What’s the buzz? S&P Dow Jones Indices announced that they are discontinuing the Canadian and International Cannabis Indices, raising questions about the future of the cannabis industry. With Canadians and individuals around the world rapidly embracing legal cannabis, what will this new development mean for the industry and its investors? Find out all the details – and what lies ahead – in our article about S&P’s discontinuation of its cannabis stock indices.
1. S&P Makes Unexpected Move with Cannabis Stock Indices
Standard & Poor (S&P) has made a surprising move by launching two new indices which are dedicated to cannabis equities. Both indices will enable investors to track and analyze the overall performance of the cannabis sector, and play an essential part of the financial system.
The two indices offer invaluable insights into the cannabis industry. The S&P Global Marijuana and Hemp Index is based on the performance of publicly listed cannabis-related securities in the United States as well as developed and emerging markets. These include:
- Pharmaceutical companies
- Life sciences
The other index launched by S&P is the S&P Canadian Cannabis Index, which is focused on the leading cannabis equities operating in Canada. This index has been designed to measure the performance of companies engaged in the production and distribution of cannabis.
2. Canada and International Markets Affected by S&P Decision
The recent decision by S&P Global-owned index provider index S&P Dow Jones Indices to remove Canadian energy, utility, and real estate stocks from its flagships indexes has had a ripple effect on Canada’s markets.
The move is expected to cause major disruptions to the process of portfolio rebalancing for funds across the world. With roughly 7.6% of Canada’s stock market affected, estimated monies withdrawn could reach up to $20 billion, causing significant market disruption. The affected stocks were chosen because of their lower liquidity and not because of the climate change issue, said S&P.
- Impact on Canada Markets: Removal of stocks from the S&P Global Index is expected to be felt by many Financial institutions in Canada, as much of the market sell-side exposure will need to be significantly adjusted. It is expected to cause disruption across the board as portfolios readjust for the missing stocks.
- Impact on International Markets: Beyond Canada, the move is estimated to affect international markets and portfolio management around the world, as funds may need to withdraw money from Canadian markets as well, making other countries’ markets more volatile and decreasing liquidity.
3. Looking Ahead: Potential Impacts of Discontinuation on Cannabis Investors
For investors looking to Chairman Section 3. Looking Ahead Potenthea impact of potential discontinuation of cannabis, there are various considerations to keep in mind. On the one hand, the potential shifts in the cannabis market come with both risks and rewards.
- Risk: With the legal landscape so unpredictable, investors may find that their investments in cannabis companies are not as profitable or reliable as initially anticipated.
- Reward: Much like other industries, when barriers to entry are present, consumer choice is limited, meaning investors may reap much greater rewards.
Investors will have to weigh the potential losses from uncertainty of cannabis discontinuation against the potential gains for long-term investments and diversification into the cannabis sector. Furthermore, investors must evaluate how companies will alter traditional operating models and adjust their strategies for navigating a new economic landscape.
4. Paving the Way For Alternative Cannabis Indexes
The cannabis industry is growing at a breakneck speed. Investors are flocking to capitalize on promising new opportunities, but making a solid investment can be challenging. With most cannabis investments coming with enormous legal and financial risks, it’s important to have reliable indexes to guide your choices.
Cannabis Stock Indexes
Cannabis stock indexes provide investors with a chainsaw-like view of the market, allowing them to track the ebb and flow of the industry and measure performance. The most popular are the U.S. Marijuana Index and The Canadian Marijuana Index, but more alternative indexes are cropping up in response to the need for more reliable data. These include:
- The Cannabis ETFs Index
- The Marijuana Life Sciences Index
- The Cannex Benchmark
- The Cannabis Benchmark Index
- The Global Cannabis Stock Index
These alternative indexes provide a more granular view of the industry, enabling more nuanced decisions. They are also constructed to provide greater transparency, allowing investors to make informed decisions. By paving the way for more reliable indices, these alternative cannabis indexes are helping to make the sector more attractive to investors.
The marijuana industry has seen incredible growth in recent years, and with major stock indices like the S&P removing cannabis-related stocks from their international and Canadian indexes, it’s clear that the sector still has a way to go before it can be seen as other more mainstream industries. Nonetheless, the development of the cannabis sector is far from over, and it may be worth keeping an eye on as we enter 2021 and onwards.