Every now and then ‘the next big thing’ comes along in the world of investing; we’ll not go back as far as tulip bulbs, but every once in a while, a technology or sector captures investors’ imagination achieving a momentum all of its own – who wants to be outside watching the party through the window?
Early internet stocks achieved valuations that defied logic for a while and some people made a lot of money, leaving others to stare ruefully as they passed shirt shops; biotech and bitcoin both attracted investors as well as speculators.
However, the latest hot topic to be causing a stir among investors is even more interesting than its predecessors because cannabis is categorised as a socially responsible investment.
Initially Socially Responsible Investing (SRI) was intended to allow investors to avoid controversial investments such as alcohol, gambling, weapons, fossil fuel, and military-related products.
Some investment funds took the idea further by avoiding investing in companies that were not in line with certain religious beliefs, for example producing products related to contraception or abortion.
Over time, SRI grew to include ‘green’ investing, targeting companies that aim to reduce the world’s dependence on carbon-based energy.
who wants to be outside watching the party through the window?
Lines can be blurred, and there are no strict definitions, but as green investing gathered momentum, the term ‘Environmental, Social and Governance’ (ESG) was coined which offered criteria for companies to follow and investors to understand.
As environmental issues gained prominence, particularly in younger generations, ESG investing became more active, with an increasing number of investors using their voting power to influence boards to balance social responsibility and profit.
It was this influence that led to the term ‘Impact Investing’ which today translates to the desire for conscious creation of social impact when investing; starting in the States, what began as a movement to screen out what was viewed as negative, SRI has evolved into an $8 trillion market designed to effect change through impact.
Like so many of these trends, the US was in the vanguard of the development of the legal marijuana sector with publically traded companies such as Tilray Inc and Canopy Growth attracting major investment – but how does cannabis play into SRI?
In some instances, investors who spurned investments based on controversial or religious factors viewed cannabis differently; is it a medicine or a drug?
SRI-based funds have had to decide how marijuana should be categorized and how to treat companies with a small percentage of their overall business in cannabis.
MSCI, one of the largest index providers in the world, included cannabis in their ESG compliant list in 2018; however the two largest ESG fund complexes, Calvert and Parnassus, have avoided companies related to cannabis.
If the debate has been robust in the States it is because this can be a complex and deeply personal issue; a cynic may say that if it’s profitable enough, it’s green enough, but it seems sure that opportunities to invest in cannabis will increase in the UK, regardless of how it is categorised.
For many reasons it has taken a relatively long time for the medical world and the US government to recognize the potential benefits of a ‘drug’; however, as one commentator there said: ‘as a pharmacist’s son, I can only say that if aspirin can come from the bark of a tree and penicillin from mouldy bread, we may just be in for an exciting ride’.