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Diversifying Your Portfolio & Spreading Risk

For investors, the medicinal cannabis sector comes with a few obvious attractions. As legalisation gathers momentum across the world, attractive opportunities are emerging to capitalise on rising global demand for medicinal cannabis products. And medicinal cannabis is also a good portfolio diversifier: because it’s uncorrelated with other asset classes like bonds and equities, it can play a critical role in helping to spread risk across an investment portfolio.

But investing in medicinal cannabis isn’t just about investing in producers themselves. The industry encompasses a broad range of companies in business areas nearly as diverse as those represented by the S&P500 itself. For example, investing in the asset class could also give investors exposure to health care, technology, media, financial services and real estate investment trusts. And it’s in these sub-sectors that some of the most interesting opportunities can be found.

Drilling down into cannabis sub-sectors

As more and more cannabis-related stocks flood the investment landscape, splitting them down into sub-sectors can help to make sense of the vast range of opportunities available. And as the industry grows and becomes more diverse, new sub-sectors will emerge and others will consolidate or disappear altogether. The most established and prominent sub-sectors of the cannabis industry are:

    • Pharmaceuticals & Biotechnology
    • Agricultural Technology
    • Consumption Products
    • Pharmaceuticals & Biotechnology
    • Agricultural Technology
    • Consumption Products
    Past performance and future prospects
    As with any investment decision, it’s vital to think about your objectives, the length of time you want to invest and the level of risk you’re comfortable with. Understanding these three variables will form the basis of selecting the most appropriate investments for you.

    It’s fair to say that recent years have not been a smooth ride for cannabis stocks. In 2018, they outperformed gold, Bitcoin and even the wider market, and the biggest market players were boosted by soaring valuations. Then in 2019, a broad-based sell-off last year saw stocks fall and valuations were eroded, leaving some investors questioning the extent of actual demand. So what does the future hold for investors? By 2024, the UK medicinal cannabis market alone is predicted to be worth nearly US$1.3 billion, servicing nearly 340,000 active patients, and the investment opportunities it creates – can only expand.

    If you’d like to hear more about investing into JPD Capital please visit Investors