ESG implications for cannabis investors

If alcohol, tobacco, soft drink brands are investing in recreational cannabis companies, does responsible investing mean a medical-only approach?

Ruth Saldanha 10 July, 2019 | 2:43PM

 

 

Note: This video is part of Morningstar Canada's Cannabis Week Special Report

Ruth Saldanha: Cannabis is one of the newer investment ideas we have and ideas around the ESG impact of cannabis are fluid and developing, especially with the entry of alcohol and tobacco majors in the space and the use of medical marijuana. Morningstar analyst Kristoffer Inton is here to discuss his views.

Kris, do you see established businesses, alcohol, soft drinks, pharmacy chains, healthcare and tobacco, for example, continuing to make M&A moves in cannabis?

Kristoffer Inton: Definitely. I think that Aurora Cannabis definitely is probably the one that's the most actionable. It's one of the largest Canadian cannabis producers and it's the one that doesn't have a strategic partner, although they are actively looking for one. And so, I think that there's definitely probably interest in other – from other sectors for Aurora and for other cannabis companies.

Saldanha: With the entry of pharmacy companies trying to find alternatives in medicine through cannabis and also companies like alcohol and tobacco in the space, there seems to be an interesting dichotomy from this sector, especially from an ESG point of view. Where do you stand on this?

Inton: It's tough for us to say at this point. I think that both views are somewhat valid, I think, from an ESG perspective, particularly focused on the social aspect. On the one hand, cannabis can be viewed as very helpful. It's considered to be great for pain relief and especially helpful to cancer patients and others who struggle with pain or other symptoms like that. And so, from that view, it's very beneficial. But the counterview is likely that it's similar to alcohol or tobacco. It's a "vice." So, from that perspective, adding another opportunity for people to indulge in a vice, is that bad from a social perspective? Maybe. I think that both views are somewhat valid, and I think probably the answer is somewhere in between.

Saldanha: Finally, where do you see the most growth? Medicinal or recreational?

Inton: Definitely, the recreational side. I think that the number of addressable users, the potential people that would potentially consume recreational cannabis is far larger than the medical population that would consider using cannabis. And so, I think that even though that your typical recreational user probably consumes cannabis with less intensity than a medical consumer would, there's just far, far more people in the recreational market.

Saldanha: Thank you, Kris. Tomorrow, we'll look at the stocks that Kris covers and talk about why he likes them.

For Morningstar, I'm Ruth Saldanha.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Aurora Cannabis Inc5.01 USD-3.00

About Author

Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca