Cannabis companies had a rough ride. After a flurry of investment as people tried to get in early, slow moving legalization, particularly in the US, hindered their growth. But a Biden presidency may be just what the doctor ordered. Many investors seem to think so–cannabis stocks got a real boost once the election dust had settled. Here’s two ETFs worth looking at if you also want to invest.
Investors in cannabis stocks and Exchange-Traded Funds (ETFs) focused on cannabis have experienced a rollercoaster ride in 2020. By the end of October, many of them had lost about half their value or, in some cases, even more. Then came the results of the US presidential election.
Biden is good news for cannabis investors
Since the beginning of November, cannabis stocks, as well as many segments of the equity market, have posted significant returns of up to 100 percent or more. The reason? The election of Joseph Biden.
In the United States, cannabis remains a Schedule 1 drug and is still, at a federal level, illegal. However, at the state level, the legal status of cannabis depends on the laws of that state. Wall Street, however, was optimistic that the new administration could facilitate the legalization of cannabis at the federal level, both for medical and recreational use.
Canada leading the way in cannabis
In 2018, Canada was the first G7 country to legalize cannabis. However, the Canadian market is not yet large enough for most cannabis companies to take advantage of it.
Unless U.S. federal law is changed, most of these companies will not be able to significantly increase their revenues, creating headwinds for their share prices.
Based on this information, here are the two cannabis ETFs that might be of interest to readers who believe that federal legalization in the US could take place in the near future.
1. Alternative Harvest ETF
- Current price: $19.46
- 52 week range: $8.81 – $20.97
- Dividend yield: 3.33%.
- Fee: 0.75%.
The Alternative Harvest ETF (NYSE:MJ) is one of the leading listed cannabis funds in the United States. It provides access to global companies that benefit from global initiatives to legalize cannabis for medical and recreational purposes. Since its inception in December 2015, net assets under management have reached $1.5 billion.
MJ, which tracks the performance of the Prime Alternative Harvest Index, currently has 33 holdings. The Fund does not invest in companies whose activities are deemed illegal under any applicable federal or state law.
In terms of sectors, pharmaceuticals have the highest weighting (56.0%), followed by tobacco (23.7%), retail renovation products (6.9%), agricultural products (4.0%), biotechnology (3.0%) and others.
The top ten positions account for almost 70% of total net assets. MJ’s major companies include cannabis companies Aphria Inc (TSX:APHA), Tilray Inc (NASDAQ:TLRY), Canopy Growth Corp (TSX:WEED), GW Pharmaceuticals PLC (OTC:GWPRF) and Cronos Group Inc (NASDAQ:CRON).
Many readers are probably familiar with GW Pharmaceuticals, based in the UK, as one of the world’s leading biotechnology companies focused on cannabinoids. Its drug Sativex is used in the treatment of spasms in multiple sclerosis patients.
The fund also holds shares in Scotts Miracle-Gro Company (NYSE:SMG), which is known worldwide for its fertiliser products.
Over the past 52 weeks, MJ has generated a return of approximately 5%. However, by 2021, the fund has already posted a spectacular 34% increase. The cannabis fund focuses on a high-risk, high-yield sector. Depending on their portfolio objectives, it may be suitable for some investors, but not all. Potential investors might consider buying the declines, especially if the price is close to $17.
2. AdvisorShares Pure Cannabis ETF
- Current price: $21.94
- 52 week range: $5.65 – $22.85
- Dividend yield (TTM): 0.68%.
- Fee: 0.75%.
The ETF AdvisorShares Pure Cannabis (NYSE:YOLO) focuses primarily on medium and small-cap companies, based primarily in the US and Canada.
YOLO has 31 shares and began trading in April 2019. Its net assets are approximately $270 million. In terms of sector allocations, consumer goods (34.5%) leads the fund, followed by basic materials (20.1%), health care (12.4%), financial services (10.2%) and other.
The top ten cannabis stocks are approximately 85% in weight, and the top five are Village Farms International Inc (TSX:VFF); Innovative Industrial Properties Inc (NYSE:IIPR), GrowGeneration Corp (NASDAQ:GRWG), Aphria and Canopy Growth.
The fund returned over 72% last year and 28% to date in 2021. Potential investors might consider a drop to around $19 as a better entry point.
Finally, options are available on MJ and YOLO. As a result, experienced investors and traders could design more sophisticated strategies.
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