Executive and Legislative are currently debating the decriminalization of cannabis in Brazil. In the government, the National Health Surveillance Agency (Anvisa) began voting to regulate medical cannabis use, after an open public consultation in the first semester. The vote was interrupted by requests for visas made by two counselors, Antônio Barra Torres and Fernando Mendes Garcia Neto.
The legal cannabis industry sold $12 billion in cannabis products worldwide last year, according to Euromonitor. With the legalization of cannabis proceeding in several countries, the market forecast is that this segment will move $166 billion per year until 2025. Interested investors are betting financially on the development of the cannabis market in Brazil.
However, they were left out of the initial cannabis boom since there are no companies in the cannabis sector listed on the Brazilian stock market. To access the cannabis market, investors would need to open an account with a brokerage house abroad, which ended up scaring away those who wanted to put only a small portion of the investment portfolio in the segment.
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Developing the cannabis market in Brazil
An option reaches the investment shelves in Brazil, with the launch of the Vitreo Cannabidiol FIA IE fund, the first in the country focused on the cannabis market, in the month in which the $468 million manager completes one year of activity.
The fund will invest in the U.S. and Canadian financial markets, with two-thirds of the portfolio going to ETFs (Exchange Traded Funds) and one-third in shares of five to six companies.
George Wachsmann, partner and head of management at Vitreo, explained that the strategy of leaving most of the portfolio exposed to ETFs is to bet as a whole on this market which, according to him, is at the beginning of a potential big growth cycle. “At ETF, you are more diversified, it is more a bet on a big issue than on a company. The shares are chosen based on the investment theses that attract our attention,” he explained.
According to Vitreo, there are currently more than 100 companies in the sector with shares listed on the stock exchange, not counting speculation on new initial public offerings (IPOs). Most of these papers are traded on the over-the-counter market, but some circulate on the stock exchanges.
Investment funds generally place a cap on equity value to maintain efficient portfolio management capabilities. In the case of Vitreo Cannabidiol, the managers do not determine a target volume of funding. “It’s such a unique product, it’s hard to determine,” said Patrick O’Grady, CEO of Vitreo.
The managers say an important milestone would be the first $23 million. “I don’t think we’ll get there that fast, but that would be a point where I would stop to take a breath, look back and analyze before moving on,” said Wachsmann.
One of the important aspects is liquidity. It is precisely this liquidity, which is still low in the cannabis sector, that will weigh more heavily in the managers’ analysis to limited funding.
For Brazilians, but only the top few
As Vitreo Cannabidiol fund will be 100% exposed to the international market, the CVM (Brazilian Securities and Exchange Commission) imposes access restriction only for qualified investors, that is, those with at least $235,000 in financial investments.
The minimum investment is $1.170, with an administration fee of 1.5% per year and a performance fee of 20% over the performance of the S&P 500 Total Return (an index that embeds the dividends paid by the companies and usually runs about 2% above the S&P 500).
For the time being, the Vitreo Cannabidiol fund is only available for investment in the management’s own platform. The redemption period is in D+30, that is, your money can be redeemed 30 days after the withdrawal request.
The cannabis market in Brazil is volatile
The shares of these companies have high volatility, not only due to traditional variations in supply and demand, as is the case with any variable income asset. They are also due to risks specific to the cannabis market in Brazil, such as those associated with its government’s prohibitions.
Although these companies are not state-owned, they are at the mercy of eventual changes in government compositions and sector regulations.
Investors see risk as a range of opportunities, since the chances of existing releases going back are lower while new countries may enter the market, as is the case of Brazil. “Things may go faster or slower, but what we see around the world is that this is moving forward, with increasing acceptance, especially for medical use,” said O’Grady.
The manager of Vitreo said that, at the moment, 22 countries already have some use of cannabidiol, which represents a total population of over 1.5 billion people. In addition to the exposure to stock and ETF oscillations, Vitreo’s fund, and its investors, will be exposed to exchange variation in the period.
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First published in Valor investe, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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