A tiny grower of cannabis is the next stock pick for Tribeca Investment Partners Pty which was the owner of the world’s best-performing hedge fund last year.
According to Ben Cleary, who co-manages the Tribeca Global Natural Resources Fund with Craig Evans, powered by a federal government license to cultivate marijuana for medicinal purposes, Cann Group is the only Australian company with such a location and it has floated an initial public offering. It is this initial public offering that attracted the attention of the Sydney-based money manager who has now bought shares of the cannabis producing company in the IPO. Through the end of March, the fund is up 2.7 percent this year and the fund had soared 145 percent in 2016.
The fund beat more than 10,000 funds last year to claim the crown as the world’s best performing hedge fund and it was helped in this task by successful wagers on stocks in this sector in North America and this is the first time that Tribeca is buying into an Australia medicinal cannabis firm after last year’s success. Cann is due to list on the Sydney exchange this month and in order to expand its crops and further its genetics and plant breeding program, the company has already raised A$13.5 million ($10 million).
“It’s a logical investment for us in backing experienced management and the only licensed producer,” said Sydney-based Cleary. He said that he before he decides to make an investment, a number of years are typically spent by him in researching a particular sector, the specific companies in the sector, their projects and programs and directors of such companies that drawn his interest.
Cleary said that a little over three percent of the fund’s A$3 billion under management, is represented by Tribeca’s investments in medicinal marijuana firms. The only Australian stock that the fund is eyeing in this industry is the Cann Group.
Australian pot companies are also being targeted by offshore producers. Cann Group said in an emailed statement that for A$6.5 million, Canadian-based Aurora Cannabis Inc. has bought a 19.9 percent stake in Cann Group. Auscann Group Holdings Ltd.’s largest shareholder is Canopy Growth Corp., which has the world’s largest pot-growing facility near Niagara Falls.Investment in both these firms have also been made by Tribeca.
The S&P/ASX 200 Index fell 0.5 percent as of 1:26 p.m. in Sydney on Tuesday.
Despite being filled with strict regulations, a growing consumer base and high margins, the cannabis sector has been described as a “holy grail” of investments by Cleary. While the stocks doing business in the industry are trouncing returns in the broader equity market, this is still a nascent industry in Australia compared with the U.S. and Canada.
“I think it’s a very good consumption story,” he said, however “there’s a whole lot of market cap being created around companies that potentially don’t go anywhere.”
(Adapted from Bloomberg)