Investors Called On To Support Cannabis

By Ben Hamill - October 15 2018
Investors Called On To Support Cannabis

Investors who have avoided the cannabis industry in the past out of concerns about the possible implications of legalization for Canada should consider buying in to help boost the industry and control how it operates, according to impact investing experts.

While there has been plenty of excitement around weed stocks as the legalization of recreational use approaches on October 17, uncertainty around issues like legal implications of crossing the US border have kept bigger investors away from the market. This is according to Vinay Shandal, the managing director of the Boston Consulting Group in Toronto.

According to Shandal, some banks are refusing to lend money for the industry, partly because the US’s regulatory framework for cannabis is so different. The states all differ in terms of the degree to which smoking weed is or is not permitted, so banks that are dealing in the market at the moment are being exceedingly cautious.

Investing to Address Concerns

Other essential investors, like Canada’s bigger pension funds, may also avoid the industry because of concerns that legal cannabis poses health risks pertaining to addiction or a reduction in work ethic among users. However, Shandal has noted that they won’t address these issues by refusing to get involved.

Impact investing uses investors’ influence to further progress in social, governmental and environmental issues, hence the term ‘ESG investing’. Such investments are set across a spectrum, with some being almost purely philanthropic and others having a more strategic angle. Investor-influenced businesses benefit both the industry’s bottom line and its social outcomes, giving stakeholders a vast amount of power to control the outcomes of any given market.

Since the cannabis industry is clearly here to stay, avoiding it would simply be a missed opportunity for local pension funds, according to Vinay Shandal. For example, high energy consumption businesses that are looking to lower costs could do so by retrenching workers, using cheaper materials, or pushing their bounds with suppliers – or they could simply work on their energy efficiency.

Capital Flows as Legalization Looms

A report on the cannabis industry from Sustainalytics gave poor grades on energy use to Canada’s four largest weed companies at the time: MedReleaf, Canopy, Aurora, and Aphria. However, Shandal believes that it would be silly for pension funds to avoid these companies purely because of this track record, as they would miss out on great returns from a high-growth industry in which Canada may soon become an international leader.

The expert says that companies who want to see the weed industry improve its energy efficiency and adopt more responsible distribution habits will not be influenced by investors who simply stand on the sidelines. And as legalization looms and institutional capital starts flowing into cannabis firms, greater shareholder control of their governance, energy use and other ESG metrics will be sure to follow.

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