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
- AvaTrade Spreads: 0.5% over-market
- Margin: 10%
- Minimum Nominal Trade Size: 1
- Increment: 0.01
Why Trade Cannabis Giants Index with AvaTrade?
Here are some of the many advantages of trading the Cannabis Giants Index as a CFD at AvaTrade UK:
- Regulation –
AvaTrade UK is already regulated across 5 continents through 8 regulatory agencies and is in the process of expanding even further.
- Wide Global Presence –
AvaTrade UK is an established, leading financial brokerage company that has been in operation for over 12 years.
- Advanced Trading Platforms –
AvaTrade UK offers a wide range of advanced and state-of-the-art trading platforms, such as the highly popular MT4 and MT5 (MetaTrader) trading platforms, AvaTradeGO app, the DupliTrade social trading system and the exclusive Vanilla Options app – AvaOptions.
- Wide Choice of Trading Instruments –
Alongside indices, such as the Cannabis Giants Index, at AvaTrade UK you can speculate on the prices of other financial asset classes such as forex pairs, commodities, stocks, bonds, and ETFs. This variety allows you to diversify your trading portfolio with ease.
- Uncompromised Security –
AvaTrade UK holds all clients’ funds in a segregated account. Our negative balance protection feature also ensures that your trading account will never go below zero.
- Professional Services and Support –
Support is available at all times during trading hours. Each account holder is also assigned a dedicated account manager upon registration.
- Flexible Payment Solutions –
Deposit and withdraw (with zero fees) from your AvaTrade UK trading account using a variety of safe and convenient payment methods, such as debit/credit cards, wire transfer, WebMoney, Dinpay, Boleto and FasaPay.
- Comprehensive Educational Resources –
AvaTrade UK offers the most relevant and comprehensive trading educational materials suitable for UK traders of all levels of skill and experience. You can also access our eBooks and webinars.
- Wide Asset Selection including bonds, stock trading, commodities, forex trading, indices and ETFs.
Cannabis Index Trading Main FAQs
- What is the Cannabis Index?
The Cannabis Index is a capitalization weighted index of the top 20 global companies that have at least a 50% revenue exposure to the cannabis industry. Additionally there is a 15% capping factor applied to avoid a concentration of individual companies. Companies included must have a minimum average daily trading volume of $1 million over the past 90 days and must also be listed on a global stock exchange. The three largest companies currently included in the index are Cronos Group, Aurora Cannabis, and Canopy Growth.
- What most affects the Cannabis Index?
As an index in a very new industry the Cannabis Index can see greater volatility when compared with established market groups and indices. This can lead to strong rallies, and sharp drops. The factors most impacting the index at this point are government regulations surrounding cannabis, the rollout of new stores and new products, and of course supply and demand. In fact it was a glut in the supply chain that was responsible for a drop in the Cannabis Index in 2019, and it’s demand that investors are counting on to lift the index in coming months.
- What is the best strategy for trading the Cannabis Index?
As the cannabis industry recovers from its bear market of 2019 there are several strategies that traders can employ to best trade the Cannabis Index. One is to follow the trend in the index, which has been steadily lower over the past year. A more contrarian approach would be to look for reversals, particularly reversals that could lead to a breakout move to the upside for the index. With the Cannabis Index so depressed any breakout rally has the potential to deliver massive returns.