If you own shares in publicly traded Canadian cannabis companies, now might be a good time to ask yourself: how well do you really understand the weed sector?
New research from the Ontario Securities Commission suggests many Canadian cannabis investors might be flying blind — or, at least, with one eye closed.
Canada's largest stock market regulator polled 2,000 Canadians in October to find out how they invest and included a series of questions on cannabis investing. The poll results aren't statistically representative of Canadians as a whole, but they still raise important questions about how Canadians are investing in weed stocks.
Seven per cent of respondents actually owned cannabis stocks, with a further 23 per cent saying they'd consider it. Young men — the same group of investors who are most likely to own volatile, risky cryptocurrencies such as Bitcoin — were more likely than anyone else to consider cannabis investing, the OSC found.
Many of those investors don't appear to have much specialized investment knowledge, or much willingness to take risks by betting on the sector. Investors with low financial knowledge and low risk tolerance were just as likely as knowledgeable, risk-tolerant investors to own cannabis stocks.
On top of that, many Canadian cannabis investors don't even appear to be following one of the cardinal rules of smart investing: diversify. About two-thirds of the cannabis investors polled by OSC mostly own the stocks of companies whose primary business is focused on the cannabis sector, rather than cannabis-related businesses with a different primary focus, or more diversified financial instruments such as cannabis-themed mutual funds or exchange-traded funds.
The OSC's findings also suggest some cannabis investors are just chasing a hot trend rather than making well-researched investment decisions. One in three current cannabis investors only bought their first cannabis investments within the last six months, and they're not necessarily getting their information from neutral sources.
The most popular source of information for cannabis shareholders was the website of the company selling the investment, the OSC found. A third said they based their investment on the next-most-popular source of information — advice from friends and family.
In contrast, just 18 per cent relied on advice from a financial representative or portfolio manager. (Those trends also mirror the crypto-investing craze, notes the OSC.)
Investing decisions based mostly on company websites and stock tips from Uncle Randy could be risky: cannabis is a complex and volatile sector, as this week's news shows.
Shares in publicly traded cannabis producer Aphria have been plummeting after a short seller accused it of being part of a scheme orchestrated by insiders to divert funds from shareholders into their own pockets. (The company is refuting those claims, and is calling the short seller's report false and defamatory.)
Turbulent cannabis stocks might not be a great choice for small-time investors who are less likely to have the time and knowledge to fully understand the companies they're investing in, but the OSC poll did come with a silver lining: instead of betting the farm on weed stocks, 52 per cent of current cannabis stock owners invested $5,000 or less.
If and when the purported cannabis bubble finally pops, at least those investors won't lose it all.
New on The Leaf
- Meet the marijuana minister: Minister of Border Security and Organized Crime Reduction Bill Blair has officially taken the reins of the Cannabis Act.
- Enter the Marlboro men: Altria Group, which owns the Marlboro tobacco brand, is in investment talks with Canadian cannabis producer Cronos Group.
- Testing the waters: Statistics Canada's effort to measure cannabis consumption by sampling wastewater found the highest rate of use in Halifax, N.S.
Elsewhere on the Weed Wide Web
- Cannabasics: The Canadian Public Health Association has published a basic cannabis information package for health-care providers.
- No cannabis flower in Flower City: A Brampton, Ont. city councilor is waging a NIMBY campaign against legal cannabis stores.
- Beautiful bud: The beauty industry is embracing CBD as a trendy ingredient.