Money Talks: Pot and eSports in North America are this expert’s go-to stocks
Link copied to
Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for.
Today, we hear from Matthew Langsford, portfolio manager for Terra Capital.
Langsford’s picks for hot sectors are cannabis and eSports – but not in Australia.
You see, investment opportunities for these two sectors are too limited in Australia, according to Langsford.
But the Canadian and US cannabis and eSports markets are massive.
Marijuana is legal either recreationally, medicinally, or both in 33 of the 50 US states.
In Canada, flower-related products for recreational use became legal in October last year and all other types, including topicals and concentrates, are set to be made legal in October this year.
Langsford said it’s a bit like “Cannabis 2.0” in Canada.
“The Canadian market kind of exploded last year when it became legal in October,” he said.
“They then basically ran out of product and have been scrambling to satisfy the demand there for flower. Because there’s been no topicals, edibles, beverages, things like that, there’s this kind of pent up demand there.”
The legal cannabis market in the US was worth $US11 billion in 2018 and it is expected to reach $US23 billion by 2022.
The US CBD market, which includes products from coffee infusions to ice cream, and from beer to herbal supplements, was worth $600m last year and is forecast to hit $22 billion in 2022.
“I think certainly in Canada and the US, the easy money has probably been made, but there are lots of idiosyncrasies within those markets, and because of their size, that mean there are still lots of opportunities, and the opportunities are still really big,” Langsford said.
“In Australia as it stands, 6,000 patients have been approved in history. So the size of the market is small.
“There are a bunch of competitors fighting over this small medical market. So it’s not as an inspiring investment destination for us.”
eSports in the US inspires Langsford for the same reason as cannabis – the market size.
According to Terra Capital, by 2021, eSports viewership is expected to reach the #2 spot behind the NFL in the US.
“In the US you have a lot more ways to play it, there are more companies there,” Langsford said.
“For instance, we’re invested in the largest eSports team globally and then we are also invested in one of the other top five companies.
“Those type of opportunities just don’t exist in Australia.”
While Langsford thinks the opportunities are better in the US and Canadian cannabis and esports markets, he does see some potential in a couple of ASX-listed stocks.
The first is eSports Mogul (ASX:ESH), which has a market cap of around $21m at a share price of 1.3c.
In May the company signed a deal with one of eSport’s most recognisable franchises and followed that up with an oversubscribed capital raising.
The company will provide its esports tournament platform to Alliance, allowing Alliance to establish its own annual tournament series and membership offering.
The Europe-based Alliance franchise is well-known, with a host of iconic industry competitors playing games such as Super Smash Bros, Fortnite and Dota 2.
“That’s the one in Australia that I think is the most interesting,” Langsford said.
The second stock, though not technically an eSports company, is Animoca Brands (ASX:AB1), which has a market cap of $123m at a share price of 15c.
“You probably wouldn’t put AB1 in an eSports category, but I think it’s interesting because it is a focus on gaming,” Langsford said.
“There are so many gamers, and again if you are operating in that space there’s a large global market to provide your services or your games to.”
In March, Animoca revealed it had partnered with the world’s richest and most recognisable motorsport brand, Formula 1, to develop ‘F1 Delta Time’, a blockchain racing game.
And now it plans to “sell” rare Formula 1 cars that are unique to each player.
“They’re selling rare Formula 1 cars that you can use in the game, but it’s on the box saying that you own that car forever, no one else can buy it,” Langsford explained.
“So there’s a kind of collector-style value placed on their product.”
Matthew Langsford is a portfolio manager at boutique investment manager Terra Capital. Langsford is a qualified chartered accountant and has worked in corporate finance at Ernst and Young and in institutional and high net worth broking, specialising in small caps.