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For some, even mentioning the word cannabis is something they find unpleasant. Some would be happy to have a brief conversation about it with friends. But considering a cannabis-linked investment Am I mad?

Thankfully, I am confident in my sanity. Further to this, I think now is exactly the right time to be starting a conversation about cannabis, primarily around how Fools like myself can potentially profit via the stock market from what could genuinely be ‘the next big thing’

Is it legal?

Investing in cannabis-related stocks is legal. That much is simple. Cannabis itself is slightly more complex when it comes to laws in the UK. Since the 1920s, cannabis has been illegal, as a Class B drug. However, in November 2018, cannabis for medical use was made legal via prescription. This was both via the NHS and private placement. 

The medical strain known as CBD still comes from the plants but contains only very small amounts of Tetrahydrocannabinol, which is the component that makes a user feel a high. 

How can I invest?

With this move in 2018, the need came for legalised cannabis production. Added to this is the growing movement around the world, particularly in the US and Canada, which have legalised it for medical and even, in some cases, recreational use. This has seen stocks that legally produce cannabis or related products soar in value recently.

While you can invest in these US-based companies via international stock exchanges, let’s focus on here in the UK. At the moment there are no ‘direct’ cannabis firms that trade on the FTSE 100 or FTSE 250. This may and (in my opinion will) change in the coming years as this industry opens up in the UK.

You can invest though via stocks of firms that have a finger in the pie, and tobacco giants like Imperial Brands have been talked about on this front. But I’m interested in Associated British Foods (LSE: ABF). In 2017, one of the firms within the group (British Sugar) announced that it would start to grow a variety of cannabis plant in Norfolk. This was in order to extract the CBD mentioned above so that it could be used for medical purposes.

Now while I admit that ABF’s business is not completely devoted to cannabis production (think phenomenally successful retailer Primark), it does have the foundations in place to benefit if the market really opens up. Indeed, as cannabis becomes less of a taboo topic and is used more widely in the UK for medical purposes, production should increase. This could increase demand for ABF, and it may invest more into developing this area of the business.

So, while cannabis is only legal in the UK for medical purposes at the moment, you can get a form of exposure to it via companies such as ABF. As I expect the cannabis market to open up in the UK in coming years , I am thinking about investing in ABF now for 2020, in order to be able to fully benefit from any potential boost in demand.

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Jonathan Smith does not own shares in Associated British Foods. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019

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