Are you ready to go "Higher"
TLDR: Is investing in Cannabis stocks a must as we head towards a looming recession? We cover:
Sector similarities
Previous recessionary performance
Companies that have seen massive gains in the Cannabis sector
As an investor, there are a few trends you tend to look out for in any given year considering the current economic climate. For example during the COVID recession the energy sector consisting of oil reached an all-time low while ecommerce giants like Amazon thrived. You would look to shift away from one sector and rotate in another based on changing consumer habits and the overall economy during that time.
A few weeks ago we covered McDonald's and how it historically performed during recessions. It got us thinking, what other sectors tend to perform well during times of financial constraints. More of our McDonald’s analysis can be found here.
With an inevitable recession looming on horizon that tends to keep moving from quarter to quarter, it is a good time to once again evaluate what sectors and companies may thrive in your portfolio.
Today is April 20th 2023, for Cannabis users, today is your Christmas and is celebrated nationwide. As of today, there are 21 states that Cannabis is legalized for adult recreational use. We look at this industry and how it compares.
When you hear recession it is often paired with names like Walmart, Proctor & Gamble, and Costco. In addition to these names, the beverage alcohol industry is generally considered recession proof as well. Similar to the beverage alcohol industry, Cannabis is highly regulated. So does that make Cannabis something to look at for your portfolio?
How is Cannabis investing different from other equities?
There are a few things to keep in mind when investing in this category:
Cannabis is not listed on exchanges like the Nasdaq or New York Stock Exchange. It is a class that is considered as OTC (over the counter). While you can still invest in it and they are a public company, they just aren’t traded or meet criteria established by the securities and exchange commission (SEC)
These companies are typically smaller in size
OTC equities tend to have more risk associated with them as companies are not obligated to meet reporting standards compared to those listed on the Nasdaq or New York Stock Exchange
Which means a small trade can move the stock in either direction
Unlike other listed companies, if you have visited a dispensary in your state you will notice the businesses operate as a debit card / cash business because Cannabis companies are not protected by banking regulations like other listed companies, which opens the door to using other forms of exchange such as CryptoCurrency, which we covered a few weeks ago.
Is Cannabis investing worth the risk?
Let’s look at some of the charts. In a similar category, Alcohol Beverages. We look at Bud (Anheiser Bush) saw a +50% increase and DEO (Diageo - distributor of Johnny Walker and other spirits) which saw a +73% during the COVID recession when we were all stuck at home.
If alcohol is said to be recession proof, can the same be applied for Cannabis?
We look at a couple of companies during the same time period to get a representative sample.
GTBIF (Green Thumb Industries Inc):
Green Thumb Industries Inc. is a cannabis consumer packaged goods company. The Company operates through two segments: Consumer Packaged Goods and Retail. The Consumer Packaged Goods segment is engaged in the cultivation, production, and sale of cannabis products to retail stores. Retail segment is engaged in the retailing of cannabis to patients and consumers. They also have their own products similar to other Consumer package goods companies that have private label products that compete with big brand name products.
Canopy Growth Corporation (CGC)
Canopy Growth Corporation, engages in the production, distribution, and sale of cannabis and hemp-based products for recreational and medical purposes primarily in Canada, the United States, and Germany. It operates through two segments, Global Cannabis and Other Consumer Products. Similar to GTBIF, it also has several private label brands for dried cannabis flower, extracts, beverages, and gummies.
With Cannabis companies resembling traditional consumer packaged goods companies as well as regulatory recession proof businesses, does Cannabis belong in your portfolio? We are not financial advisors but it is intriguing to see the similarities between the different sectors.
I am often looking for the next big wave in a sector that I can ride. In the stock market and overall investing, the concept is to catch a wave. The market ebbs and flows, goes up and down. The goal is to catch a wave you can ride for optimal gains over a course of time before finding the next wave that will give you the same if not better returns.
If you have any thoughts, companies, or sectors on your radar, we’d love to hear from you! Please shoot a note at info@2dadsfinance.com.
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