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More than $17-billion was pumped into Canadian casinos, internet gaming sites and lotteries last year, according to a federal government tally.

It is impossible, however, to add up how much is spent by people who take it to the next level and roll the dice on stock markets. Indeed, it’s hard to draw the line between gambling and investing.

Both fall under the broad definition of gambling: to risk money on an uncertain outcome. But gambling in the strictest sense is distinct because the statistical chance of long-term success is virtually nil, says Ambrus Kecskés, associate professor of finance at York University’s Schulich School of Business in Toronto.

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“Everybody knows full well that the house always takes a cut. You’re necessarily paying to play,” he says.

Investments, on the other hand, at least have the potential to appreciate in value, Dr. Kecskés says, because companies that trade on stock exchanges typically have underlying assets intended to generate revenue over time.

“An investment – high or low risk – will generate a stream of future cash flows," he says, and that’s why you are willing to pay something today for it.

Cannabis stocks have sparked a debate over whether investing in them amounts to gambling.

Christopher Katsarov/The Canadian Press

Under that distinction, he says popular claims that cannabis stocks are a form of gambling don’t hold water. He considers them legitimate investments no matter how high investors drive stock prices beyond actual earnings.

“I don’t see any difficulty in valuing pot stocks as any other kind of investment, bearing in mind there’s a lot of uncertainty surrounding what the right cash flow estimates are,” he says. “They sell a physical product.”

He compares cannabis stocks today to fledgling technology stocks in the late 1990s and even the big Canadian banks – the bluest of blue chip stocks – 200 years ago.

“Given the valuation of Canadian banks at the time, what would you pay for a share of that business? Could you reasonably foresee the success of that business and the economic system of the country that had not yet been formed?”

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In contrast, he says, cryptocurrencies such as bitcoin should be considered gambling because they have no underlying physical or digital assets and do not store value.

'Any valuation you put on bitcoin is going to have an enormous gambling or speculative component,' says Ambrus Kecskés, associate professor of finance at York University’s Schulich School of Business in Toronto.

ANTHONY WALLACE/AFP/Getty Images

“More and more you discover that bitcoin has severe flaws. Certain actors can collude and eventually take over control of the underlying blockchain technology and ultimately create new bitcoins for themselves at will, completely diluting its value,” he says.

Ambrus Kecskés, associate professor of finance at York University’s Schulich School of Business in Toronto.

“Any valuation you put on bitcoin is going to have an enormous gambling or speculative component,” Dr. Kecskés says.

Barry Schwartz, chief investment officer and portfolio manager with Toronto-based Baskin Wealth Management, draws a clear line between gambling and investing.

“Gambling is a quick bet. Either you win because you got lucky or you lose because you were unlucky,” he says. “When you buy a stock a lot of good things can happen; you can get paid a dividend, the stock can get taken over, or it can report some surprise earnings.”

Trading in cryptocurrencies, he says, is flat-out gambling. “You can’t value a cryptocurrency. I don’t know how you even bother to invest in it. What is your benchmark? What is your fall-back? What is it worth? It’s worth whatever someone else thinks it is worth,” he says.

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Mr. Schwartz also considers cannabis stocks as a form of gambling. He’s a long-time critic of the speculative nature of the sector as the industry tries to find a fundamental footing. As share prices have soared from pennies to dollars over the past few years he has come to consider cannabis stocks more of a wager than an investment.

“With buying a speculative investment, you’re really hoping the greater fool comes along who has wider eyes than you and wants to buy that security from you,” he says.

His advice to long-term investors is to put their money in established companies in traditional sectors. “It’s a pretty safe gamble when you’re buying a company that’s profitable, has a history of dividends, has been in business for a long time and sells a product or service that people use and need every day. You spread your bets out across over 20 or 30 stocks and you create a portfolio,” he says.

Charles Rotblut, vice-president of the Chicago-based American Association of Individual Investors, says the gambling-versus-investing debate comes up often among the organization’s 180,000 members. To him, putting money in cryptocurrencies is gambling, although the blockchain technology supporting them falls into the sphere of investing, though a speculative form.

“Given crypto’s limited history and acceptance, I would classify it as gambling. It is far too early to tell if it will evolve beyond a fringe form of payment. Blockchain, on the other hand, has promise as an emerging technology, and I would classify that as a high-risk investment,” he says.

People check out the sample counter at a cannabis store in Winnipeg, Man., on Wednesday, October 17, 2018.

John Woods/The Canadian Press

Cannabis stocks are high-risk, as they could have gambling qualities if valuations are out of whack, he says. As an example, the cannabis stocks that manage to produce measurable earnings often trade at more than 100 times earnings compared with big Canadian banks, which typically trade in the teens.

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"Any time you start getting above 30 times earnings, that’s usually a good time to start taking a look around,” he says.

Mr. Rotblut says there is a psychological element common to both investing and gambling – the rush that comes with winning. Investors who can’t fight the urge should at least diversify the risk in their portfolios.

“If someone really feels like they want to do something and just can’t keep their hands off of doing it," he says, "maybe make it 5 per cent or 10 per cent of the portfolio.”

“That way if they wipe out, they’re not ruining their financial future.”

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