure.

This continued to hold true in 2018, when a wave of US operators began going public on the Canadian Securities Exchange (CSE). Again, Canadian investors were first to gain access to the fast-growing US market

To date, this trade remains mostly in the hand of Canadians as US investors vie for investment access to US operators while their custodians and brokers struggle with federal inconsistencies in the system. Of late though, ingenuity has created loopholes. Both US retail and institutional investors are finding channels of investment access.

A proxy to measure this access are the inflows we see in US-listed products which invest only in US cannabis operators. AdvisorShares Pure US Cannabis ETF (MSOS) is one such vehicle. Over the past three months, the ETF has raised over US$110 million, with the primary investors either being direct retail or investment advisors. These inflows have correlated closely with junior operators experiencing a direct up-rating of their valuation multiples.

Chart of North American cannabis performance versus flows

Additionally, we have seen an increased number of institutional investors jump into the space over the past few months. Large operators, such as Curaleaf, Green Thumb, Cresco Labs and Trulieve, count traditional asset managers as their top shareholders.

Hedge funds have been in this space since the beginning. Now, mutual fund managers, who guide the retirement funds of many Americans, are starting to get involved.

We’ve had a big run in cannabis in the second half of 2020, especially around the November referendums. However, we think this is only the initial inflection point for US cannabis. Canadians are still well positioned as early adopters in the development of this industry.

There is a lot of room to grow in the space and the addressable market increases every quarter. Many people are asking if the US cannabis trade is over. We think the question is premature. We believe that this decade-long cycle is only just beginning and we’re ensuring that Purpose Marijuana Opportunities Fund (MJJ) is best positioned to capture the growth.

— Nawan Butt, CFA is one of the portfolio managers of Purpose Marijuana Opportunities Fund.


All data sourced from Bloomberg unless otherwise noted.
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Fund mentioned in this story

Nawan Butt, CFA

Nawan has spent 5 years with Purpose developing a deep understanding of client needs with the product team before applying his skills sets in portfolio management starting in 2018. Nawan combines in depth fundamental research with quantitative overlays in contribution to the security selection processes for the firm. Working closely with the CIO, Nawan is also responsible for the implementation of asset allocation across multiple mandates. Nawan earned his MSc in Finance from Simon Fraser University and is a CFA charterholder.