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Canadian pension funds – some of the biggest and most august of investors – are buying pot stocks as the maturing industry’s largest companies emerge as mainstream investment options in the wake of the legalization of recreational cannabis.

The Public Sector Pension Investment Board (PSP Investments) bought shares of four different cannabis companies in 2018’s fourth quarter. At year’s end, they were worth roughly $77-million, according to U.S. regulatory filings. The Ontario Teachers’ Pension Plan Board also took its first disclosed position, ending the year with about $1-million in shares of Aurora Cannabis Inc.

The investments are tiny for Canadian pension funds, which in the aggregate manage hundreds of billions of dollars with an aim to providing for their members’ retirements. At the same time, however, the investments show what many pot-stock watchers had forecast: As cannabis became legal and the leading Canadian companies matured, their investor base would broaden from retail investors looking for a quick score to institutions with a more conservative, long-term focus.

Or, as Aurora executive Cam Battley put it in a tweet in discussing the pension investments, “(sigh) We’ve become boring & mainstream. ;)”

The holdings information, contained in filings with the U.S. Securities and Exchange Commission, is limited to the five cannabis companies that list on a U.S. stock exchange: Canopy Growth Corp.; Aurora; Aphria Inc.; Cronos Group Inc.; and Tilray Inc. The filings list only positions held by institutional investors at quarter’s end, so they give no insight into when, exactly, the shares were bought and at what price. They also fail to capture stock positions acquired, and then disposed of, during the quarter.

And because the filings are limited to U.S.-listed companies, they do not reveal whether Canadian funds are also buying shares of Canadian companies that haven’t achieved a cross-border listing.

Pension funds typically don’t discuss individual holdings, and that seems to be the case here. Maria Constantinescu, a spokeswoman for PSP Investments, declined to comment for this story. Montreal-based PSP manages money for a federal-employee pension plan.

Alberta Investment Management Corp., which had a position in Canopy prior to legalization, sold the bulk of it in the fourth quarter and took a position in Aurora instead, declined to comment. Ontario Teachers’ Pension Plan also declined to comment.

Canada Pension Plan Investment Board held none of the stocks at the end of 2018. “It is less of a conscious opt out, but rather concentrating our focus elsewhere on other themes that we currently view as a much better fit with our portfolio," CPPIB spokesman Michel Leduc said in an e-mail. “We haven’t ruled out cannabis. It just hasn’t found its way as a strategic focus or theme to date.”

Ontario Municipal Employees Retirement System (OMERS) also did not have any direct investments in cannabis securities at the end of 2018. “We are quality investors and we like quality assets,” OMERS chief financial officer Jonathan Simmons said Monday. “To date, it has not been a space that has been attractive. We like to see strong balance sheets and good cash flow from our investments. It just hasn’t met the investment criteria yet.”

Maxime Chagnon, spokesman for Caisse de dépôt et placement du Québec, said the fund doesn’t have any investment in companies that produce cannabis. The Caisse, which has $309-billion in assets, makes investing and supporting Quebec companies a cornerstone of its philosophy.

Matt Bottomley, an analyst with Canaccord Genuity Corp., said that institutional money managers have been watching the cannabis industry for several years, particularly after companies such as Constellation Brands Inc. and Loblaw Companies Ltd. gave their imprimatur. (Constellation Brands made a multibillion-dollar investment in Canopy in 2018, while Loblaw solidified plans last year to sell both medical and recreational cannabis.) “There’s a lot of legitimacy coming to the sector, and people are just trying to get their head around valuation: Is now the time, or is this still all propped by retail excitement?” Mr. Bottomley said.

“I expect to see more come into the space, partly because of indexing, partly because we’re getting more clarity [on the market and the financial performance of cannabis companies]. … But I think it’s going to be a slow-moving ramp. I don’t think it’s going to be over the course of 2019, all the institutions are going to have a 5-per-cent weighting in cannabis; I think it’s very slow and steady."

Cannabis investments at pension funds

HolderCompanyCommon stock equivalent heldMarket value ($)
Public Sector Pension Investment BoardAphria553,800$7.1-million
Aurora Cannabis2,562,100$23.4-million
Canopy Growth555,100$33.9-million
Cronos Group431,900$12.4-million
Alberta Investment Management CorporationAurora Cannabis488,200$4.5-million
Canopy Growth11,900$0.7-million
Ontario Teachers' Pension Plan BoardAurora Cannabis115,445$1.1-million

Source: Globe research of filings with the U.S. Securities and Exchange Commission

Note: Stock holdings and values are as of Dec. 31, 2018.

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