Election a game-changer for pot investments

If Justin Trudeau follows through on his promise to legalize marijuana, clients will be gung-ho to invest in the growth industry, but are their wealth advisors?

Justin Trudeau’s campaign promise to legalize marijuana could result in a flood of new alternative investment opportunities to satisfy the cravings of clients, but advisors aren’t nearly as excited.

“It’s hard to look at any of these companies because a lot of them are pre-profit and many are pre-sales,” a veteran East Coast advisor told WP, who like many industry professionals prefers to speak about marijuana investments on condition of anonymity. “It’s difficult to speculate on the present value of future earnings when you don’t know what the regulatory regime is going to be.”

No question the risks at this point are substantial. But certainly Trudeau’s election as PM reduces those risks merely by the fact his personal position on this subject is so diametrically opposed to that of his predecessor.

While the veteran advisor sees the future potential of a legalized marijuana industry in Canada, including investment opportunities created by a growing market – think cigarettes when rolled versions first became available – but doesn’t see anything that would excite him or his clients in the immediate future.

That said, the change of government shouldn’t be dismissed as a non-event.  

"One of the big risks before was government risk; we didn't know what the government was going to do and there was a lot of uncertainty," Herb Dhaliwal, a former Liberal MP and now chairman and co-founder of B.C.-based National Green Biomed, a medical marijuana company. “Hopefully with this new government, we'll have a better sense of direction and that will help all businesses involved in this area."

Colorado generated $700 million in marijuana sales in 2014 – 55% for medical purposes and recreational purposes for the rest – with the government taking in $76 million in tax, licensing and fees. Add to this the spin-off revenues from tourism, marijuana-related products, financing of marijuana-related businesses and you’re talking about a number well over $1 billion for a population about the same as Toronto.

What happens next is still to be determined but Canada is likely to follow a similar route should the Liberals follow through on their legalization plans.

On Tuesday, the day after the Liberals swept to power, Canopy Growth, Canada’s largest publicly traded medical marijuana company, jumped 20% on the election results. Earlier this year it raised $22 million in private funding setting the stage for future investment possibilities for advisors and their clients.