The Cannabis Conundrum: Persistent Negative Alphas and Portfolio Risks

Davinder K. Malhotra () and Sheetal Gupta
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Davinder K. Malhotra: School of Business, Thomas Jefferson University, Philadelphia, PA 19144, USA
Sheetal Gupta: Research Scholar, Birla Institute of Management Technology, Greater Noida 201306, UP, India

Risks, 2025, vol. 13, issue 10, 1-19

Abstract: This study investigates whether publicly listed cannabis shares provide enough risk-adjusted returns to warrant their incorporation into diversified portfolios. An equally weighted portfolio of cannabis companies is constructed using monthly data from January 2015 to December 2024. Risk-adjusted performance is assessed using the Sharpe, Sortino, and Omega ratios and compared to the Russell 3000 Index and the FTSE All-World ex-US Index. In addition, we estimate both unconditional and conditional Fama–French five-factor model enhanced by momentum. The findings indicate that cannabis stocks persistently underperform U.S. and global benchmarks in both absolute and risk-adjusted metrics. Downside risk is elevated because cannabis portfolios exhibit much higher value at risk (VaR) and conditional value at risk (CVaR) than broad indices, especially after COVID-19. The findings show that cannabis stocks are quite volatile and fail to generate significant returns on a risk-adjusted basis. The study highlights the sector’s structural vulnerabilities and cautions investors, portfolio managers, and regulators against treating cannabis shares as dependable long-term investments.

Keywords: cannabis equities; risk-adjusted performance; downside risk; asset-pricing models; diversification (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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