Cannabis Appetite Returning, but Investors Harder to Pinpoint

Could investors be getting back on the cannabis train again? One public markets expert thinks so — however, investors in the space can no longer be pinned down to one category.

In an interview with the Investing News Network, Nawan Butt, portfolio manager with Purpose Investments, said despite the lingering effects of the pandemic, the fatigue surrounding cannabis investments is starting to dwindle thanks to newfound stability in the space.

But overall investor sentiment is much harder to establish for cannabis these days since, according to Butt, the profile of a cannabis shareholder is much more varied than before.

For example, Butt praised the initiative shown by what he described as “DIY investors,” who are mostly self-taught beginners in the public trading landscape.

These investors have been very supportive of the opportunity surrounding cannabis, but at the moment their enthusiasm may be “capped out” he said.

In contrast, he said that institutional capital activity is developing, particularly in terms of licensed producers (LPs). “On the institutional side, we’ve seen financings increase,” Butt said. “It has mostly been for LPs, which are on the sort of margins for profitability … just about maybe six to 12 months away.”

Butt said institutional investors are setting the tone now in terms of looking for maturity and evaluating firms more critically based on substantial information.

He added that recent activity around premium indexes has prompted institutions to evaluate their general investment decisions. For example, HEXO (NYSE:HEXO,TSX:HEXO) fell out of favor with the requirements needed to be included on the S&P/TSX Composite Index (INDEXTSI:OSPTX) in June.

Butt also noted that the support for cannabis big names in Canada is associated partially with recent sales numbers from the recreational market.

“The pantry stuffing that we were seeing in March actually continued on, and we saw strong sales throughout the US, and even in Ontario we saw decent sales for the month of April,” he said.

Statistics Canada information shows that March sales for cannabis went up 19 percent from the previous month to reach C$181 million. Sales in April fell down slightly to C$180 million.

The uptick in purchases was attributed to concerns surrounding the effects of the spread of the novel coronavirus in the country.

A note from CIBC Capital Markets issued back in April cut a previous projection for yearly sales of recreational cannabis in Canada to C$2.5 billion, down from an original estimate of C$3.4 billion. As for 2021, the bank now envisions the Canadian industry posting C$4.1 billion total in recreational sales.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.