Worldwide, we have seen a significant increase in the acceptance of cannabis. In the United States, medical marijuana is legal in 33 states and fully legalised in 11. As the saying goes “when America sneezes, the whole world gets a cold”, and the United Kingdom could have a sniffle. There is an accelerating trend of the legalisation of cannabis globally. Here is why I think cannabis will become fully legalised in the UK and why I would invest in this ‘hidden’ cannabis stock on the FTSE 100 today.
The stigma, the cure
The stigma around cannabis has started to change from a dirty drug and has almost become a miracle cure. Possibly the miracle cure the UK could use to help fit the Covid-19 bill. A bill that is estimated to be a whopping £300 billion. The government has a few options to breach this funding gap. Inevitably taxes will be raised. Sadly this includes sin taxes, which we will happily pay to get back to the pub. Or they could create a new tax stream through the mass legalisation and licencing of cannabis. I think Associated British Foods (LSE: ABF) is one of the few companies on the FTSE 100 that can take advantage of the possible legalisation of cannabis.
Compared to the US, the UK has minimal investment opportunities in the cannabis industry. One of the hidden players in the cannabis game is ABF. British Sugar, a wholly owned subsidiary of ABF, is a major cultivator of cannabis for GW Pharmaceuticals. GWP produces Epidiolex, a cannabis-based treatment for seizures associated with Lennox-Gastaut syndrome. For the financial year, 2020, GWP’s revenue tripled all due to the sale of Epidiolx. My ultimate game plan for investing in the possible “cannabis rush” is to sell pickaxes during a gold rush.
Now that we have established why ABF is a hidden cannabis stock, let’s look at why ABF is a good investment.
ABF is a well-diversified food retailer across the globe. With food being a basic need, its core product will always be in demand. Having a £17 billion market cap on the FSTE 100, ABF has a lot of resources and experience in the cultivation business. The company is exceptionally solvent and has a stellar balance sheet. Total assets exceed total liabilities by £9 billion and low levels of debt. I think this robust business will survive if there were to be a second market crash. Currently, it has a Price to Earnings Growth (PEG) ratio of 0.8, which is excellent, and the share price is hovering around the March lows. ABF is a steal at its current share price for the potential value this stock could create.
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Miles Williams has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.