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investments 23 Malkani advises would-be investors to tem- per their expectations, given the supply bottlenecks and regulatory confusion that characterized Cannabis 1.0, not to mention government restrictions on packaging, ingredients, labels and THC content. Regulations for these products will come into effect on Oct. 17, and the products will be available in stores as early as two months later, as licensed producers (LPs) must give 60 days’ notice to Health Canada of their intention to sell edibles, extracts or topicals. Health Canada has stipulated that there should be no ele- ments in a product that could be associated with alcoholic beverages or brands, and that edible products must not be “appealing to kids.” These rules could throw a spanner in the works for companies investing in non-alcoholic “canna- beer,” for example, or that want to produce chocolate, baked goods or other treats that naturally appeal to kids. Gummies and candies will be approved on a case-by- case basis. Given the restrictions, Malkani imagines that these products will not be among the first released, with LPs starting off small and gauging the regulatory reaction. “It’ll be a slow rollout. I think cannabis companies realize that there are still some grey areas in the marketing rules. Nobody is purporting that they’re going to have 100% of their product out on the shelf for December 2019. So it’ll be a phased rollout, but it will be very well received.” ... but the real money will be in the medical marketplace Recreational legalization may be capturing the imagination and attention of the media and investors, says Campbell. Over the long term, however, he says the real opportun- ity will be in “the true pharmaceutical market,” by which he means pure, prescription pharmaceuticals rather than medical marijuana to smoke: “That will be huge as time goes on and the technology and research catch up.” That thesis makes sense from a numbers perspec- tive, Campbell explains, as Canada is the first G7 coun- try to legalize recreational marijuana. But more than 40 countries, with an addressable marketplace of 1.2 billion people, have some form of medical legalization, which $2.7 billion per year The estimated value of the Canadian consumer market for Cannabis 2.0 Source: Deloitte allows for research and development as well as the possi- bility of exports. Further, he notes, medical products earn higher margins per gram than recreational products in Canada, as provincial corporations act as intermediaries between growers and producers. Longer term, he’s watching for partnerships between cannabis and pharmaceutical companies with access to patients and clinical trials. Kadey, too, sees immense potential for cannabis-derived medical products: “If there’s a CBD \\\[cannabidiol\\\] strain that causes weight loss, that’s a $22-billion market in the United States. Imagine getting even 10% of that market? The opportunity for these companies is massive.” The takeaway for investors, and their advisors Cannabis is, and will continue to be, a volatile and risky sector, the experts agree, and not suitable for novice or conservative investors. Active management is key, stresses Campbell, especially in a marketplace that has so many startups and is still driven partly by hype rather than by solid management and performance. He suggests using dollar-cost averaging to introduce suitable clients to the market, allocating a third as mar- kets begin to recover from the summer’s losses, a third “at the next depths of despair” and the final third on the next recovery. “That way, clients will end up with a great overall cost and a good experience,” he says, and will be able to weather the lows with the knowledge that they’ve got a long-term plan. Cannabis is like mining, oil and gas, and real estate, says Kadey. “They all go through the same cycles: the same greed at the top, when people think stocks are going to the moon, and the same lows when people give up on companies at the bottom. If you’re investing in these sectors, you want to make sure that your advisor has been through these cycles and can help guide you through them. Money management becomes very important as a cycle progresses — if you invest in a company and it goes up four times, you should be selling or at least taking back your capital, and not expecting it to go up 10 times.” That’s the route that Mannen took with her cannabis stocks. After buying Mettrum, she later opened her own trading account and picked up Aphria, Aurora and MedRe- leaf. Although her advisor had warned against the initial investment, she says, “he also did work with me when the stocks started going up. Mettrum doubled within four months and I called him in a panic, not knowing what to do.” Mannen ended up selling most of her cannabis shares in tranches as prices climbed, ending up with a return of approximately 180% over two years. Since then she’s been educating herself about stock investing, allocating about 10% of her overall portfolio to “experimenting.” But, she says, “I still like having the comfort of a financial advisor. This year, his returns are a lot better than mine.” Mannen has since invested in other industries, but she’s open to buying the right cannabis stock — when she figures out what that is. “The money I made wasn’t based on the fundamentals. It was based on hype,” she says. “I inadvertently capitalized on the hype of the industry. And now, I’m trying to pay more attention to fundamentals.” AE HAILSHADOW / ISTOCKPHOTO 24 OCTOBER 2019