Cannabis Stock Trading
The Global Cannabis Giants Index (BGCANG Index) is designed to track the performance of the top 20 listed companies with an exposure to the cannabis industry.
The index tracks only companies whose revenues have at least 50% exposure to the cannabis industry. This has led to the Cannabis Giants Index becoming the global definitive stock market benchmark index for marijuana-exposed stocks.
The Cannabis Giants Index was started by BITA, a German-based FinTech company, on the 16th of November 2018. The objective was to reliably track the performance of top publicly traded companies with the widest exposure to the medical cannabis industry.
The value of the index at inception was 1000 points. It initially drifted lower to hit an all-time low of circa 724 in December 2018, before turning higher to post a high of circa 1240 in March 2019. It has since drifted lower to trade at around the 820-region, as of August 2019.
Index Composition and Calculation
The Cannabis Giants Index is capitalisation-weighted (inclusion depends on market capitalisation) with a 15% Capping Factor applied to reduce concentration of individual companies and to achieve true diversification.
To be included in the index, a company must meet the following conditions:
- Have 50% revenue exposure to the marijuana industry.
- A minimum average daily trading volume of $1 million over the last 90 days.
- Trade in a global, liquid stock exchange.
BITA applies the above liquidity and revenue exposure filters to select the top 20 companies from all over the world to be included in the index.
Here are the top 10 companies included in the Cannabis Giant Index ranked by their weight as of August 2019:
|1||Cronos Group Inc. (CRON)||16.55%|
|2||Aurora Cannabis Inc. (ABC)||15.64%|
|3||Canopy Growth Corporation (WEED)||14.87%|
|4||GW Pharmaceuticals PLC Sponsored ADR (GWPH)||13.15%|
|5||Tilray, Inc. (TLRY)||11.00%|
|6||Aphria Inc. (APHA)||5.44%|
|7||HEXO Corp. (HEXO)||4.22%|
|8||OrganiGram Holdings Inc. (OGI)||3.34%|
|9||Innovative Industrial Properties Inc. (IIPR)||2.93%|
|10||Green Organic Dutchman Holdings Ltd. (TGOD)||2.31%|
BITA has provided a 16-page whitepaper that details the index formula, but it generally applies the principles below:
The index is calculated based on the Laspeyres Formula, which helps to factor in any major corporate changes that may occur at any given time, such as mergers and acquisitions.
- Frequency and Input
The index is calculated every one second during intraday trading sessions. The overall index value depends on the quotes provided by the relevant stock exchanges of individual companies. BITA uses the US dollar (USD) as the index’s base currency.
The index is calculated to 13 decimal points but is published in 2 decimal points for easy quotation.
As earlier stated, the index applies a capping factor of 15%. The process is done iteratively, with any excess weight redistributed proportionally among the other constituent companies with a weight less than 15%.
Calculation and dissemination are done during normal US trading times (0930 hrs to 1630 hrs EST).
The Cannabis Giants Index rebalances quarterly to delete or add qualifying constituent companies. The reviews are conducted on the third Friday of March, June, September and December using closing prices, while the changes will reflect on the succeeding Monday at market open.
Overview of the Marijuana Industry
Marijuana has been used by humans for thousands of years as both a medicinal and recreational drug. In the last century, it has largely been an illegal product, but the last decade has seen massive breakthroughs for the industry, which has attracted investors to invest money in companies involved in the main value chains of cannabis:
- Growers – Companies that actively cultivate marijuana, whether via greenhouses or other specialised facilities.
- Biotechs – Companies that use various cannabis components to manufacture prescription drugs.
- Ancillaries – All other companies involved in research, consulting or provision of any other key services to the cannabis industry.
Major milestones have been achieved over the past decade, ensuring that the marijuana industry is firmly out of the taboo zone.
It was in 2009 that the then US Attorney General, Eric Holder, directed the Drug Enforcement Agency (DEA) to stop raids on legal, medical marijuana dispensaries, which signalled the softening stance of the US Federal Government on the drug.
The industry would receive further encouragement when Congress passed the Rohrabacher-Farr Amendment, which protected States’ rights to enact legal cannabis protection without federal interferences.
A little shocker came at the start of the Trump presidency, in 2016, when the new Attorney General took steps to repeal some of Obama’s pro-cannabis regulations, but he resigned in late 2018 and his successor, William Barr, confirmed in a congressional sitting that his office would not crack down on the industry.
With more than 30 states already having legalised medical marijuana, as of August 2019, the industry now has breathing space in the US, a far cry from when the Federal Government frowned upon the State of California for legalising marijuana in 1996.
The headlines in the US are exciting the entire world, but Canada is way ahead of the game. Medical marijuana was legalised in the country in 2001, and the 2018 Federal enactment of the Cannabis Act formally legalised the cultivation, possession, acquisition and consumption of marijuana and its by-products.
In Europe, the Netherlands is famous for its Cannabis coffee shops that started way back in the 1970s, and the United Kingdom is also open to medical marijuana debates.
Still, as the world’s superpower, the investing public is eagerly awaiting the US Federal legalisation of marijuana. And it seems that the wait is almost over.
In December 2018, Hemp (also made from the cannabis plant) was federally legalised. Both Hemp and marijuana contain the chemical ingredient, Cannabidiol (CBD), but Hemp has lower levels of the psychoactive Tetrahydrocannabinol (THC) that is the primary component of the cannabis plant.
Granted, the cannabis industry still operates in a legal grey area, but a lot of associated risks are actually perceived, not real. This creates an enormous opportunity for investors eyeing practically abnormally high growth.
Factors Influencing the Overall Price of the Cannabis Giant Index
For an industry still in a unique infancy stage, the factors that affect the benchmark Cannabis Giants Index are varied. Legalisation is the biggest headline in the industry, with the Index reacting accordingly when such news hits the wires. The industry is also a target of special taxation in different jurisdictions.
A significant move in an individual component stock will also influence the direction of the Index. To this regard, it is important to understand the nature of the market that a constituent stock company targets.
Each geographical market has different opportunities and faces unique local risks. This also means that there is relatively high positive stock price correlation for companies that operate in, or services within the same jurisdiction.
Why Trade the Cannabis Giants Index?
There are many benefits to trading the Cannabis Index as follows:
- Liquidity – Tracking the top 20 companies in the cannabis industry worldwide makes the Index highly liquid with fewer price inconsistencies.
- Smooth price action – Due to the computational model of the Index, no single stock component can significantly influence the price, which makes it more predictable and less volatile.
- Vast news coverage – As the benchmark index for marijuana-related stocks, it attracts wide coverage, making it easy for investors to access any information regarding the main index price movers.
Cannabis Giants Index Trading Information
- MT4 Symbol: CANNABIS_IN
- Trading Time: Monday – Friday 13:30 – 20:29 (GMT)
- Country: Global
- Currency: USD
- Typical Spread: 0.5% over-market
- Minimum Nominal Trade Size: 1
- Increment: 0.01
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