Merrill Lynch may have been one of the first mainstream investment firms to release a report on the burgeoning legal marijuana market back in 2015, but more have followed, including the Edward Jones marijuana report that recently entered the fray.
On Dec. 20, 2017, Edward Jones published, “The Canadian Marijuana Market Heats Up, but Investments Carry Risk,” analyzing the investment potential of legal medical and recreational marijuana in Canada.
Where Merrill Lynch has been bullish on some sectors in legal marijuana and Deloitte has projected Canadian marijuana’s total market size will top $22.6 billion, Edward Jones is skeptical that legalization will bear fruit for investors.
According to the Edward Jones marijuana report, any investment in Canada’s legal market would be entirely speculative because:
- the medical marijuana market is too small,
- companies in the space have limited operating histories,
- regulations continue to change,
- the recreational market’s low barriers to entry will increase competition and pressure prices,
- public marijuana companies have volatile stock prices, and
- marijuana startups have more complex risks than traditional startups.
Considering the report was published by Edward Jones, perhaps it should be no surprise that a mainstream investment firm stuck to boilerplate risk aversion on the topic of legal marijuana in Canada and essentially advocated that its readers do the same.
And while the Edward Jones marijuana report neglected to discuss any of Canada’s licensed marijuana producers, yet it indirectly cited financial statements from Canopy Growth (TSX: WEED) as a means of supporting its risk-averse stance, it did recommend some safer bets, like health care and consumer companies that may ultimately benefit from the Canadian marijuana market.
“For exposure to medical innovation in the biopharmaceutical subsector, we prefer drug companies that are diversified by product, geography and have extensive operating history and experience bringing drugs to market such as Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE),” wrote the report’s analysts. “In the food and beverages or tobacco subsectors, we continue to prefer companies with strong brands, larger markets and a proven track record such as Saputo (SAP.TO), Mondelez (MDLZ), and Philip Morris International (PM).”
The Edward Jones marijuana report likely won’t change the investment landscape of legal marijuana in Canada, but it is important to know when and how mainstream investment firms are assessing the industry.