Cannabis

Cannabis Stock Index Grew 236% In 2016

Marijuana's ambiguous legal status appears to have little effect on cannabis investment euphoria.
Cannabis Stock Index Grew 236% In 2016
Image credit: Heath Korvola | Getty Images

Putting money into the marijuana industry has become one of the hot topics for stock market investors.

The internet abounds with articles and a rapidly increasing number of advertisements ready to advise people on what marijuana stocks to invest in and how to maximize a cannabis-heavy stock portfolio.

Some compare it to the tech boom of the late 1990s. Whether that is true remains to be seen.

Related: 9 Business Ideas for People Looking to Cash in on the Marijuana Boom

However, one company offers a fairly straightforward assessment of how cannabis-related stocks have performed. And for 2016, they indicated a growth of 236 percent. By way of comparison, the S&P 500 gained just under 10 percent in 2016.

And potential investors can also track the performance of the one marijuana business now listed on the New York Stock Exchange.

Innovative Industrial Properties

The only publicly traded marijuana industry stock on the NYSE is Innovative Industrial Properties, a Real Estate Investment Trust that deals with commercial properties rented out to marijuana companies for the cultivation, growth and storage of cannabis. The company’s IPO happened last November. The company trades under the symbol IIPR.

After opening at 19.75 per share, the stock dropped to 15.29 by Dec. 5. However, since then the stock has risen steadily, closing at 18.14 on Feb. 3.

Related: How Cannabis Ecommerce Challenges Are Driving Web Innovation

The Cannabis Index

While IIPR is on a major stock exchange, many cannabis-related stocks trade on the Over-the-Counter Market. However, some stocks on major exchanges are considered ancillary businesses to the marijuana industry, including agriculture technology, real estate, security and consulting services.

Viridian Capital Advisors specializes in financial and consulting services for marijuana businesses. They also have developed the Cannabis Stock Index, which follows about 50 publicly traded legal marijuana companies. All must meet the following criteria:

  • A $10 million market capitalization
  • An average daily trading volume of at least $20,000
  • A float (outstanding shares) of at least 25 percent
  • Financial reports filed on time for at least the last six months

Among the stocks tracked include GW Pharmaceuticals and Zynerba Pharmaceuticals.

Viridian plans to launch a cannabis Exchange Traded Fund at some point in the future. One issue blocking that is insufficient liquidity with some of the stocks including in the index, requiring frequent rebalancing within the index. That’s something that the company hopes will change as the industry grows, said Viridian CEO Scott Greip, according to MarketWatch.

Still, the Cannabis Index offers some insight into how marijuana investors are doing.

Related: Legal Advice for Cannabis Startups: First, Invest. Then, Stay out of Jail.

Index Movements

Tracking these stocks, Viridian now issues a weekly report on the status of the index.

They found that after a flat first half of 2016, the Cannabis Index rose sharply in the second half of 2016 as legalization votes in a number of states got closer and then were approved by voters. Those gains included almost 31 percent in the third quarter and 155 percent in the fourth quarter.

For the year, the gains rose to 256 percent. So far in 2017, the index started flat, but rose about seven percent the last week of January.

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