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Is cannabis another boom and bust investment sector?
Are the bewildering number of cannabis-related companies coming to market signs of another boom and bust fad?
For example, emu chicks sold for eye-watering prices in the 1990s never made it to dinner tables, and shares in a company making crocs footwear soared and fell, while the jury is out over bitcoin.
Investment adviser Grant Williamson of Hamilton Hindin Greene thinks a more accurate comparison was the 1990s internet “tech wreck”, but some companies survived to became part of the orthodox business landscape.
“The cannabis sector is not an area we’re recommending at the moment. It’s high risk, speculative and not really our cup of tea for inclusion in clients’ investment portfolios,” Williamson said.
“Trying to pick winners in the early days is very difficult,” Williamson said.
Andrew Kelleher at JMI Wealth said cannabis could become a large market but had “the feel of a gold rush”.
Fisher Funds director Frank Jasper said medicinal use will become widely accepted.
“From an investment point of view it’s a bit similar to bitcoin – it’s a good idea but depends how it evolves.
“I doubt you will see cannabis stocks with Fisher funds soon because we’d want to see a more mature market evolve.
“We’d look for a company that can protect its competitive position. Recreation cannabis growing isn’t hard to do. The pharmaceutical side looks like it will go well long term.
“The tobacco industry started off with lots of small brands and ended up with a few as the market matured and the cannabis industry may be like that,” Jasper said.
Tim Preston, partner at CM Partners is advising a company that has a licence to research benefits of cannabis and expected to list on the NZX in early to mid-2019.
“We developed a growth fund to provide seed capital and we’ve just completed a further capital raising for Cannasouth with retail investors in New Zealand and Australia.
“It was oversubscribed 10 times which shows the level of interest. It’s probably the birth of the next global megatrend.”
Lisa Beach holds a harvested cannabis plant at a groundbreaking scheme near Ruatoria on the east coast of the North Island being legally grown for scientific testing.
Preston said there was a lot of social stigma around the psychoactive THC ingredient in cannabis which detracted from the science and the nutritional and pharmaceutical benefits
Cannasouth had strong links with Waikato university researchers.
“At the moment you can obtain a licence to grow cannabis but then you need further licences to do anything with it such as research, or develop products or export.
“There are a lot of steps to work through. You can’t deliver a product yet. All product must be disposed,” Preston said.
The Cannasouth team was closely monitoring work being done at government level and legislation.
“The real value would be specific products for specific ailments.”
Preston said some medicinal products had low THC while others had much higher levels depending on how they were intended to be used.
“Genetics becomes very important and that’s part of the market research.
“Our Ministry of Health will have plenty of overseas experience to draw on from the large number of places that have already legalised it,” Preston said.
Other New Zealand companies to receive a Ministry of Health research licence include Helius Therapeutics in East Tamaki in Auckland, Ruatoria-based Hikurangi, and Zeacann which is currently seeking $20m with the help of PwC.
Tim Preston, partner chairman of CM Partners enjoying weekend recreation recently as chairman of the Browns Bay Bowling Club in Auckland.
A report from one of PwC’s US offices recently warned about over-exuberance when investing in the “crowded” cannabis market when demand for products might not be as high as anticipated.
Companies would need to differentiate themselves and win consumer trust the PwC report said. Recreational market developments include Constellation Brands, maker of Corona beer, recently investing in a US cannabis company developing infused drinks to aid sleep and sociability.
And a California-based brewer owned by Heineken recently launched of a cannabis-infused sparkling water.