Investors who are delving into the nascent cannabis sector should consider a targeted ETF approach to hone in on the top companies in the rising cannabis industry.
In the recent webcast, The Low-Cost Way to Invest in Cannabis, Meb Faber, Co-Founder and CIO, Cambria Investment Management, highlighted the changing perception of marijuana and the growth of the cannabis industry. Back in 1969, 84% of the U.S. public had a negative opinion of legalizing marijuana. Fast forward to 2018, 62% of the U.S. public are in favor of legalizing marijuana.
“Would you like to go back in time and invest in beer companies when the United States ended Prohibition in 1933? There is a similar situation developing around the globe currently as legal restrictions on cannabis production and consumption are being lifted,” Faber said.
Faber traced the origins of the cannabis boom to 1996 when California voters approved Proposition 2015, the first legislation legalizing cannabis for medical purposes at the state level. As public perception has changed and became more accepting, additional legislation and legalization followed, with legal medical marijuana in 33 states and the District of Colombia and legal recreational marijuana in 11 states and D.C.
It is not only the U.S. that has changed its perception of marijuana. Faber pointed out that Uruguay was the first country to fully legalize marijuana. More recently, Canada fully legalized cannabis. There are currently 21 countries where cannabis is legalized either fully or partially.
The Huge Opportunity in Cannabis Investing
The legalized cannabis industry is also a nascent businesses with huge opportunity. New Frontier Data estimated that the consumer market value was nearly $344 billion in 2018, with Asia making up over half of that. There were also 263 million cannabis users globally over the past year.
“As cannabis gradually has become legalized in various forms, the growth has been strong. Legal cannabis spending has been dominated by the United States, and is estimated to grow rapidly both in the U.S. and the rest of the world,” Faber said.
Additionally, there are also many industries that cannabis can expand into beyond recreational usage. Faber underscored major verticals like labs, cosmetics, biopharmaceuticals, supplements and more. For example in 2018, the FDA approved the first drug, Epidiolex, comprised of an active ingredient taken from marijuana to treat epilepsy.
Cannabis is slowly going mainstream. In 2018, there were $13.8 billion in cannabis investments. Among the more prominent investments, global beverage producer Constellation Brands and tobacco producer Altria made $5.8 billion in investments combined.
“The cannabis opportunity is wide. There is a confluence of major catalysts that have potential to feed on themselves,” Faber said.
As a way to help investors tap into this growing opportunity, Cambria recently launched the Cambria Cannabis ETF (TOKE), an actively managed ETF strategy backed by the Cambria management team.
“We take the entire universe of investable cannabis stocks, and put them through a legal review to ensure they qualify to be held in the fund,” Faber explained. “We then take a blended market-cap, equal-weight approach to portfolio construction with consideration of position caps and tilts to ensure we capture potential opportunities across the market capitalization spectrum with consideration made to position sizing in illiquid names.”
Additionally, TOKE is the least expensive cannabis ETF available, with an annual fee of just 0.42%, or $42 on a $10,000 investment.
Financial advisors who are interested in learning more about the cannabis industry can watch the webcast here on demand.