Will U.S. executive or legislative changes herald resurgence in 2023?
Purpose Investments expects cannabis investing to resurge next year, given some of the recent positive signals coming out of the United States.
“The picture is already better,” Nawan Butt, portfolio manager for Purpose Investments told Wealth Professional. “We’re seeing incremental change, which is positioning the industry quite strongly for the next couple of years.”
Butt said more than 35 U.S. states have allowed the medical use of marijuana, and five more are expected to after the mid-term elections. Nineteen have also allowed recreational use, so Purpose has been following the proliferation of states turning to marijuana.
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President Biden recently asked the departments of health and justice to do an expedited review of marijuana, so it’s no longer on the same dangerous drug schedule as heroin and opium. He’s granted clemency for small possession federal offences, hoping governors will follow suit in their states.
Meanwhile, the legislative branch is also aiming to do an incremental reform rather than the comprehensive one that the Democrats desired. There’s now growing support for the smaller reform with the hope that it can finally pass.
Purpose Investments is optimistic that this investment field will continue to open in the U.S.
“Up until a few weeks ago, we didn’t have the leader of the free world saying that cannabis shouldn’t be scheduled as such a dangerous substance,” he said. “We didn’t have the legislative branch in the U.S. really pointing toward a true timeline for when they think they can get something done. So, it is very much a one-data point story with a reform bill to be passed. But, the optimism toward that reform bill is getting stronger and stronger.”
Butt noted that the Purpose Marijuana Opportunities Fund, which is an exchange-traded fund that trades on the NEO exchange, began four years ago with a Canadian focus. But, after Canada’s troubled introduction of legalization, Purpose switched to having more U.S. exposure three years ago as it saw the potential growth opportunities in the U.S. The fund now has 85% U.S. exposure, with the rest being Canadian and international with similar progress in Germany and the U.S.
“The fund is well set to gain a lot of the upside that comes from the U.S.,” said Butt.
“There are all sorts of volatilities in the space, especially when you have that discretionary overlay, which, in this case, is a reform bill that doesn’t necessarily have a perfect metric to measure as to when it gets passed. What we do know is the setting is as green as it has been, at least compared to the last couple of years, and the market is starting to recognize that. Even if something happens on the legislative side fairly quickly, there is still a lot of room for valuations to run because the growth of the industry is quite impressive. We’re taking a look at growth rates of 15% plus over the next five years, which is quite attractive.”
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Butt said Canadian advisors understand what’s happened in Canada and the U.S. growth potential, and those who have retained the investments are optimistic about this field’s growth.
“We’re going to see a lot of shifting from Canadian names into U.S. names as they get better access to financial services and better exchange access,” Butt said, noting that will continuepto lift the tide. “This is the first level of reprieve that we’re reaching. But cannabis will continue to be one of the only places that has a very high growth rate for the next few years.”
