It might surprise some investors to know that the FTSE offers exposure to companies operating in the cannabis sector. But while other indexes, namely those in the US, provide greater choice, UK investors in overseas-listed cannabis stocks were recently told they must sell.
This is because of Euroclear, a custodian — or financial trading settlement business, is no longer prepared to support these shares. Those investing through Hargreaves Lansdown and AJ Bell were told they need to sell their overseas holdings by January 27. As such, three of the most sold stocks on the Hargreaves platform last week were North American marijuana companies.
So, what are the options for me as a UK investor now? Let’s take a look.
Types of cannabis stock
Cannabis can be something of a taboo subject. Recreational use has been perceived fairly negatively for some years, but this is a sector that’s creating some interesting opportunities for investors. Increasingly we’re seeing businesses turning to the plant to develop consumer and medical products.
Cannabidiol (or CBD) is legal and has become very popular in Western markets. I’ve followed closely the rise of TRIP, a UK-based, unlisted CBD drinks and oil firm, which has grown phenomenally quickly in recent years. As the founder of a sumac-based drinks company, I’ve been very jealous of its growth!
But what about listed firms rather than privately-held start-ups? Broadly, I can categorise the sector into three parts. There are growers and retailers, pharma and biotechs, and ancillary firms. There’s not a lot of choice out there for me. But it’s growing.
What am I considering?
Associated British Foods is best known for its ownership of Primark, but in 2017 the group signed a deal with GW Pharmaceuticals to supply M250 marijuana — non‐psychoactive cannabis — for drug development purposes.
It’s one of the largest cannabis growers in the UK. It converted 45 acres of tomato greenhouse space to grow hemp plants.
However, it’s certainly worth nothing that investing in Associated British Foods won’t give me much exposure to the sector. After all, it’s only a small part of the firm’s huge portfolio. So I wouldn’t buy this stock just for its cannabis business.
But I’m looking more closely at Futura Medical.
This pharmaceutical group develops cosmetic and pain-relief cannabis medical products. Using its proprietary DermaSys technology, the cannabis-derived ingredients, including CBD, can be turned in a gel and absorbed through the skin.
However, this is an early-stage R&D firm. The MED3000 product for erectile dysfunction was granted a UKCA mark in 2022, meaning it complies with the country’s regulations — but it’s not on sale yet. The company exploring commercialisation opportunities for CBD products but it may be some time before they reach the market.
Obviously firms that are yet to bring a product to market carry greater risk than those already selling, but Futura Medical is one I’m going to be keeping a very close eye on.
In addition to Futura and Associated British Foods, there are several micro-caps, including Kanabo and Cellular Goods. Their development is certainly something I’ll continue watching in this highly promising sector. I’m not a buyer in the sector yet, but I’m tracking it closely.
