WEALTH AND WEED
Investors looking at legalized cannabis.
It’s being described as the next gold rush, the next boom or the next bubble.
Whether we like it or not, recreational cannabis is coming to Canada. The original launch date of July 1, 2018 never materialized. Now, the date is set for Oct. 17.
And companies that are growing pot for both medical and recreational purposes are being hotly debated as an investment opportunity.
P.E.I. technology entrepreneur Jamie Hill bought shares in Ontario-based The Green Organic Dutchman Holdings Ltd. about a year ago. On Thursday, the stock opened on the Toronto Stock Exchange at $5.60 a share. In the past 52 weeks, it has hit a low of $3.50 and a high of $8.28. Hill bought into the company at $1.15 before it went public.
“It wasn’t a bad move. I have no crystal ball to say this stock is going to go up to what people have talked about or if it’s just going to, all of a sudden, come back down to a $3 or $4 stock. I have no idea. People say it’s going to go to $30,” he said.
Hill said he isn’t planning to buy any more stocks in the company. Instead, he’s just going to “see what happens” with what he has. He suspects once recreational marijuana comes into effect Oct. 17, a lot of people who bought in at a low price will sell shares at a profit, and in doing so, drive the stock price down.
Hill sees his investment as secure since he isn’t going to lose money on it. Even so, the amount he invests in stocks is what he can afford to lose.
But he’s also excited about The Green Organic Dutchman’s plans to get involved with business ventures outside of Canada.
“They’re not thinking they’re going to make their windfall selling weed products in corner stores. They’re looking at a much bigger playing field, which I think is a good thing, but they could be bought up pretty quick, too.”
Given the large number of companies in the industry, Hill wonders how many of them are going to survive in the long term. As well, he said it’s amazing how quickly investors will buy into these companies. It’s like they’re “missing something,” Hill said.
“It’s just incredible to watch,” he said.
INVESTING IN CANNABIS BUSINESS BY NO MEANS A SURE THING
Allan Burgoyne, another P.E.I. businessman and entrepreneur, is also a personal investor in The Green Organic Dutchman as well as other cannabis companies, such as Canopy Growth Corp., Aurora Cannabis and Aphria. Burgoyne does a lot of research and follows the companies’ news closely.
“It’s a very exciting time, and there’s a lot of opportunity. You don’t have to be rich to get involved in this,” he said, referring to his personal experience as an investor.
He added people should be mindful that investing in cannabis companies is not a sure thing.
“Anybody that does any investing, period, should be prepared to lose their money. So, if you’re mortgaging your house to do this, you’ve gotten some very poor advice. But if you’ve got an extra thousand dollars – or just add zeros for people that have extra lying around – absolutely. This is a really interesting thing to do.”
He said a lot of the uncertainty around the industry has gone away since the federal government legislation was finalized and recreational sales are set to begin on Oct. 17.
He sees consumables (or edibles) as the biggest part of the “boom,” which are not approved for sale this year. Beyond solid consumables, Burgoyne sees beverages as a bigger money maker. But he also sees opportunities to make money investing in businesses that supply cannabis companies with equipment and products for consumption.
“I think it’s going to be bigger than the gold rush,” he said.
CONSUMER TRANSITION TO THE LEGAL PRODUCT IS AN IMPORTANT FACTOR
Joe White of White & Associates Financial Services Inc. in Charlottetown., is in the business of broad-based mutual funds. White said there’s still a lot of questions about supply and demand with respect to cannabis once it becomes legal. Similar to the Prohibition era and alcohol sales, he suspects consumers will eventually make the full transition to the legal retail outlets. But he notes transition could take a while given buyers already have an existing illegal supply chain, that isn’t regulated or taxed by the government.
“Initially, there is an existing supply chain in place, and we don’t know what their break-even cost is. Do we need to sell it for $6 a gram to the point where it is no longer profitable for somebody on the black market to do it?” he asks. “So, if it’s too expensive, people are just going to continue to use that. And, the concern for the cannabis companies becomes – do they have the cash reserves to wait this out? Is it two years? Is it three years? When can they really become profitable?”
In terms of investing in the cannabis supply industry, he sees it as a gamble.
“We have no idea how this is going to roll out. So, when you talk about investing, if you go to the casino and put your money on red and it hits red, you did really well. If it hits black, it’s not such a good time. That, in my opinion, is really what we’re doing with investing in cannabis.”
White’s recommendation is if you want to take on some extra risk with “play money” and invest, then go for it. But keep in mind, investing in these stocks is a gamble.
“You shouldn’t gamble with your retirement,” he added. “You shouldn’t gamble with your savings.”
Representatives from the Investors Group, CIBC and RBC declined to comment on this story.