Big investors find ways to engage the cannabis industry

While recreational cannabis users join the party in California and next door in Nevada, Wall Street investors are increasing their opportunities to jump in. Motivated by a desire for profits more than changing politics, their interest reflects a willingness to leave value judgements aside when considering investment strategies.

Several new cannabis-themed Exchange Traded Funds (ETFs) bundle together the stocks of federally compliant cannabis companies with alcohol, tobacco, fertilizer and pharmaceutical companies. Solactive, MJIC and New Cannabis Ventures are among Wall Street institutions whose ETFs juggle different percentages of such core stocks. AdvisorShares Investments sells a “Vice ETF” (ticker symbol: ACT), that includes Canadian cannabis growers and U.S. firms like Anheuser Busch and Phillip-Morris.

“There was some debate,” said Chief Operating Officer Dan Ahrens, about using “vice” to describe a cannabis ETF. But Ahrens explained that the word is understood by investors to involve highly regulated industries. “There is a large social surge of people who want legalization,” said Ahrens. “We think in the future there is going to be a great deal of overlap between these companies.”

When Constellation Brands, a beer distributor, bought 9.9 percent of Canopy Growth, a Canadian cannabis grower, some wondered if marijuana-booze was on the horizon. Probably not, according to Jim Watson, Senior Beverages Analyst at Rabobank.

Watson cited the Four Loko brand of caffeine-infused alcohol drinks as the reason. Nicknamed “blackout in a can,” the Food and Drug Administration forced a reformulation of Four Loko's recipe in 2010, because added caffeine dangerously masked the effects of alcohol. Inversely, researchers fear that THC could amplify alcohol's effects. But Watson said Constellation Brands' interest in Canopy Growth is more about “the distribution logistics possibilities” and building relationships with the emerging cannabis industry.

Will this turn into a battle of big versus small companies? “A lot depends on what happens to it federally,” said Ahrens. If the nation legalizes cannabis, Ahrens predicted that, “absolutely,” major tobacco companies would get involved.