Should you invest in the cannabis industry?

Should you invest in the cannabis industry?

The cannabis industry has seen an explosion of capital in the past few years.  That might be the understatement of the year!

Investors have poured millions upon millions of dollars into the sector eyeing a prize valued at no less than a $22 billion industry. This prize is anticipated to be validated to investors with the upcoming legalization of marijuana the summer/fall of this year.

With the cannabis investing industry booming there remains some diversified ways to invest in order to capture your part of this buzz.  But should you invest in the cannabis industry at all?

All investing is not without risk.

Origins and Uses

Let’s back up things for some context.

Cannabis is not a newly discovered plant; it’s been used across the world for thousands of years.

There are two subspecies of this plant: the first is known as Cannabis Sativa which is known as marijuana for its psychoactive properties. The second is known as Cannabis Sativa L. which is known as hemp; it is a non-psychoactive form of Cannabis used in manufacturing products such as oil and clothes.

For the most part, it was widely used for medicine purposes such as relieving pain during childbirth or for tooth aches and spiritual purposes. There are traces of Cannabis in Chinese, Indian, Tibetan and Greek ancient religions. For instance, Taoist shamans believed the plant had the ability to cast their spirit forward in time.  They used cannabis in combination with ginseng to reveal truths about the future.

I doubt ancient societies could have predicted such a huge money-making industry.

The Medical Use

Since 2013, cannabis can be used legally in Canada by registered users who comply with ACMPR (Access to Cannabis for Medical Purposes Regulations) – but those regulations have also evolved.

Historically only registered users could legally use cannabis; to treat conditions and ailments such as pain management, appetite loss, nausea and arthritis.

Registered users increased from under 8,000 in mid-2014 to 130,000 by the end of 2017 according to Health Canada.

Health Canada also predicts this number will hit 400,000 by 2024.  And this doesn’t even scratch the surface of the recreational market.

The Recreational Market

The recreational market (currently pending legalization) could surpass the combined sales of beer, wine and spirits according to a Deloitte report.

Not surprising if you look at the numbers from a recent poll commissioned by Oraclepoll Research Ltd. and Colin Firth: 

  • 26% of Canadians surveyed, or 7.5 million people, are admitted cannabis users
  • 39% of Canadians surveyed, or potentially 11.42 million people, will consume cannabis products once legalized.

These numbers do not include those who would replace alcohol with cannabis.

Throw in the ancillary market with the growers, infused product makers, testing labs and security and you just added millions more to the industry tally.

Investment options

Our government’s promise of legalizing cannabis gave rise to a steady stream of newcomers anticipating lower barriers to entry. Publicly traded companies looking to profit from the upcoming recreational market raised money in a green rush which saw valuations explode in the past few years.

I personally believe investing in this growth industry will prove challenging – there are so many companies positioning themselves as growers, distributors and ancillary providers – it’s almost impossible to know who might survive let alone flourish.

If my past history in trying to trade penny stocks in my 20s was any indication, a dumbass move if there ever was one, I believe not all of these companies will be winners.  To invest in this industry at this stage requires thorough knowledge of each company – something I simply don’t have the time nor interest in.

Likely a better way of investing, should you invest in the cannabis industry at all, is via an Exchange Traded Fund (ETF) that holds a number of stocks in this sector.

As you know from reading my site, I’m a big fan of low-cost diversified ETFs.  I use them to invest in the U.S. market and for international stock diversification.  In Canada, not so much.  I prefer buying and holding about 30 Canadian blue-chip stocks (many of them listed here) for dividends and long-term growth.  (In doing so, I got a number of recent dividend raises thanks very much.)

With an ETF, at least you can indirectly hold a number of cannabis companies at the same time – you don’t need to worry about picking winners right now.  Of course the downside to this approach is that you won’t participate in the success of the BIG winners to the fullest extent.  Some of the “losers” and lower-performing stocks might remain inside the fund you selected and you’ll have no choice but to hold them as long as you own the fund.

In recent months a number of marijuana-themed ETFs have hit the market looking to capitalize on the burgeoning industry.  More recently, there is an actively managed ETF from Evolve ETFs, and I suspect more of these products are on the way.   This is only the beginning.

Like the hundreds of other actively managed ETFs that strive for alpha – to earn a return above the fund’s benchmark index – Evolve Marijuana ETF (ticker: SEED) uses a professional money manager whose full time job is to constantly evaluate marijuana companies, keeping only the ones with the most promise in the fund.

Will this Seed (as in Mark) invest in SEED the ETF?

Will I invest in the cannabis industry at all?

Should you invest in the cannabis industry?  If so, in what company or fund?

I have to be honest – I don’t know and I can’t tell you.  This is because all forms of investing, like I mentioned earlier, come with risk you must be comfortable with for your investing reward.  Beyond that, you need to consider your investing objectives and identify what financial products fit into that plan – first.


While you might become very successful (read in wealthy) by investing in individual cannabis stocks or ETFs you could also see a huge downgrade in this sector and wind up with very little money in your pocket depending upon your investing behaviour gaps.

What if valuations are already through the roof?  Could there be delays in the legalization process?

Anything can happen friends.

What I can say with some confidence is the cannabis market will be huge at some point and those companies in the space that are licensed and ready to produce, distribute or be ancillary providers will have some early advantages.

There are definitely risks that come with investing in this sector (just like any other emerging sector before it).  Think about the early days of tech sector that included Apple, Google, Amazon; how did those pay off for some investors?  As always, time will tell when it comes to investing.

What’s your take on this sector?  Are you in?  Are you ALL in?  Are you invested in individual stocks or ETFs?

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

29 Responses to "Should you invest in the cannabis industry?"

  1. Hi Mark – We invested in canopy when it was under a toonie. My rationale was based on emotion (thus not rational) – wanted to support smiths falls area as they had been hit hard economically in the past few years. Not a clever investor mode of thinking but has worked out very well for us. I’m confident about canopy’s business model and growth trajectories. If they split the stock I’ll buy more. It’s overpriced right now.
    There will be many losers when the smoke clears and truly only time will tell. From our standpoint (a blip in universe for sure) this is a history-in-the-making event and thus it’s an enticing opportunity…as long as it doesn’t become a FOMO decision.
    Namaste (N) and HEXO might be worth a glance.
    Always enjoy your blog and reader comments and viewpoints.

    1. Nothing wrong with supporting Smith Falls. They’ve certainly needed something positive in that community. Under $2? Wow. Nice. I’ve been looking at HEXO actually, among others like HIP, and N. Interesting times for sure!

  2. Been lurking here for about 5 years. You have helped me set up my own self directed portfolio of ETFs. Thats the technique I am happy with to beat the game, with slow and steady growth to FI. Early last year I jumped into weed stocks with a huge 25% of my portfolio. It was the only time I felt I had an edge on big investors. Banks are just starting to get into the game, mutual funds and ETFs are just starting to buy these stocks. Once legalized there will be a huge inflow of buyers. The legalization risk is almost 0% now. I can’t justify to increase my position since it is already a significant part of my portfolio, but at these prices they are a good buy. WEED, APH, ACB, MJN, EMH, HVT, THCX are solids bets. It is rare to exit a prohibition like this and Canadians love their weed. These companies are positioning themseves for international growth and distribution. Legalization will spread to other nations and these guys have a huge first mover advantage. I am in my early 30s, and this is a once in life time opportunity to cash in 3x, 5x, 10x my initial investment. Hold on for 3-5 years, do not sell a single share and you will profit.

    1. I enjoy the lurkers who comment!

      I might go with an ETF. I see huge upside to this industry but I still find it hard to pick winners! I hope these stocks realize x3 or x5 or x10 gains for you.

      What’s your holding period – 3-5 years regardless? What was your entry point?


  3. I bought 100 shares in Aphria last summer at $5.70 only because I kept reading articles on having some weed stock in your portfolio. Too big a risk for me but I can afford to lose $600. Late last year they announced a partnership with Shopper’s Drug Mart and the shares jumped up to a high of just under $23 in January. Today they’re around $14 so big roller coaster ride. Kind of fun. I’m not losing money yet. I read that they expect Aphria to hit $35 when it legalizes in Canada and I plan to sell if that happens. It’s not really my thing and 100 shares one way or another aren’t going to be part of my big picture. When I sell I’m going to Hawaii!

  4. My son said, “you can’t miss”. His wisely said this when Canopy was selling at about $2.50. Although I’m a blue chip dividend guy, I did buy a few thousand dollars worth. He bought more then I did. He’s doing very well, me not so bad. But, it doesn’t pay dividends so I’ll hold for a while to see what happens. Don’t know if I would buy more now? It is still a very new industry … if you invest for the long term.

  5. Amusing how the entire hemp industry went from a legal obligation to help furnish a growing continent, to an illegal practice in order to secure profits for competing industries…and only now, many decades later, is it being made “legal” due to it’s overwhelming profits which far outstrip those of the now-flagging industries.

  6. Ha Lloyd! Young and old…. !!
    Hysteria is driving these stocks now but most importantly they don’t meet my criteria anyhow. No interest. Yes, Cannew, shades of the tech bubble.

    Ken, you should follow Visual Capitalist who often write about minerals, precious metals, batteries etc.

    1. Ya RB, whilst I comprehend that some just want to make money and be the richest and bestest there are some that are good with the plan they’ve got going. This sector is just not something I’d be interested in at this point in time. Good for others if they want to, more power to them, but I’ll pass.

  7. Sort of reminds one of the Tech Bubble. Are any of these companies actually showing profits? or or is it all expectation? Yes there will be winners, but likely there will be more losers.

    1. It’s exactly like the tech bubble. You’ll have the giants like Amazon(Canopy IMO in this situation) thrive while the rest of them fizzle out.

      I don’t think you’ll find a profitable group in the bunch. But Canopy is actively increasing its EPS and would probably be pulling in a profit if they weren’t spending tons on expansion. I didn’t feel safe investing in any of them other than Canopy, and even then my position is small. But it’s already paid off well and I believe it will continue in the future. As for the others, who knows. Aurora is making some nice steps.

      1. Canopy could be good…so could Aurora – but these companies don’t fit my “dividend or distribution” only model. I feel I’ve been successful to date owning companies that either a) pay a dividend >2 or 3% or b) pay a steady distribution (i.e., an ETF) and then reinvesting that income over and over and over.

        I am very interested in this space but simply don’t know what to buy to be honest.

    2. Same. I recall so many folks got burned in those early days. Not for me but an ETF might be a way to play things if you were inclined.

      Time will tell how big or small or sideways the industry goes.

  8. Don’t forget that graphite makes up a large % of a Lithium battery. there are some very good graphite deposits in Canada…and some companies that are total scams…in my opinion.
    When a jr resource Co spends more on promotion, the CEO’s salary than field work…SCAM

  9. I recently wrote a post about the cannabis industry and how it is all solely based on hype. It’s insane how many people were buying any pot stock they could get their hands on pre bubble burst. Canopys value was over 7 billion dollars, almost the whole recreational projected revenue in Canada. I mean anyone who didn’t see it coming obviously wasn’t paying attention or had no idea what they were doing.

    That being said, I am long Canopy, and have been since I purchased it in late 2017 for around 11.50. I’m pretty much just placing my money on the favorite to win the race, as I feel Canopy has an amazing future ahead of them.

    Great piece Mark. Lots of valid points.

  10. Good comments Mark, you almost have to watch these “pot” stocks hourly they are just very volatile. I’ve made some money on a few, but always sold too soon. Profit is profit though.
    I think the electric vehicle market is going to be the next big thing especially the battery market. I’d like to see you do an article on the minerals that go into battery production lithium, nickel, and cobalt.

    1. Good to hear from you Ken. Yeah, these “pot” stocks are very volatile and I don’t see myself buying anytime soon. I prefer the stability that dividends provide and some low-cost diversified ETFs like VYM provide in distributions.

      You might be right about the electric vehicle market. We might consider buying one in a few years. I will consider a post for that – need to do some research first!



Post Comment