How will CBD affect the pharmaceutical industry
Cannabis stocks rally "The medical cannabis market is enormous"
FondsDISCOUNT.de: Mr. Ringler, you have been managing the GF Global Cannabis Opportunity Fund (ISIN: LI0507461338) since it was launched last August. The sector has again attracted a lot of interest from investors in recent months - why is that?
Carsten Ringler: The stocks from the cannabis sector have been able to set a brilliant price rally on the floor at the latest since the change of government in the USA at the beginning of November. One of the main reasons is the hope that the new democratically led government will bring about further legislative relaxations. At the beginning of the month, in addition to the majority leader in the US Senate Chuck Schumer, two other Democratic senators took initiatives to legalize cannabis at the federal level. Previous efforts to achieve this have been blocked by the previously Republican-controlled Senate. The medical use of cannabis is currently permitted in 36 of the 50 states in the USA, 15 of the states and the District of Columbia also allow recreational use for people aged 21 and over. The strong price increases of the shares with a focus on the large American market are a good indication of future significant increases in sales and profits in the sector.
Which companies benefit most from such political easing in the USA?
Vertically integrated cannabis companies, so-called Multi-State Operators (MSOs), can be found across the various states of the USA. We see great potential for them, as they benefit from the entire value chain from cultivation and processing to the end product. Companies with strong product brands in particular should be able to achieve sales growth of more than 50 to 100 percent this year compared to the previous year.
Are there any other allocation priorities in your investment strategy?
We see great potential in medical cannabis. Research is being carried out worldwide into the possible healing effects of over 100 cannabinoids. The medical use of cannabis is already possible today for various clinical pictures and symptoms such as epilepsy, anxiety disorders, pain or even depression. We spend a lot of time identifying and deeply analyzing pharmaceutical companies that are focused on clinical research and drug development for these cannabinoids.
And the medical cannabis market is huge. Take Canada, for example, with a population of 37.6 million as a reference value: at the end of September 2020, a total of 377,024 patients were registered in the medical cannabis register, which is around one percent of the total population. Canada only has a small population. There are currently a number of other countries that have approved the medicinal use of cannabis. These include, for example, Germany, Australia, Italy, Switzerland, Mexico and Israel, to name just a few.
But the potential overall market is much larger. Let's take a look at the population of the USA and various other continents: Europe has about 746 million, South America about 422 million and the USA about 327 million people. If only one to two percent of the population - that would be a total of around 1,532 million people - use cannabis products for medical purposes, we are quickly talking about 15 to 30 million users. Since the use of phyto-cannabinoids under medical supervision has hardly any side effects compared to many other drugs, we are assuming enormous growth rates in the number of legal cannabis users in the coming years.
One specialty stock we've invested in is GW Pharmaceuticals. In early February, Irish pharmaceutical company Jazz Pharmaceuticals made a takeover bid for GW Pharma worth $ 7.2 billion. This mega-acquisition in the cannabis / biotech sector was the top news this month. Through the takeover, Jazz was able to secure a strong platform of innovative drug candidates based on cannabinoids. An example of this is Epidiolex: The drug is used in children with severe epilepsy for seizures. GW Pharma also conducts various clinical research series on autism, multiple sclerosis and also schizophrenia.
You also invest in stocks related to psychedelics in the fund - what can investors imagine by that?
We see great therapeutic potential through the use of various psychedelic substances such as psilocybin, ketamine or LSD. We assume that new, revolutionary next-generation drugs will hit the market in the next few years.
On the basis of an increasing number of studies, scientists have long come to the conclusion that mind-altering substances in microdoses can treat and heal some mental disorders. These include, for example, ADHD, depression, anxiety, and addictions.
In the fund, we are currently invested in ten innovative biotechnology companies with a focus on psychedelics. A company in this field, Compass Pathways, is currently conducting clinical research with the active ingredient psilocybin for severe depression. According to the World Health Organization, around 322 million people worldwide currently suffer from depression.
Incidentally, the successful German star investor Christian Angermeyer invested in Compass Pathways at an early stage. In a recent interview with NTV, Angermayer spoke about the enormous market potential of psychedelic medicine, which he sees in the tens of billions.
Can you explain your investment strategy to us?
We have developed a multi-level analysis system. In the first step, we define individual allocation quotas for cannabis sub-segments at portfolio level that we consider important. These include the aforementioned MSOs or biotech companies that specialize in cannabinoids. This universe of titles includes several hundred companies. From these, in the next step, we screen the most attractive companies. We pay attention to factors such as top management, a solid balance sheet, meaningful partnerships, strong cannabis brands and the individual growth strategy as well as their financing. In the last step, we then define technical chart levels for the other, fundamentally strongest stocks for the right entry and for profit-taking.
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