The marijuana sector is one which has provided many early investors with a rate of return not seen since, well, other bubbles of the past.
Valuation multiples have continued to soar, and while many of Canada’s largest producers have been able to post impressive operating numbers, reduced costs across the board, and revenue growth rates which are out of this world, I’d like to highlight a few key aspects of the industry investors should consider before buying into the sector-trade with an ETF such as the Horizons Marijuana Life Sciences ETF (TSX:HMMJ).
This ETF tracks the broader cannabis sector, trading in all of the country’s largest names including Canopy Growth Corp. (TSX:WEED), Aphria Inc. (TSX:APH), and Aurora Cannabis Inc. (TSX:ACB) as well as a number of fertilizer companies and secondary or tertiary industries which stand to benefit from the rise of the sector as a whole.
The impact the pending legalization legislation will have on the cannabis industry in Canada (and globally) remains to be seen, however it appears the vast majority of investors are putting their money where their mouth is and betting that demand will continue to outpace supply for some time to come.
The Horizons Marijuana ETF has done a good job of diversifying across sectors and companies, allowing investors to buy into the growth story of this sector, however, I would argue that investors will also gain exposure to some of the medium-term risks associated with this industry as well.
Pricing concerns, taxation issues, a lack of direction as to how this commodity will be regulated as well as uncertainty with respect to the underlying fundamentals of this industry are all risks which should be priced in by investors considering this sector.Invest wisely, my friends.