After a disappointing run for marijuana stocks last year, a major Canadian hedge fund has decided to make a long bet in their favor.
Anson Funds started the year with a net long position of roughly 20 percent compared to 9 percent the same time last year, Moez Kassam, the company’s co-founder, told Bloomberg in February.
“At the end of last year, everybody was negative on the market,” Kassam said in the story. “The stocks have gone down, so we decided to cover our shorts.”
It’s a left turn for Anson Funds, which previously had hedged its bets against the marijuana industry. For many similar companies, that trend would have continued as efforts to legalize the drug in the U.S. federal government went nowhere. Yet Anson Funds decided to go the other direction and support the industry.
“Everybody was talking about cannabis being the best thing; we were short,” Kassam told Bloomberg. “Then people said cannabis is the worst industry in the world now, so we’re very long on the US cannabis sector.”
Anson Funds’ position is interesting in the larger context of the marketplace, in which hedge funds and more traditional financial institutions remain leery of an industry that still lacks legal approval from the U.S. government.
The lack of movement on legislation led to a crash of marijuana stocks in December, Seeking Alpha reported. However, some investors see opportunity in these crashes, predicting that with federal legalization will likely occur within the next few years, it remains a good idea to double down while the getting is good.
“We remain optimistic about cannabis stocks, and we think that these dips should generally be bought,” New Cannabis Ventures wrote in their February newsletter for investors. “We find a lot of superior choices to Curaleaf, and Innovative Industrial Properties doesn’t seem especially timely compared to other cannabis stocks. I include Cronos Group, Trulieve and Village Farms in my Beat the Global Cannabis Stock Index model portfolio.”
More than likely, it will still be a bumpy road on the way to legalization, and Kassam told Anson Funds’ investors in a January letter that he expects a “volatile journey” for the industry.
Although 21 states in the U.S. have legalized recreational cannabis, it still faces significant hurdles to passing Congress. President Joe Biden’s vocal support for legalization has thus far not made any headway.
But that doesn’t change the fact that legalization remains a highly likely possibility within the next few years. Although the U.S. officially legalized gay marriage in 2015, that came after many states had passed their own legislation condoning same-sex marriage, leading to a new federal rule.
With 88 percent of Americans supporting legalization, according to the Pew Research Center, betting on the legal weed industry could be a smart bet — though still a long one.
“I don’t need to make money on something today, if I know in two, three years it’s going to go up 400 percent, 500 percent,” Kassam said.