Experiences with marijuana legalisation in the US and Canada - funding methods

This thesis assesses the impact of different marijuana legalization processes on the amount of unsystematic risk in equity markets, specifically between portfolios representing the US and Canadian markets. The theoretical part of the thesis compares the effects of legalization processes between Canada and the US on the formation of emerging marijuana markets. It also describes the CAPM, Bottom-up Beta and GCRPM models used. In the practical part of the thesis, it constructs portfolios of stock titles representing the US and Canadian markets, which are then processed in a regression analysis of the CAPM model to compare the unsystematic risk between the portfolios. Although the regression suggests higher unsystematic risk in the Canadian market, the result is not conclusive due to significant statistical standard error. Therefore, the paper proceeds with a bottom-up beta model that provides a comparison of unsystematic risk based on the financial statements of the companies in both portfolios. This approach confirms the result obtained by the CAPM model and sets the unsystematic risk of the Canadian portfolio at 27.42% compared to the 19.23% estimated for the US market. This leads to a refutation of the first hypothesis of the paper. The last model used, the GCRPM, reinforces the results of the two previous models, but is unable to assess the impact of marijuana legalization events on reducing the unsystematic risk of the US market portfolio, as conflicting changes in risk clash in the model and the model does not distinguish between internal and external influences on the performance of the companies considered. The second hypothesis of the paper is thus refuted.