Part of cannabis and investing
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Ontario’s securities watchdog says one in 14 Canadians own cannabis investments, but too many of those investors may be putting too much of their money into these stocks without appreciating the risks posed by the trendy – and volatile – sector.
A national survey published on Wednesday by the Ontario Securities Commission (OSC) found 7 per cent of Canadians have invested in cannabis companies, and a further quarter of respondents do not own any of these stocks, but would consider buying them. A quarter of those who said they were already in this market invested $10,000 or more. The agency also said it is worried because people without much financial knowledge or appetite for risk were just as likely to own cannabis stocks as more sophisticated investors.
“Behavioural insights show that some investors may be predisposed to seek out and buy into the latest, most popular investments – and may do so even if these investments don’t fit their long-term financial goal,” the OSC said in its report. "These investors may overestimate their risk tolerance and might not diversify their investments enough.
“Chasing trends can be exciting, but it’s important to make a long-term plan and stick to it.”
A third of the respondents to the survey, which was conducted earlier this month by Innovative Research Group through an online panel involving 2,259 adult Canadians, said they made their first cannabis investments in the past six months. Roughly that percentage said they decided to buy these shares in part based on the advice of a family member or friend, while only 18 per cent relied on the advice of a financial representative or their portfolio manager, the OSC said.
Men aged 18 to 34, at 49 per cent, were by far the largest segment of the population to have invested or to be interested in investing in the sector, according to the survey, which was weighted to mirror demographic characteristics across different regions using official census data. Just under 20 per cent of men and women 55 and older reported they have either invested in cannabis or are interested in doing so. The commission noted that young men have also been the most engaged in the cryptocurrency markets, according to separate research it conducted this summer.
Individual investors have helped drive the Canadian cannabis sector’s explosion in value this year, which experts have begun to compare to the dot-com frenzy of the late 1990s. About 125 cannabis companies are now listed on the Canadian Securities Exchange (CSE), a stock market for smaller, newer firms. These operations have an estimated market capitalization of about $14-billion altogether, according to the exchange’s CEO Richard Carleton. He said the risks in the sector have long been known, but the commission is doing its job by highlighting them again in this new survey.
"It is a timely reminder to folks that this is a new industry and many of the investments involved are speculative,” he said.
Mr. Carleton praised the recent tightening of disclosure rules in the sector after Canada’s securities regulators raised red flags about glaring deficiencies earlier this month.
Regulators in four provinces reviewed 70 publicly listed cannabis companies and revealed many had inadequate information in their financial statements or the text of the management analysis that accompanies them to help explain the firms' financial performance.
The British Columbia Securities Commission (BCSC) announced earlier this week that it had temporarily stopped a group of consultants from buying and selling 11 companies listed on the CSE, most of which are smaller cannabis firms. An ongoing probe by the commission alleged that a group of “purported consultants” operating as the BridgeMark Group skirted disclosure rules earlier this year in connection with more than $50-million in transactions that the regulator says is “abusive to the capital markets.”
“It’s a large investigation and, comparatively speaking, there are a large number of parties named in the temporary order and notice of hearing versus our usual matters," said Peter Brady, executive director of the BCSC.
None of the allegations have been proven, and a hearing is scheduled for next week.
Mike Hager