Future Returns: Investing In The Cannabis Industry
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,623,020 (+0.08%)       Melbourne $974,710 (-0.81%)       Brisbane $992,583 (-1.37%)       Adelaide $896,270 (+0.26%)       Perth $892,481 (+0.31%)       Hobart $726,595 (-0.35%)       Darwin $664,958 (+1.76%)       Canberra $1,012,150 (+0.04%)       National $1,048,965 (-0.14%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $751,258 (-0.23%)       Melbourne $495,378 (+0.24%)       Brisbane $583,696 (-1.32%)       Adelaide $453,443 (-0.76%)       Perth $458,999 (+2.21%)       Hobart $509,191 (+0.99%)       Darwin $362,436 (+1.68%)       Canberra $497,643 (+0.69%)       National $536,245 (+0.06%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 9,903 (-109)       Melbourne 14,181 (+71)       Brisbane 8,075 (-54)       Adelaide 2,184 (+36)       Perth 5,723 (+16)       Hobart 1,216 (+3)       Darwin 275 (+14)       Canberra 888 (+5)       National 42,445 (-18)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,719 (+28)       Melbourne 8,357 (+7)       Brisbane 1,747 (+49)       Adelaide 405 (+23)       Perth 1,442 (+5)       Hobart 211 (-1)       Darwin 399 (-7)       Canberra 1,018 (+16)       National 22,298 (+120)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 (-$20)       Melbourne $620 ($0)       Brisbane $635 (-$5)       Adelaide $610 (-$10)       Perth $675 (-$20)       Hobart $550 ($0)       Darwin $700 (-$30)       Canberra $680 ($0)       National $666 (-$12)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $595 ($0)       Brisbane $625 (-$5)       Adelaide $510 (+$10)       Perth $630 (+$5)       Hobart $470 (+$5)       Darwin $560 (+$30)       Canberra $550 ($0)       National $597 (+$4)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,884 (-132)       Melbourne 6,585 (+256)       Brisbane 4,488 (+137)       Adelaide 1,589 (+2)       Perth 2,880 (+283)       Hobart 411 (+13)       Darwin 93 (-4)       Canberra 632 (+17)       National 22,562 (+572)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 10,906 (+381)       Melbourne 6,312 (+294)       Brisbane 2,339 (+54)       Adelaide 371 (+21)       Perth 797 (+18)       Hobart 143 (+3)       Darwin 126 (+3)       Canberra 816 (+23)       National 21,810 (+797)                HOUSE ANNUAL GROSS YIELDS AND TREND         Sydney 2.56% (↓)     Melbourne 3.31% (↑)      Brisbane 3.33% (↑)        Adelaide 3.54% (↓)       Perth 3.93% (↓)     Hobart 3.94% (↑)        Darwin 5.47% (↓)       Canberra 3.49% (↓)       National 3.30% (↓)            UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 5.19% (↑)        Melbourne 6.25% (↓)     Brisbane 5.57% (↑)      Adelaide 5.85% (↑)        Perth 7.14% (↓)     Hobart 4.80% (↑)      Darwin 8.03% (↑)        Canberra 5.75% (↓)     National 5.79% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)      Hobart 1.4% (↑)      Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 29.8 (↑)        Melbourne 31.6 (↓)     Brisbane 30.4 (↑)        Adelaide 25.3 (↓)       Perth 35.7 (↓)     Hobart 33.0 (↑)      Darwin 43.9 (↑)      Canberra 31.9 (↑)      National 32.7 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 30.2 (↑)      Melbourne 31.7 (↑)        Brisbane 27.1 (↓)       Adelaide 25.5 (↓)     Perth 37.5 (↑)        Hobart 38.0 (↓)       Darwin 37.9 (↓)     Canberra 41.2 (↑)        National 33.6 (↓)           
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Future Returns: Investing In The Cannabis Industry

The stigma once associated with cannabis has dropped off dramatically.

By Rob Csernyik
Wed, Apr 28, 2021 3:20pmGrey Clock 3 min

Several years ago Morgan Stanley did a poll of over 1,000 high-net-worth investors to see if they’d invest in legal cannabis. A full 65% said they were not likely to invest if cannabis were legalised in the next 12 months.

But Matt Bottomley, equity research analyst at Canaccord Genuity in Toronto, doesn’t hear this same level of objection to the industry today, and for good reason. “At the end of the day, I think the U.S. cannabis sector at maturity is probably US$80 billion to US$100 billion in sales,” he says.

The stigma once associated with cannabis has dropped off dramatically, and within the past month states including New York and Virginia, as well as Mexico, have either legalised it or announced plans to do so.

“You’re going to see it slowly, over the next years and decades transition from a more traditional consumer-packaged goods market,” Bottomley says. Presently, leading U.S. companies “are kind of doing everything in every market,” he says—from growing to producing, up to creating edibles and even operating retail in some markets. As legalisation expands across the world, big pharma may look to get in on it, changing valuations.

Big-name companies trading in the U.S. such as Canopy and Tilray see their stock prices appreciate when pro-legalisation stories hit the news. But because cannabis is still a Schedule I drug, meaning tightly regulated by the government, Bottomley says, “the fundamentals are not necessarily going to flow down to those types of companies.”

Meanwhile, leading American companies like Curaleaf or Trulieve trade on Canadian junior exchanges, less easily accessed by the overall U.S. retail investor market. He thinks there’s a tremendous amount of capital yet to come into this space. Many companies, he adds, are underserved by institutional investors as well.

“Over the long term if you pick the right horses in the sector, there’s still quite a lot of growth to be had.”

Here are three things Bottomley says to keep in mind when investing in the cannabis sector.

Take Stock of Your Risk Profile

Investors entering the cannabis market have to consider their risk thresholds. “All of our buys on cannabis stocks to date are all speculative buys, and we do have holds and sells as well,” Bottomley says.

The sector can be home to wild price swings where for weeks at a time stocks go in one direction, before pivoting and going the other way. If they consider a 2%-to-3% move in a day outside their risk threshold, it might not be for them. Especially because the “wild directions” stocks move in aren’t necessarily tied to company performance.

Bottomley says it also requires a lot of patience. “You really have to be comfortable about where you are on that growth curve and how far ahead of markets opening up—you want to invest your incremental dollar to get ahead of what could eventually be a very large push upward.”

Valuation is Relative

Cannabis is a sector where policy announcements about the future of legalisation can cause stocks to move in the same direction, but investors can’t let that alone sway them. Even if every cannabis stock is moving up or down, and the shift seems uniform, Bottomley advises exercising caution.

Not every cannabis company has exposure to the same markets or regions. When looking at companies in the cannabis space, he says it’s necessary to see how they’re situated in markets relative to their peer group.

He offers the example of a Canadian company trading at 30 or 40 times its forward profitability metrics, or Ebitda (short for earnings before interest, taxes, depreciation, and amortization), but that lacks access to the U.S. market or other growth drivers.

“I prefer buying a company that’s trading at a lower multiple than that, but actually has that exposure,” he says. “That’s the first thing that I look at when I’m putting a rating to any of these companies that I cover.”

Understand the Management Team

For Bottomley, management teams and their philosophies are particularly important in the cannabis industry. “We’ve seen a lot of good case studies for huge success stories and a lot of case studies where things haven’t gone so well,” he says.

Prior to Covid-19, Bottomley went on a lot of site visits, meeting management teams. What benefits investors long term, he says, are companies that aren’t too aggressive with mergers and acquisitions, don’t overpay for assets and focus on core markets where they have competencies and market share. But this also means having good infrastructure, like call centres to support patients for medical cannabis companies, or adequate supply for and quantity of retail locations to gain market share.

“Management teams can be fairly aggressive with respect to their messaging,” Bottomley says, “and that’s fine if you can back it up, but I think that’s something investors have to be particularly careful of when they’re choosing which operators they want to back.”



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Is the Stock Market Near Its Top?

Don’t let the hum of the bull tune out signs warning that a bear may be lurking.

By ANDY KESSLER
Mon, Jul 15, 2024 3 min

The third season of the terrific show “The Bear” blends family dysfunction with the ups and downs of high-end restaurants. With markets chasing new highs—get out those Dow 40000 hats—this column is about a different kind of dysfunctional beast. Is the market bear dead, or is it about to sneak up on us?

A U.S. equity strategist told me the story of a Japanese portfolio manager who sat in his office in July 1987 asking for stock ideas. The strategist’s model was based on a proprietary survey of investor sentiment, though it never really worked. Nonetheless, he read off a list of dozens of stocks. The portfolio manager then asked if he would kindly put in an order for 20,000 shares of each. The Dow Jones Industrial Average peaked at 2722 in late August and crashed 22.6% on Oct. 19.

A friend was a portfolio manager of a massive growth-stock fund in 1999. He told me he bought shares of Yahoo, Cisco, F5 Networks, Infosys and others every day because money flowed into his fund every day. The tech-heavy Nasdaq index peaked on March 10, 2000. As money began to flow out, he had to sell every day. By year’s end, Nasdaq had fallen by more than half.

I met Cathie Wood as she was filing papers for her “disruptive innovation” funds—to “change the way the world works.” Her ARK Innovation exchange-traded fund, ARKK, launched in October 2014 and charges 0.75% management fees. In 2020 it was up 153% as stimulus money flew in, driving more buying. ARKK peaked in February 2021 with $28 billion in assets. Since then, its net asset value is down 70%, even amid a roaring bull market, especially in tech. Morningstar recently calculated that Ms. Wood’s Ark Invest funds have destroyed more than $14 billion in wealth. One of my favorite Wall Street sayings is, “Don’t mistake a bull market for brains.”

In almost every bull run, stock momentum lures in investors at the worst moment, I call them momos, ensuring they get burned when the buying stops. Since 2009, excepting a few brief sell-offs, cash has been trash. That made some sense during the era of zero interest rates. But now with higher inflation and short rates above 5%? Confusing. Maybe investors are already anticipating another Donald Trump antiregulation pro-growth presidency, forgetting that he is married to a growth-killing pro-tariff agenda. Is the bear dead, or does it have a long fuse?

Predicting stock markets is a fool’s errand. My Series 7 test for General Securities Representative Qualification lapsed long ago, so you won’t get investment advice from me. But there are warning signs.

Have we run out of buyers? Sometimes there are triggers that scare them away: oil shocks, viruses, bank failures. But sometimes they simply collapse from exhaustion. More than 40% of households reportedly own stocks—a higher percentage than in 2000. It was 20% in 2010. Some market indicators also point to asset managers being fully invested. Who’s left to buy?

Market breadth is concerning. The 1973 market peak was driven by stretched valuations of the Nifty Fifty, which included IBM , Coca-Cola and GE but also Polaroid and Xerox . Fifty? Now it’s the Magnificent Seven: Alphabet , Amazon , Apple , Meta , Microsoft , Nvidia and Tesla . Seven? Artificial-intelligence hype, way ahead of even the rosiest of realities, drove Nvidia to make up almost a third of the S&P 500’s first half gains. Another quarter came from Amazon, Meta, Microsoft and Eli Lilly . Maybe fat bulls need Mounjaro.

Stock values feel divorced from reality. The so-called Warren Buffett indicator—the ratio between total stock-market value and gross domestic product—was 138% in March 2000. It’s now 196%. Certainly not a buy signal. And Bitcoin, my go-to bubblicious bat signal, is down about 20% since March. A dead canary?

“Don’t worry, be happy,” the bulls sing. Inflation is slain, and the Fed will cut rates. But investors won’t like the reason for those cuts. We’re already seeing earnings disasters—Nike, Walgreens , Lululemon , Delta and Wells Fargo . If the economy slows, earnings glitches and stock implosions become contagious. Plus, banks’ exposure to commercial real estate is scary, with buildings being dumped at huge haircuts almost weekly. This is now infecting rental buildings, and there are signs of a private housing glut. Inventory in Denver is up nearly 37%. Sure, markets climb a “wall of worry,” and bull markets tend to last longer than people expect, but sometimes the nightmares are real. Recessions are like honey to bears.

Even writing about the bear is bullish. Bull runs end when everyone is a believer. Still, another favorite saying of mine is, “No one’s ever lost money taking a profit.” Someday, cash will be king again. I prefer to buy stocks when everyone hates them.

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