What is Cannabis Index? Trade Global Cannabis Giants index with AvaTrade!

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The BGCANG (Global Cannabis Giants) index was created to replicate the performance of the top 20 companies with exposure to the cannabis industry.

The index includes companies with revenues deriving from at least 50% of the cannabis industry.

This has led the Cannabis Giants index to become the global benchmark index for stocks with exposure to marijuana.

The Cannabis Giants Index was launched by BITA, a fintech firm based in Germany on November 16, 2018.

The aim was to reliably track the performance of major listed companies with broad exposure to the cannabis industry for medical use.

The initial value of the index was 1000 points.

Subsequently, the index reached an all-time low of around 724 in December 2018 before advancing and recording a maximum of around 1240 in March 2019.

Since then it has dropped, reaching an all-time high of 820 in August 2019, to an all-time low of 290 in April 2020.

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Composition and calculation of the Cannabis index

The Cannabis Giants index is weighted according to capitalization (inclusion in the index depends on market capitalization) with a capping factor of 15%, applied to reduce the concentration of individual companies and achieve good diversification.

To be included in the index, the following requirements must be met:

• The company must derive revenues for at least 50% from the cannabis sector;
• The average daily trading volume must have been at least $ 1 million in the past 90 days;
• The security must be traded on a liquid global stock exchange.

BITA applies the above liquidity and revenue exposure filters to select the top 20 companies from around the world for their inclusion in the index.

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Which Companies are included in the Cannabis Giants index?

The following are the top 10 companies included in the Cannabis Giants index based on their weighting (last update: August 2019):

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How the Cannabis Giants index is calculated?

BITA has created a 16-page whitepaper detailing the index calculation formula, but simplifying the following principles are applied:

Methodology

The index is calculated on the basis of the Laspeyres formula, which helps to take into due account important corporate changes that may occur over time, such as mergers and acquisitions.

Frequency and input

The index is calculated every second during the intraday trading sessions. The overall value of the index depends on the quotes provided by the stock exchanges of the individual companies. BITA uses the USD as the base currency of the index.

Accuracy

The index is calculated to the thirteenth decimal place, but is published to the second decimal place for ease of managing the listing.

Capping

As indicated above, the index applies a capping factor of 15%. The process is done in an iterative manner, with any excess weightings that are redistributed proportionally among the other companies belonging to the index with a weighting of less than 15%.

Disclosure

Calculation and disclosure take place during normal US trading hours (9:30 am – 4:30 pm EST).

The Cannabis Giants index is rebalanced quarterly to eliminate or add eligible constituent companies.

The reviews take place on the third Friday of March, June, September, and December using the closing prices of these sessions, with the changes taking effect at the opening of the markets on the following Monday.

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Overview of the marijuana industry

Marijuana has been used by people for thousands of years for both medical and recreational purposes.

Marijuana has become an illegal product since the last century, but in the last decade there have been several innovations in the sector that have attracted many investors to companies involved in the cannabis market:

• Growers
  Companies that actively grow marijuana in greenhouses or other specialized facilities.
• Biotech companies
  Companies that use different components of cannabis to produce prescription medicines.
• Ancillary
  All other companies involved in research, consultancy, or the provision of other key services for the cannabis industry.

In the last decade, several milestones have been achieved and this has taken the marijuana industry out of the taboo area.

In 2009, then US Attorney General Eric Holder ordered the Drug Enforcement Agency (DEA) to halt raids on legal and medical marijuana dispensaries to soften the US federal government’s stance on the drug.

The industry received further encouragement following congressional approval of the Rohrabacher-Farr Amendment, which protected the rights of states to introduce legal protection for cannabis without federal interference.

The industry took a shock at the start of the Trump presidency in 2016 when the new Attorney General took steps to repeal some of the Obama administration’s pro-cannabis regulations, but the Attorney stepped down in late 2018 and his successor, William Barr, confirmed in a congressional session that he would not follow in his predecessor’s footsteps, leaving the status quo.

With over 30 states that had already legalized medical marijuana in mid-2019, the industry now has ample room for breathing room in the United States, a step forward from 1996 when the federal government opposed the state’s decision.

California to legalize cannabis.

The whole world looks at the US situation with enthusiasm, but Canada is definitely ahead in this.

Marijuana for medical use was legalized in the country in 2001 and federal approval of the Cannabis Act of 2018 formally legalizes the cultivation, possession, acquisition, and consumption of marijuana and derivatives.

In Europe, the Netherlands is famous for its cannabis coffee shops that date back to the 1970s and the UK is open to the debate on medical marijuana.

However, since the United States is a global superpower, investors eagerly await the federal government’s legalization of marijuana. It seems that the wait in this sense is almost over.

In December 2018, hemp (which itself is derived from the cannabis plant) was federally legalized.

Both hemp and marijuana contain the chemical ingredient cannabidiol (CBD), but hemp has lower levels of psychoactive tetrahydrocannabinol (THC) which is the primary component of the cannabis plant.

It is true that the cannabis industry still operates in an area of ​​legal uncertainty, but many of the risks associated with such investments are perceived and not real.

This creates huge opportunities for investors looking for unusually high growth.

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Factors affecting the general price of the Cannabis Giant index

This industry is still in its infancy, but there are several factors that influence the Cannabis Giants benchmark index.

Legalization is the most important variable, with the index tending to react accordingly to such news.

The industry is also subject to special taxation in various jurisdictions.

A significant movement of a single stock listed in the index also affects the direction of the index.

In this regard, it is important to understand the nature of the target market of individual companies.

Each geographic market offers different opportunities and faces unique local risks.

This means that there is a very positive price correlation for companies operating or serving the same jurisdiction.

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Why you should trade on the Cannabis Giants index?

There are many advantages to trading on the cannabis index:

Liquidity

Replicating the trend of the top 20 companies in the global cannabis industry, the index is extremely liquid and does not show particular price inconsistencies.

Linear price action

Due to the computation model of the index, no single share component can significantly influence the price, which makes it more predictable and less volatile.

Broad news coverage

As a benchmark index for stocks related to marijuana, there is a wide coverage and this allows investors to easily access the information that affects the price trend of the index.

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Why trade on the Cannabis Giants index with AvaTrade?

Here are some of the countless advantages of trading the Cannabis Giants index with CFDs on AvaTrade:

Regulatory

AvaTrade is already regulated on five continents with 8 regulatory agencies and is expanding further.

Wide global presence

AvaTrade is an established leading Italian broker that has been operating for over 12 years.

Advanced trading platforms

AvaTrade offers a wide range of trading platforms. cutting-edge and advanced, such as the hugely popular MT5 trading platforms (MetaTrader), the AvaTradeGO app, DupliTrade’s social trading platform and AvaOptions’ exclusive vanilla options app.

Wide choice of trading instruments

In addition to indices, such as the Cannabis Giants index on AvaTrade, it is possible to speculate on the prices of other financial asset classes such as forex pairs, cryptocurrencies, commodities, stocks, bonds and ETFs. This variety allows you to diversify your trading portfolio with ease.

Uncompromising Security

AvaTrade holds all client funds in a segregated account. AvaTrade’s negative balance protection ensures that your trading account will never go below zero.

Professional Services and Support

Support is available during normal market opening hours. Each account holder is assigned a dedicated account manager during registration.

Flexible payment solutions

Deposit and withdraw fee-free from your AvaTrade trading account using a variety of convenient and secure payment methods, such as credit / debit cards, wire transfer, WebMoney, Dinpay, Boleto and FasaPay.

Comprehensive training resources

AvaTrade offers relevant and comprehensive trading training materials suitable for Italian traders of any level of skill and experience. Additionally, you can also access AvaTrade’s eBooks and webinars.

Cannabis trading has rapidly generated momentum and with the diverse therapeutic and recreational uses of cannabis, the investment potential is limitless.

You can now trade the Cannabis Giants index and other cannabis stocks via CFDs with AvaTrade, a globally regulated broker you can trust.

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FAQs about Cannabis Index

1. What is the Cannabis Index?

The cannabis index is a weighted index with respect to the capital of the 20 most important world companies, which represent 50% of the revenues deriving from the cannabis industry.

In addition, a limiting factor of 15% is applied to avoid the concentration of individual companies.

Companies must have a minimum average daily trading volume of $ 1 million over the past 90 days to make them, and must also be listed on a global stock exchange.

The three largest companies currently included in the index are Cronos Group, Aurora Cannabis, and Canopy Growth.

2. What influences the cannabis index the most?

Like an index in a very recent industry, the Cannabis Index may observe greater volatility than established market groups or indices.

This can lead to sharp spikes and sharp dips.

The factors that most influence the index today are government regulations concerning cannabis, the opening of new stores or the launch of new products, and of course supply and demand.

Indeed, it was thanks to an excess in the supply chain that we saw a decline in the cannabis index in 2019, and it is on-demand that investors are counting to increase the index in the coming months.

3. What is the best strategy for trading with the cannabis index?

As the cannabis industry recovers from its 2019 bear market, there are several strategies that traders can use to better trade the cannabis index.

One is to follow the trend of the index, which has undergone a steady decline in the last year.

A more counter-trend approach would be to look for reversals, in particular reversals that could lead to an upward breakout movement for the index.

With the cannabis index so depressed, any sharp breakout has the potential to deliver huge returns.

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