New Risk of Cannabis Stock Investments

Canadian investors that head south of the border could be in for a new headache very soon.

Most investors realize that purchasing stocks in the cannabis sector is very high risk and that they stand an equal chance of losing what they put in as they do in making money. But how many are aware of the second risk of investing in this industry?

As Canada is set to legalize recreational use of cannabis on Oct 17th, a senior US Customs and Border Protection official is warning that the US does not plan to change their border policies.

Todd Owen, the executive assistant commissioner for the office of field operations, warned that “Facilitating the proliferation of the legal marijuana industry in US states where it is deemed legal or Canada may affect an individual’s admissibility to the US”.

Mike Niezgoda, a spokesman for the US Customs and Border Protection service issued similar warnings as well, stating that anyone using or investing in the sector could be barred entry to the US, maybe even for life.

You see, owning even one single share of a company’s stock makes you technically an owner of that company. In the eyes of the US federal law, that could see you branded as the owner of a company that sells illegal narcotics and therefore inadmissible across their borders.

There has been much excitement for many Canadians with cannabis related stocks and many investors have bought in hoping to make a quick buck. Results have varied for sure in this highly risky and volatile sector – if you’re timing has been good you may have done very well and if you didn’t time things right you could have easily lost a lot of money as well.

Purchasing Canopy Growth stock on Jan 1 of this year would have you roughly doubling your money as of Friday’s close. But holding Aurora Cannabis’ stock over that same period would have netted a minus 35 per cent return.

But regardless of your investment track record, owning any of these stocks could in fact cause you big travel issues. It is unlikely the average customs agent is going to ask what you hold in your portfolio these days, but these border guards have very broad powers to question Canadians and you never know if the agent you get is simply having a bad day or doesn’t like you for some reason.

Many investors who haven’t directly purchased cannabis company stock may also be caught up by owning a mutual fund or other pooled investment that has cannabis companies as part of their underlying holdings. Most portfolio managers are avoiding these investments due to the risks involved but a few outliers are holding some exposure.

The odds of the average investor being caught up is likely not too high at this point but the lack of clarity on how these laws will be enforced is troubling and the pointed warnings from the above-mentioned officials adds to the concern.

So, take this as a warning if you are one of the 400,000 people that cross between the Canada and US borders each day – border agent questioning could lead down the path of cannabis use or investments and if discovered, your entry could be denied.