Investing in Cannabis Stocks

VIDEO: As cannabis usage is more widely legalised and de-stigmatised, Rahul Bhushan, co-founder of the Rize Medical Cannabis and Life Sciences ETF looks at the investment case

Holly Black 1 April, 2021 | 11:29AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Rahul Bhushan. He is Co-Founder of the Rize Medical Cannabis and Life Sciences ETF. Hello.

Rahul Bhushan: Hi, there, Holly. Nice to be with you.

Black: So, Rahul, ETFs that track the cannabis market are relatively new to the investment world and a lot of people might not have even heard that they exist. So, can you tell us a bit about the investment case for this sector?

Bhushan: Sure. So, the medical cannabis story really began in Canada in sort of the early days of 2013, 2014, and it's now become a North American story, and in the past few years it started to become a global story as well. And certainly, what we're seeing in the cannabis space, in particular, on the medical side, is a rapid globalization of cannabis legislation. And if you look at just a decade ago, we had 10 countries around the world where cannabis was legal for medicinal use. Today, that number is over 70.

Black: So, yeah, we are seeing this rollout of the legalization of cannabis. What are some of the growth drivers for this story?

Bhushan: Sure. So, at a high level, it's a couple of different things. So, we've got the movement toward favorable legislation. We've got the stigma coming down, which is related to the broader social acceptance of cannabis no longer being seen as a discretionary vice steeped in cultural, moral, et cetera, controversies, but a plant that's increasingly being hailed for its therapeutic qualities. We've got the medical recognition by medical professionals, by doctors, and then we've got pharmaceutical application of cannabinoid-derived medicines.

The main medicine that exists in the market today really is a medicine that is owned by and marketed by a company called GW Pharmaceuticals. And it treats symptoms associated with two very specific types of childhood epilepsy known as Lennox-Gastaut syndrome and Dravet syndrome. So, that sort of set the stage and set the precedent for other biotechnology/pharma companies to come to market and undertake research to understand other cannabinoids and look for new indications that can address new medical conditions.

And so, that's been really interesting to watch. We're seeing a lot of biotechnology names emerge every single day. So, that's been really interesting. So, at a macro context, you've really got those things. You've got the medical recognition. You've got the pharmaceutical application. You've got the globalization and the legalization.

Black: But there is still this stigma attached to cannabis, I think, for a lot of people. Is that a risk and are there other headwinds to this investment sector?

Bhushan: So, I think you tend to have – as with most industries, emerging industries that we've seen in the past, Europe tends to follow the US And I think the de-stigmatization that's happening in the US is eventually going to get fully exported into Europe. And so, you will see an industry where you will have European companies emerge as well. At the moment, we don't really have any European companies to speak of, at least not any that are meaningful in size. So, where you don't have any homegrown players, it's really difficult to kind of understand the opportunity. In the US, there's hundreds of companies and it's a very different lived experience. If you've lived as an investor through the arrival of those companies to the public markets and watching them grow and looking at the revenues and looking at the demand/supply characteristics in the US So, I think, that stigma is going to come down. I think the European investor will over time get more comfortable. What we're focused on is the medical side of the cannabis complex, which I think is certainly easier to resonate with versus the recreational/adult use side of the cannabis complex.

Black: Rahul, thank you so much for your time. For Morningstar, I'm Holly Black.

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Holly Black  is Senior Editor, Morningstar.co.uk

 

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