IG Markets Bans 19 Pot Stocks! What do I do?
The global cannabis industry went into meltdown last month after IG Markets announced that it would cease trading 19 different cannabis stocks, informing users that they needed to sell by 24 May.
While several international heavyweights such as Aurora Cannabis, Canopy Growth, and Tilray, were also affected by the trading ban, the Australian cannabis sector was particularly hard hit.
IG Markets confirmed that seven Australian cannabis stocks were banned from its' trading platform, including:
- Cann Global (ASX:CGB)
- Creso Pharmaceuticals (ASX:CPH)
- Elixinol Global (ASX:EXL)
- Lifespot Health (ASX:LSH)
- Stemcell United (ASX:SCU)
- Bod Australia (ASX:BDA)
- eSense-Lab (ASX:ESE)
The IG Group—which operates IG Markets—originally warned customers in April that the company would be taking this position, and offered the following explanation for the move in an email to its Australian clients.
Due to the evolving political and regulatory landscape surrounding recreational cannabis-related securities, we have decided to stop offering share trading on the below cannabis shares.
"Please note that CFD trading on cannabis shares and our soon-to-be-launched Cannabis Index will not be affected. You can continue to access these markets as normal," the email read.
However, it is still not entirely clear why many of these stocks—barring Cann Global, which has been suspended since July 2018—were kicked off the platform.
No Other Option
Prior to the announcement, users were informed by the company that their only viable option would be to simply close off their positions, as their shares in these companies are non-transferable.
Even customers who refused to cooperate were affected, as IG Markets has the right to sell the shares themselves, even if it is against the users' wishes.
But how were IG Markets able to do this?
Unfortunately for investors, the IG trading platform makes use of the custodial system, which means that users do not technically own the stock themselves. Instead, ownership of the shares is retained by a custodian body, Citicorp Nominees Pty Limited.
The downside of investing via a trading platform like IG Markets is that it leaves investors vulnerable to the whims of the corporate custodian. In this case, it appears that Citicorp Nominees must have either an ethical or legal objection to trading in cannabis holdings, although at this point it is still not clear which.
Thus far, IG has failed to elucidate why they specifically elected to ban 19 pot stocks. When pressed by a journalist from Stockhead, IG Markets CEO Kevin Algeo declined to provide any further explanation other than reiterating that, "it's still an evolving political and regulatory environment".
However, he did admit that it was a strange decision for an Australian stockbroker to make. Fear not though, there is always a silver lining to every cloud.
How do I Invest?
This is one of the most common questions we get at The Green Fund.
If you're unfamiliar with how brokers and international markets already operate, it can sometimes feel daunting just working out where to start. Even experienced investors may not necessarily be aware of how to go about purchasing shares in a cannabis company that is based overseas.
So we've done all the hard work for you and given our take on the best platforms out there to buy and sell shares in the names we cover. Even if you're an experienced investor or new to share trading, these brokers will allow you to do what you need to better than anyone else.
We searched high and low for the best options for our readers and came up with our top brokers based on your general needs. As brokers cover different markets, we chose our best broker per region (US, Canada, and Australia) and took into account the factors below to grade them.
The key factors we took into account:
- User experience – ie. how easy and enjoyable is it to get started and get into the market
- Access to the names we cover – you have to be able to buy and sell the shares covered on TGF.
- Pricing – it's important when you're experienced or a novice. Saving more on brokerage means more in your pocket.
The US Markets
Stock exchanges in the US account for 40% of global stock market capitalisation, and offer a wide variety of stocks through 13 national exchanges. For game-changing pot companies looking to take on the world, listing in the US is the mecca due to its access to capital and the deep liquidity in the market.
It comes as no surprise then that the most valuable and game-changing weed stocks can be found in the US. 8 of the top 10 weed stocks by market cap are listed in the States, with big names such as Aurora Cannabis (ACB), Canopy Growth Corporation (CGC) and Cronos Group Inc. There appears to be no lack of variety and by our estimates, 40-50% of weed stocks are listed in the US.
All in all, the US market offers the most competitive pricing on trading and is seen as the premier stock trading market in the world, so this trend is only likely to continue as Canadian and Japanese cannabis companies grow, seek capital and list in the US.
Stake – our broker of choice for the US
For those outside the United States, accessing the great opportunities the US stock market has to offer has traditionally been complicated and expensive. A fintech we've long been an admirer and support of – Stake – provides great user experience, and access, at a much lower cost. For those wanting to trade any shares in the US or get into the world's most dominant pot stocks, Stake is your best bet!
- Available anywhere: Stake allows anyone from around 150 countries to sign up and it's really simple to get an account.
- Best UX: Without a doubt the best UX out there. Actually designed and built in the last few years! It's available on App & web and tablet.
- Affordable: With $0 brokerage and reasonable Foreign Exchange (FX) fees, the entire experience is inexpensive and even cheaper than trading your local markets.
- No Paperwork: Stake handles all of the hard stuff, so all you have to focus on is trading. You can sign up in less than 5 minutes and can be trading instantly.
- Access to the US: As we've mentioned, the variety, size, and liquidity of the US markets give you the best access to cannabis stocks.
- Foreign Exchange: Your assets will be in USD. Since you are trading in the US, you will have to pay some FX fees not required when trading in local markets, which means you incur some FX fees and also have exposure to the US. It's not a major issue as its the world's most dominant currency, but it's worth being aware of.
For the retail investor outside the US seeking to gain exposure to cannabis stocks, this seems to make the most sense.
The combined Canadian stock exchanges account for around 3% of global markets by market cap, however, have a disproportionate amount of cannabis companies listed. In the top 30 cannabis-related stocks by market cap, nearly 30% are Canadian listed. Many of the listings are US operators using the Canadian Stock Exchange (CSE) to gain access to the capital markets, given they cannot list in their own country given the fact that cannabis is still illegal at the Federal level.
Canada was a leader in the medical cannabis space, legalising the use of cannabis for medical purposes in 2001. This paved the way for new medical companies such as Aurora Cannabis. Canada became the first G-7 country to legalise cannabis for adult recreational use, at the Federal level.
A large proportion of weed companies were founded in Canada, and are still available to trade there. However, the difficulty for international investors lies in accessing the Canadian stock exchanges. For Aussies, there is no sole provider and hence the process is arduous and expensive.
Interactive Brokers – our broker of choice for Canada
Interactive Brokers (IB) provide access (although highly complicated) to Canadian markets, with relatively low fees.
- Broad Product Range: IB has a broad range of products from stocks, options, and forex.
- Affordable: IB charges $1 per 100 shares traded. The only catch is a minimum monthly fee of $20 US.
- Geared towards volume investors: The complexity of the user interface and pricing structures require a volume based investing approach, not suitable for many retail investors.
- Lengthy Set up process: Due to the access they provide you to a wide variety of markets, setting up an account is not straightforward. We tried and failed a few times to set up an account. Be prepared for lots of paper cuts!
While the Canadian cannabis space represents a great investment opportunity, the lack of easy access to the market—along with the lower liquidity rates found in Canadian stock exchanges—can be difficult problems to overcome for many investors.
Aussie Aussie Aussie
The Australian cannabis industry is still in its infancy with cannabis only being approved for medicinal use in 2016. The Aussie market is also unfortunate in that it does not receive double listings from cannabis hotspots such as Canada. So the only companies listed on the ASX are homegrown, smaller-scale companies.
That is not to say there aren't returns to collect, but they are few and far between at the moment. In October 2018 the Government's Office of Drug Control (ODC) hired more staff to verify applications of companies wanting to grow cannabis commercially. The cannabis revolution is coming here, but it's still in its infancy. There is lower liquidity and the lower competition levels in Australia means the ASX can charge higher brokerage fees which are passed on to the customer.
Despite these drawbacks, the Australian cannabis market is still worth considering as an investment opportunity, as there are still plenty of returns to collect, and according to a report from Prohibition Partners, the market could be worth as much as $3 billion by 2028.
Commsec – our platform of choice for Australia
There are a variety of platforms available to trade Aussie listed stocks, with the market leader being the Commonwealth Bank of Australia's trading arm, Commsec. Commsec is a mature and well-developed platform but does come with higher fees.
- The Platform: Many users enjoy the Commsec trading ecosystem. With a web, iPhone and iPad app it is easy to trade in whichever form you feel like.
- News and Research: CommSec runs a trusted news and information team which is reported to be of great value
- Pricing: CommSec is expensive compared to both international, and other local offerings.
- Monthly Fees: CommSec also has significant ongoing monthly fees (but only for more active traders and investors. If you are buying and holding, there are no ongoing fees.
What to do Next?
Although the decision by IG Markets to ban 19 pot stocks from their trading platform was a worrying sign because of the "regulatory and political implications of offering cannabis stocks in the UK with a recreational link", investors shouldn't be too concerned.
There are still plenty of brokerage platforms available for both experienced traders and newly-minted investors alike, offering access to some of the fastest growing markets on the planet.
Thankfully, investors using platforms such as CommSec are also not subject to the custodial system, meaning that directly own the shares they purchase. This ensures that they cannot be forced to sell their shares, even if the custodian body suddenly changes their stance on a particular stock.
And now that the dust has settled on the IG Markets fiasco, it seems like that might be the most valuable asset of all.
And they told you money doesn't grow on trees!