Why this advisor is bullish on next year’s pot framework

The portfolio advisor for a new medical cannabis mutual fund says he expects Canadian marijuana stocks to climb back up as federal branding and distribution rules are hashed out.

Charles Taerk, chief executive of Faircourt Asset Management in Toronto, says investors’ expectations were lowered after the Trudeau government introduced bills to legalize recreational marijuana, dropping the stocks.

Critics have called Canada’s marijuana stocks speculative and akin to gambling — not investing. But Taerk, whose firm advises the UIT Alternative Health Fund, expects the proposed framework to limit branding and distribution while still supporting growth.

“I think people’s expectations needed to be adjusted. It’s not going to be easy and it’s going to be rolled out over time,” Taerk tells Advisor.ca. “From here forward, I think there’s still lots of upside.”

Read: Betting big on a Canadian pot bonanza

Distribution

The Liberals, aiming to have a recreational marijuana framework finalized in 2018, have proposed that each province handle its own distribution system.

B.C. appears to be more comfortable with the dispensary model, Taerk says, while other provinces may look at Alberta’s distribution system for alcohol. In Alberta, alcohol can be sold in stores, but it’s controlled and tracked through a central distribution system overseen by the Alberta Gaming and Liquor Commission.

Diversified products

Horizons Medical Marijuana Life Sciences ETF: This medical marijuana ETF trades on the TSX as HMMJ.

Emerging AgroSphere ETF: ETF Managers Group filed for this ETF, to trade on the NYSE Arca. It will track an index created by BE Asset Management that follows 69 medical marijuana companies.

StoneCastle New Era Cannabis Fund: StoneCastle Investment Management, which owns Canopy, Organigram, Supreme, Aphria, and Emblem, among others, is launching this mutual fund.

UIT Alternative Health Fund: Managed by Redwood Asset Management with Faircourt Asset Management as the advisor, this mutual fund was launched in March and invests in medical cannabis and alternative health.

Private funds: Privateer Holdings has been a leader in private marijuana investment. It has positions in Tilray, Leafly and Marley Natural. Private investment fund Green Acre Capital also launched a cannabis fund in January 2017.

“That model could work in other places. It could work in Ontario,” Taerk says. “It goes to certain stores, which are approved.”

Prime Minister Justin Trudeau has said the federal government will make recreational cannabis available nationally with or without provincial laws in place—possibly through online sales.

Marketing

The marketing and branding rules are going to be limited, with some observers questioning whether the government will mandate plain packaging.

Taerk says he’s expecting marketing limitations similar to those for wine. He says consumers are not likely to see commercials for cannabis, with marketing probably limited to stores. He also expects restrictions on the sponsorship of music and sports events.

Read: Where do insurers stand on pot use?

But, if the regulations play out as Taerk expects, cannabis producers would not be reduced to mere growers, or farmers. He predicts the companies will be permitted branded packaging and advertising in stores. “I think it’s going to be similar [to wine],” he says. “In the store, you see the branding.”

Medical sector

Taerk says the medical marijuana sector will also continue to grow. As other countries legalize marijuana for medical purposes, Canadian companies can export their expertise globally, through joint ventures or other partnerships.

Drivers of medical market growth include pressure for health-care cost efficiencies, government programs promoting preventative health, baby boomers seeking health care and healthier, active lifestyles, and a growing interest in holistic health.

Taerk says an aging population will increase demand for cost-effective pain medication. “We’re going to have a balloon in the older demographics. The cost of health care per capita for that older segment is substantial,” he says.

Also read:

Echelon Wealth to advise medical cannabis producer