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investments In August 2016, when Cora Mannen bought her first-ever stocks, her financial advisor placed the trade for her, but only reluctantly. “He advised me against it,” recalls Mannen (not her real name), a teacher based in Thunder Bay, Ont. “He said it was very risky. I had to sign a letter saying that I was buying this company against his advice.” The company? Mettrum, a player in Canada’s then fast-growing cannabis marketplace. Mannen, 46, had a personal interest in the industry: she has multiple sclero- sis, and marijuana helps relieve her symptoms. “I got a medical prescription from a cannabis clinic. The customer service was great. They were really organized, the branding was interesting and the product was really helpful for me. I thought, ‘This could be a money-maker.’” In the three years since Mannen’s foray into the world of cannabis investing, plenty has changed. In October 2018, Canada legalized recreational marijuana. Oct. 17, 2019, will see “Cannabis 2.0,” the legal introduction of edibles (THC- infused foods and beverages), as well as topical creams, ointments, tinctures and other cannabis products. This change will open up a consumer market worth an estimated $2.7 billion, according to Deloitte Management Services LP. There has also been regulatory movement in the United States, where marijuana is now legal in 11 states and the District of Columbia. The 2018 U.S. Farm Bill, which allows for much broader hemp cultivation, and the Secure and Fair Enforcement (SAFE) Banking Act, which, if passed, would give cannabis companies access to fed- erally controlled banking systems, are creating room for legitimate cannabis businesses. Growth, however, has come with bumps. The Canadian industry has been plagued by supply bottlenecks, flat con- sumption and losses. The Ontario Cannabis Retail Corp., by Susan Goldberg for example — the provincial Crown corporation in charge of online sales and the wholesale distribution of recrea- tional pot — reported a $42-million loss in the fiscal year ended March 31, 2019, which it attributed to startup costs. The sector has also seen shakeups and scandal. In early July, Smiths Falls, Ont.-based Canopy Growth — the first publicly traded cannabis company in North America, with a $5-billion investment from U.S. alcohol maker Constellation Brands — ousted Bruce Linton, its co-founder and co-CEO. CannTrust, based in Vaughan, Ont., also lost its CEO and had its licence suspended amidst investigations into growing in unlicensed rooms. Both stocks dropped sharply, a trend that mirrors the industry as a whole after a massive selloff this past summer. The North American Marijuana Index was down about 50% in early October since the market topped out with legalization last year. Still, many portfolio managers and advisors remain bullish about the industry as a whole. “Month after month, quarter after quarter, the sector continues to grow,” says Bruce Campbell, founder of Kelowna, B.C.- based StoneCastle Investment Management Inc. and manager of its Cannabis Growth Fund, which launched just as Canada legalized recreational marijuana use. The fund has outperformed the sector to date by about 30%. “Once we get real supply into the Canadian market and people have the choice of product, it’ll expand to the next level. Going forward, there’s tons of opportunity, in our eyes,” he says. From the visionary CEO to a focus on strong management How best to take advantage of that opportunity? Very carefully, suggests Brian Kadey, senior vice-president and 22 OCTOBER 2019 One year of legal cannabis The recreational market didn’t stabilize the sector’s notoriously volatile stocks. Here’s what investors need to know about Cannabis 2.0. JHVEPHOTO / ISTOCKPHOTO; ICONS: ANTOHOHO / ISTOCKPHOTO