The upcoming US election has started nation-wide conversations around the legalisation of cannabis, both recreational and medicinal. With the COVID-19 pandemic continuing, demand and use of medical cannabis has increased in the US. For insurers, the opportunities are there, including crop cover, distribution and storage, and not forgetting reseller/retailer public liability protection. The trends in the medical cannabis market have been summarised below.
The Medical Cannabis and Wellness Equity Index (NTR) has continued to perform well in recent months, gaining 7.32% in August, -13.48% over the last 12 months. Nawan Butt, Portfolio Manager of the CBDX Medical cannabis ETF, says some clear patterns for the Cannabis sector have taken hold a few months into the pandemic, which are driving recent returns for investors. Past performance is no guarantee of future performance.
Firstly, the industry has experienced growth in CBD and adult use cannabis sales as consumers look to alleviate pandemic related anxiety and stress. Second, the growth of tele-medicine is beating the stigma of cannabis as more patients become comfortable in a virtual setting and set patient growth records in many states in the US and countries around the world. Lastly, Nawan Butt believes the emergence of institutional investors in the space is lifting valuation multiples, especially for ancillary companies which are experiencing parallel growth to cannabis companies themselves.
Nawan Butt, Portfolio Manager of The Medical Cannabis and Wellness UCITS ETF said: “We have seen strong returns for investors in the Cannabis sector in recent weeks, and the second half of the year has been nicely setup for some major catalysts on a macro and company specific level. On a macro basis, the key market of the US becomes a talking point of the 2020 elections. We now have direction in terms of which Democrats will be addressing cannabis reform ahead of the elections and believe this could cause significant momentum in the space.
“As we inch closer to US elections in November 2020, cannabis is starting to become a topic of discussion for the Democrat party. Said Butt.
“In July, a Biden-Sanders Unity Task Force released recommendations for developing the party agenda on cannabis reform. This includes the federal legalisation of medical cannabis, while adult-use cannabis is to be left to the will of individual states. The task force also recommended the expungement of all criminal records related to cannabis possession and consumption in an attempt to remediate long-standing social injustices against communities of colour in the US.
With recent momentum of social justice movements such as Black Lives Matter, we believe cannabis reform is more than just a hollow promise for the Democratic Party. It is important to note that a White House win alone may not expedite the process, and we closely watch the contested seats in the Senate as Democrats fight to take control from the Republicans. In the run-up though, we continue to see an insatiable appetite from US investors for cannabis related businesses with ancillary services sector having a breakout month in July and leading into August. We expect this multiple expansion to continue as a wider investor base realises the growth and margins on offer in this still nascent industry.”
The Medical Cannabis and Wellness UCITS ETF, is a UCITS compliant Medical cannabis ETF listed on the LSE, XETRA and SIX. The fund tracks a rules-based Medical Cannabis and Wellness Equity Index from Solactive, consisting of publicly listed companies conducting legal business activities across nine thematic sub-sectors in the medical cannabis, hemp and CBD industries.
The Medical cannabis ETF, CBDX, seeks to provide targeted exposure to the rapidly expanding legal medical cannabis industry that is set for further growth as more countries legalise cannabis for medical use. When you trade ETFs, your capital is at risk.