Wednesday, February 28

Canadian Hedge Fund, Anson Funds, Takes the Long-Term View on Weed: Why It Matters

marijuana industry

Should you be optimistic about investing in the marijuana industry? 

While the issue continues to be an intense debate in the US Government, investors are placing their bets before it gets resolved.

One such investor is Anson Funds, a hedge fund with offices in Dallas and Toronto, which manages $1.6 billion in assets. Anson has changed its outlook on weed over the past year as they believe the space is home to some of the most attractively valued companies on the market.

Two years ago, the US House of Representatives successfully passed the Secure and Fair Enforcement Banking Act 21. The bill would have protected banks that serve legal cannabis-related business – currently an issue of great contention between the federal government and businesses working in states that have legalized marijuana (21 states). Ultimately, however, the bill was rejected by the Senate in December last year.

Considered a key catalyst, weed stocks tumbled after the fresh legislation failed to materialize. Despite the disappointment, Anson Funds did not throw in the towel. As the firm’s co-founder and Chief Investment Officer, Moez Kassam, recently told Bloomberg they expect the sector’s long-term gain will far outweigh the current slump. 

“Everybody was talking about cannabis being the best thing; we were short,” said Kassam, talking about Canadian cannabis stocks during the initial boom years ago. “Then people said cannabis is the worst industry in the world now, so we’re very long on the US pot sector.”

“We got the timing wrong, but we believe that the country is moving toward approving the Secure and Fair Enforcement Act,” Kassam said. 

At the moment, it’s a brave trade for people watching pot stocks tumble. The average US-listed cannabis stock fell by over 30 percent since the start of 2021, Financial Times reported in early February. That’s compared with 20 per cent for the S&P 500. Returns in the Canadian cannabis index are even more dismal, down 50 per cent during the same period.  

Kassam said Anson Funds sees these negative returns as a great opportunity to acquire these stocks at a bargain — as long as you wait for them to go back up if and when the US finally legalizes weed. 

“I don’t need to make money on something today, if I know in two, three years it’s going to go up 400 per cent, 500 per cent,” Kassam said in the Bloomberg story. 

Anson plans to maintain its positions in cannabis stocks with US operations. That includes Curaleaf Holdings Inc., a large U.S. marijuana company with hundreds of dispensaries located in 19 states. Many observers believe it remains a good bet for investors.

We are already seeing progress in the congressional front as Rep Earl Blumenauer (D-OR) began circulating a sign-on letter challenging Biden Administration officials, specifically Garland and HHS Secretary Xavier Becerra, to provide clear and compelling reasons for whatever decision they reach on cannabis policy.

Despite positive sign, investors should be prepared for more turbulence across the sector. Anson Funds said it predicts a “volatile journey” ahead for the marijuana industry.