A number of industries that desperately are in need of fresh financing are finding themselves starved for cash as investors flock to cannabis stocks.
Niche mining industries in particular, such as lithium miners, are itching to find new investors as reported by Bloomberg. With a new round of cannabis legalization for CBD-edibles coming soon in Canada in October, much of the speculative funding that would have went to the junior mining world has now been relocated elsewhere.
While those who follow the cannabis market closely know that investors are becoming pickier about pot stocks in general, expecting more profitability and not just sheer growth, it’s still true that the sector overall is attracting a large number of investors.
While the first round of Canadian legalization saw more speculative investors jump on the opportunity to make some explosive gains, the past few months have seen the industry establish itself as a more reputable and less shady sector.
As such, previously conservative investors who have resisted the allure of the market are now considering cannabis an attractive investment option. With the second round of Canadian legalization coming up, even institutional investors such as pension funds, mutual funds, and larger hedge funds are all throwing money at the sector.
What has happened, however, is that other markets are finding themselves starved for fresh investment funding. Lithium miners, in particular, have been hit hard, according to statements made at the Lithium Supply and Markets conference in Santiago this week.
The biggest problem was that the event, which would previously be full of potential investors and fund managers, was mostly empty – a stark contrast to last year when prices for lithium were at historic highs.
“A lot of the risk capital that had gone into the lithium sector is now running into cannabis,” said Tobias Tretter, a managing director at the Zurich-based fund manager Commodity Capital AG. He added that the lithium market “absolutely needs more investment, not just from car manufacturers or chemical companies but also from institutional investors and fund managers.” Another analyst, Chris Berry at House Mountain Partners, made a similar comment. “The capital is firmly parked on the cannabis sector. As this speculative cannabis view matures, the hope is that that capital will come back to mining — but I don’t see a lot of money coming into the space for now.”
While demand for metals like lithium, which are used in batteries for electric vehicles, still remains strong as auto manufacturers like Tesla work to secure consistent suppliers, prices for lithium have fallen somewhat this year, shedding 16 percent.
Much of this came down to fears of oversupply as countries like Chile, which have the largest serves of the metal in the world by far, continue to ramp up production.
For junior mining companies, having secured investment funding is crucial, as these firms operate primarily on a speculative, exploration-based model.
After an initial investment is made, whether by going public and (usually) becoming a penny stock or through securing private funding, junior miners then usually get bought out by larger companies once a discovery is made.