Growing the Cannabis Index

Growing the Cannabis Index

Cannabis has been around for a long time. It was being used as herbal medicine as far back as 500 BC in Asia, and the first American settlers grew the Hemp plant for textiles and rope.

In the 19th Century, it was introduced as a stomach pain remedy and for the treatment of nausea and vomiting – freely sold alongside heroin at your local drugstore.

However, it wasn’t until the Mexican Revolution that North America became acquainted with the recreational potential of the plant. It wasn’t until 1937, however, that the “drug” was delegitimized.

Meanwhile, Cannabis was being smoked throughout the Middle East, first described in the 5th Century BC by the Greek writer Herodotus (the recorder of the famous Greek-Persian Wars), and later spread by Islam, which forbade drinking alcohol but not smoking Hashish.

Marching on the Grass

Over the past decade, Cannabis has been gaining acceptance and, at present, over two-thirds of Americans believe it should be legitimized; in fact, 33% of US states have approved the drug for medicinal use and nine for recreational use, as well, lagging behind many countries in Europe. And, as cigarette sales flounder, tobacco and alcohol companies are looking towards this new horizon.

Last year, for example, Corona beer owner, Constellation Brands invested $4 bn in Canadian Cannabis giant Canopy Growth, which was already listed on the New York Stock Exchange. Another Canadian producer, Cronos, sold 45% of its value to Marlboro owner, Altria (formerly Philip Morris).

On the medical front, Novartis has signed a product development agreement with Tilray (also a Canadian grower), and Ciba-Geigy, Pfizer, Merck and others are the largest holders of Cannabis-related patents – signalling a return to the pre-1937 days when the major marketers of Cannabis products included Johnson & Johnson, Squibb (now Bristol-Meyers-Squibb), Merck & others.

Highfliers Flying High

The Cannabis component responsible for the plant’s much-sought-after euphoric effect is THC, which in the 1990s accounted for 4% of the plant’s content. Two decades of cultivation, however, have increased this to 30% and more, resulting in potent plants whose overuse could increase the negative effects of the drug, primarily various levels of anxiety and worse.

Another component – CBD – is extensively used as an extremely effective pain killer, a medication against seizures and in the treatment of appetite loss in cancer patients, with the FDA approving new products by the day. The CBD market alone is expected to grow four-fold within the next three years, perhaps reaching $22 bn, by some estimates.

The industry is now estimated at over $10bn in the US alone, where it accounts for a quarter of a million registered jobs. On-demand marijuana companies are raising anywhere between $3 mn to $33 mn in venture capital, and – unlike the Crypto environment – there seems to be a flourishing of ETFs currently covering the Cannabis industry.

AvaTrade Adds BITA’s Cannabis Index

In September 2017, German-based Fintech and financial services provider, BITA introduced its BGCANG index. The index covers the 20 largest publicly listed companies by market cap whose direct revenue is derived from the Cannabis industry.

These include cultivating and processing companies, primarily, but the constituents’ list stands to be reviewed every 3 months. At present, the index is quite volatile (37.74% YTD with cumulative returns of 5.42% YTD) as is the case in many a new industry. But once the $1.1 trillion-per-year medical industry decides to cash in, the sky is the limit, and this index could become a stable component of most standard portfolios.