An Investor's Guide to the Green Fund Paper Portfolio

The cannabis market is beginning to heat up, and research suggests it may already be worth $150 billion globally.

The Barclays European Consumer Staples Report from September last year also found that this number could almost double in ten years' time, increasing to $272 billion by 2028.

More people than ever are looking to add cannabis stocks to their portfolio, but neophyte investors—or seasoned traders unfamiliar with the market—may find it challenging to know where to begin. There are over 700 cannabis companies worldwide, and each one is beholden to the jurisdictional regulations of the country it operates within.

Investors must also choose which area of the industry they wish to focus on—such as cultivation and retail, biotechnology, ancillary services or hemp and marijuana products—as each comes with its' own unique commercial space.

This is potentially why investing in an Exchange Traded Fund (ETF) like the Horizons Marijuana Life Sciences Index (TSX:HMMJ), is becoming an increasingly popular option for investors who are new to the cannabis space. ETFs operate similarly to a mutual fund, by using investor's money to invest in an index of passively-tracked stocks.

The main advantage of investing in a cannabis ETF is that it gives you exposure to the entire marijuana industry by giving investors access to a basket of different pot stocks. This can substantially lower an investor's overall risk level—as the cannabis sector is still highly volatile—and prevent them from suffering a catastrophic loss if any one individual company fails.

However, if you're looking to a way to gain wide exposure to the marijuana sector while also avoiding some of the drawbacks that come with investing in a cannabis ETF—such as the high expense ratios—then there Is another option.

The Green Fund Paper Portfolio

Subscribers to The Green Fund are given exclusive access to The Green Fund Paper Portfolio, a "virtual ETF" that is freely available to all of our website's readers.

The Paper Portfolio functions similarly to a "paper trade" which is a form of simulated trading that allows newbie investors to practice buying and selling without risking any real money. Typically, this is done on a stock market simulator, and many online trading platforms offer paper trade accounts to new members looking to familiarize themselves with the process.

The Paper Portfolio is a collection of cannabis stocks—out of the hundreds worldwide—that have been handpicked by the CEO and founder of The Green Fund, Mark Bernberg. The portfolio is a live list of stocks that we believe have great potential for growth, and that Green Fund readers can follow along with us.

The Green Fund Paper Portfolio is already showing a return of 76.69 percent since January  2018 (as of April 12), meaning that a starting balance of $10,000 would now be worth approximately $17,668 in just sixteen months.

Just like an ETF, the Paper Portfolio features a diverse basket of stocks that offer wide-ranging exposure to every corner of the cannabis industry, from cultivators and manufacturers all the way down to the ancillary market.

Thus far, the portfolio is primarily focused on the booming American commercial space—with half of the investments being US-based pot stocks—which may be worth as much as $75 billion by 2025, according to research from Cowen and Co.

To capitalize on this, many of the virtual fund's biggest holdings are in American Multi-State Operators (MSO). These are cannabis companies that operate in multiple US States. Given that cannabis is still illegal at the Federal Level in the US, these companies need to be able to grow and manufacture in every state they operate in, as they cannot ship cannabis across state lines. They key here is to identify the companies that are growing their statewide reach, but in a way that is smart in terms of both cash burn and shareholder dilution.

Some of the portfolio's other big US investments include companies that focus on the hemp-derived CBD space. This is one of the fastest growing sectors of the industry, with both CVS and Walgreens stocking CBD products nationwide. These stocks have seen significant growth of late, and we expect that to continue. Targeting multiple sectors of the market in this way ensures that investors are insulated from heavy losses if a particular area of the industry experiences a temporary downturn.

The Paper Portfolio also has significant holdings in the rapidly-expanding Canadian market, which has been undergoing a "green rush" following the country's decision to fully legalize cannabis in late 2018. Many of the biggest names operating in the Canadian sector are counted among the portfolio's investments. This is also a tricky market, as investors need to understand that supply will very quickly eclipse demand. At that point, the smaller Licensed Producers (and larger ones for that matter) that have not diversified, or created some sort of economic moat (genetics, IP, extraction, technology, etc.) could be in big trouble.

The portfolio also has some investments in the Australian market, as its' cannabis industry is still relatively embryonic compared to Canada and the US. Although Australian pot stocks do have the potential for huge growth in the future, their legislative landscape has not kept pace with the rest of the world, leaving many companies hamstrung by overly-restrictive government regulation.

While many investors are choosing to focus purely on the two larger sectors of the cannabis industry—cultivation and product manufacturing—the already-thriving ancillary market has shown that the "picks and shovels" can be just a profitable as the plant itself.

Just as in the days of the Gold Rush, every fortune seeker that went bust, went bust holding a pick and shovel. The suppliers and ancillary companies offer investors a great way to play the market without necessarily having to pick the cultivation or retail winners

This is why the Paper Portfolio also has holdings in pot stocks that provide the market with the infrastructure necessary to function, such companies that offer packaging solutions, product and distribution, and companies that offer property and facility financing options for companies looking to free up millions in working capital.

Ancillary cannabis stocks like these have the potential to make a killing as the industry picks up steam since demand for their services will only increase as more marijuana producers and manufacturers enter the market.

Get That Paper

Although there is still a high degree of volatility in the nascent worldwide cannabis market, investors can mitigate this risk by ensuring that they have a diversified portfolio of investments.

This is why we have chosen to put our money where our mouth is with The Green Fund Paper Portfolio, a hand-picked basket of cannabis stocks that we think represents the future of the industry.

We believe that our collection of stocks is capable of going toe-to-toe with any live cannabis ETF. Whether you're a novice investor looking to get in on the green rush, or an experienced trader interested in leveraging a high-risk space for long-term reward, we're confident that the Paper Portfolio will continue to deliver strong returns while outperforming other similar ETFs.

It's our picks, and is live and free for all. And they told you money doesn't grow on trees.

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Hugo Gray
Hugo Gray

Hugo Gray is a Melbourne-based journalist with a body of work that covers a diverse range of topics, including immigration law, sex technology, and now the rapidly expanding cannabis industry.

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