How to invest in medical marijuana ETFs

The medical marijuana industry is expected to experience massive growth as changing attitudes towards its use in treating illnesses increases its demand. Investors can take advantage of this potential growth industry using ETFs.

Medical marijuana industry expected to grow to $100 billion by 2027

When an industry goes from underground and illegal to worth billions of dollars and regulated in the space of just a few years, investors tend to notice - and this is exactly what has happened to the legal medical cannabis industry.

Cannabis was first legalised for medical use in California in 1996 and since then a growing number of US states and countries have followed suit. A total of 33 US states and 57 other countries (28 in Europe) now have some form of legislation allowing the use of medical cannabis, or cannabis-derived treatments1-2. The number of countries, with legal medical cannabis use is likely to continue to grow as new legislative initiatives are passed, unlocking huge new markets in the process.

Coronavirus has highlighted how dramatically attitudes towards medical cannabis have changed. More than 20 US states designated medical cannabis dispensaries and related businesses as ‘Essential’ and allowed them to continue to operate.3 Medical cannabis is clearly here to stay.

As more states and countries have changed their attitude towards medical cannabis, they have unlocked tremendous pent-up demand. The global market for medicines and treatments derived from cannabis has exploded, and is estimated that the market will reach a size of $97 billion by 2027 up from $10.6 billion in 2018.4

Learn more about the cannabis industry in the UK

Uses for medical marijuana are still being discovered

The development of a multi-faceted legal cannabis, hemp and cannabinoids (CBD) industry, creates an opportunity for investors, equivalent or larger than investing in alcohol producers in the post-prohibition period. With the increasing institutionalisation of medical cannabis, investors are recognising a rare opportunity to participate in a nascent emerging sector with significant long-term growth potential.

A key fact for investors considering this sector is that there is a huge addressable market for medical cannabis. Researchers delving into the medical uses of cannabis typically focus on CBD – the primary active chemical in the cannabis plant.

CBD has been shown to have uses in the treatment of chronic pain, cancers, Alzheimer’s disease, epilepsy, arthritis, Parkinson’s disease, multiple sclerosis (MS) and many other common illnesses and ailments.

The Global Health Data Exchange (GHDx) estimates that there are one billion people5 who suffer from conditions that can be treated or alleviated by CBD. The pet care and veterinary markets are also expected to see extensive applications of cannabis to treat equivalent illnesses in animals.

As scientific understanding of the uses of cannabis for medical purposes is still in its infancy and the landscape is ripe for further scientific discovery as traditional big pharma increase research and development (R&D) spending and introduce more live clinical trials.

The legal medical cannabis space is also more diverse than many investors imagine and includes an extensive supply chain of growers and producers, hydroponics equipment suppliers, fertilizer producers, refiners, chemical engineers as well as the pharmaceutical companies developing new treatments and medicines.

A sign of how fast the industry is maturing is that many of these companies have grown to levels required to list on major regulated stock exchanges. Moreover, there are now a sufficient number to construct a diverse portfolio targeting the medical cannabis theme.
Cannabis is particularly important for European investors as countries like UK, Italy, Netherlands and Switzerland are regional leaders in the production and export of medical grade cannabis. In fact, the UK is the world’s largest single producer and exporter of medical grade cannabis, producing close to 100 tonnes a year, with Germany being Europe’s largest market for medical cannabis products.6

For investors, medical cannabis can have an important role to play as a means of diversifying healthcare sector exposure, or introducing a high-growth thematic twist to a portfolio. Cannabis a nascent industry in its own right and a new sort of commodity, increasing its utility as a portfolio building block.

Investing in medical marijuana ETFs

You can invest in medical marijuana through the Medical Cannabis & Wellness UCITS ETF (CBDP). In a single trade, this exchange traded fund (ETF) provides investors with exposure to a basket of companies from developed and emerging markets with high exposure to the medical cannabis, hemp and CBD industry.

The ETF tracks a rules-based Medical Cannabis and Wellness Equity Index from Solactive, a leading index provider, consisting of publicly-listed companies conducting legal business activities across nine thematic sub-sectors in the medical cannabis, hemp and CBD industries.

Top 10 holdings in CBDP

Weight Market cap Revenue (2019)
Arena Pharmaceuticals 19.7% $4211 million $806.4 million
Innovative Industrial Properties 18.9% $2589 million $44.7 million
Scotts Miracle-Gro 15.3% $8197 million $3156.0 million
GW Pharmaceuticals 12.8% $3045 million $311.3 million
GrowGeneration 7.7% $705 million $79.7 million
Cara Therapeutics 6.9% $625 million $19.9 million
Amyris 6.0% $540 million $152.6 million
Charlottes Web Holdings 2.3% $524 million $94.6 million
Medicenna Therapeutics 2.0% $244 million $0.0 million
NewAge 1.7% $161 million $253.7 million

Source: Bloomberg

The ETF is fully physically replicated with an annual fee of 80 basis points (bps).

Discover more of the best cannabis ETFs

How to invest in CBDP

You can invest in CBDP with IG from as little as £3 on the IG share dealing platform.

  1. Open a share dealing account. You can open an IG account within a few minutes
  2. Fund your account. Our minimum deposit is £250
  3. Place your trade. The IG platform has over 10,000 shares and ETFs to invest in.

IG cannabis index

Alternatively, traders can use the IG cannabis index to speculate on the top 20 largest publicly-listed cannabis companies in North America. This allows you to spread risk and trade the industry as a whole.

Our customers can find the IG cannabis index to trade on IG’s spread betting and CFD platform.

Footnotes

1NRP, 2020
2Wikipedia, 2020
3NRP, 2020
4Medgadget, 2019
5GHDx, 2020
6Prohibition Partners, 2019

Publication date : 2020-10-01T10:33:31+0100


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