Legalization of recreational cannabis in the U.S. is a long-awaited goal of the cannabis industry. It has pinned great hopes on the incoming federal government to take big steps in pursuit of that goal. On Monday, New York Governor Andrew Cuomo tweeted that the state would legalize adult recreational marijuana, making it the 16th state to do so. Pot companies and consumers are cheering the move. And cannabis ETFs are climbing on optimism about a potentially wider national push towards decriminalization of recreational marijuana when Biden assumes office.
A recent report on ETF trends indicates that the global cannabis market is expected to expand from $12 billion today to $630 billion by 2040. These numbers indicate the magnitude of the growth potential of the cannabis industry and that U.S. players could benefit mightily from the legalization of marijuana across states.
As this is a relatively new sector that experiences relatively high volatility due to various factors, ETFs are one of the most preferred ways to gain exposure to the sector. According to TrackInsight, cannabis ETFs witnessed global inflows of $122 million for November, compared to a monthly average of $14 million in the previous year. This surge in fund flows was led primarily by U.S. ETFs.
We believe MG Alternative Harvest ETF (MJ), AdvisorShares Pure US Cannabis ETF (MSOS), AdvisorShares Pure Cannabis ETF (YOLO), and The Cannabis ETF (THCX) are well-positioned to gain immensely from this trend.
ETFMG Alternative Harvest ETF (MJ)
MJ invests in stocks of companies involved in the legal cultivation and distribution of cannabis, including industrial hemp, products for medical or non-medical purposes. The portfolio also includes companies engaged in the legal distribution of prescription drugs with cannabinoids as an active ingredient.
These companies are involved in growing, marketing, and selling cannabis products for medical and recreational use. This fund also invests in healthcare, biotechnology, and life sciences companies. MJ’s holdings are focused on multi-cap pure play Canadian cannabis companies. The fund has $1.3 billion in assets under management. The ETF’s top three holdings are Aphria (APHA), Tilray (TLRY), and Canopy Growth (CGC) with 10.1%, 8%, and 7.9% weightings, respectively.
Over the past year, the ETF has returned 8.9%, and seen $428.9 million in inflows. The fund’s expense ratio is 0.75%, compared to the category average of 0.68%. MJ distributes dividends regularly. The ETF pays an annual dividend of $0.66 with a yield of 3.74% at its current price.
Over the past year, MJ has gained 7.8% to end yesterday’s trading session at $18.38. The ETF has surged 35.3% over the past six months.
ow does MJ stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Industry Rank
A for Overall POWR Rating.
In the 116-ETF Global Equities ETFs group, it is currently ranked #8.
AdvisorShares Pure US Cannabis ETF (MSOS)
MSOS was launched in September 2020. The fund’s portfolio consists of cannabis players from the U.S. exclusively. MSOS invests directly and through derivatives in companies that derive 50% or more of their revenue from marijuana and hemp businesses. MSOS is non-diversified and has at least 25% of its investments in the pharmaceuticals, biotechnology, and life sciences segment within the health care sector. MSOS has surged 18.1% since its launch to close yesterday’s trading session at $45.27.
The fund has $439.6 million in assets under management. The top three holdings of MSOS are Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF), and Cresco Labs (CRLBF) with 9.6%, 9.4%, and 8.8% weightings, respectively. Since its launch, MSOS has garnered 24% returns, and attracted $328.5 million in inflows.
AdvisorShares Pure Cannabis ETF (YOLO)
YOLO invests in the stocks of companies engaged in the cannabis segment worldwide. It was created in April 2019 and invests at least 80% of its assets in companies that derive a minimum 50% of their revenue from marijuana and hemp businesses. YOLO is actively managed and invests in growth and value stocks.
The ETF has AUM of $222.6 million and it invests mostly in small-cap players. YOLO’s major equity holdings are Village Farms International (VFF), Innovative Industrial Properties (IIPR), GrowGeneration (GRWG), and GW Pharmaceuticals (GWPH). Together, they constitute 28.6% of YOLO’s total holdings.
YOLO has an expense ratio of 0.74%, which is higher than the category average of 0.68%. The ETF has returned 84.7% over the past year and attracted funds inflows worth $108.9 million during the period. YOLO pays $0.35 annually, yielding 1.67% at its current price.
YOLO ended yesterday’s trading session at $21.43, surging 81% over the past year. Over the past six months, the ETF has gained 96.2%.
YOLO’s POWR Ratings reflect this bullish outlook. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade, Industry Rank and Peer Grade.
Spinnaker ETF Series The Cannabis ETF (THCX)
THCX invests in companies in the legal cannabis-based pharmaceutical and consumer wellness & product market sectors in the U.S. and Canada. The fund invests in growth and value stocks of companies that track the performance of the Innovation Labs Cannabis Index. At least 80% of THCX ETF’s assets are invested in the component securities of the index.
THCX has AUM of $73.7 million and its top three equity holdings are GrowGeneration (GRGW), Village Farms International (VFF), and Aphria (APHA). These stocks comprise 20.9% of the ETF’s total holdings.
THCX has an expense ratio of 0.70%, which is slightly higher than the category average of 0.68%. Over the past year, $29.6 million has been invested in THCX. The ETF pays $0.45 annually, yielding 2.78% at the current price. Its four-year average dividend yield is 1.15%.
THCX ended yesterday’s trading session at $16.71, surging 35.2% over the past year. Over the past six months, the ETF surged 64.2%.
THCK has a “Strong Buy” POWR Rating, with an “A” for Trade Grade and Buy & Hold Grade, Peer Grade and Industry Rank. It is currently ranked #37 in the Global Equities ETFs group.
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MJ shares were trading at $19.86 per share on Thursday morning, up $1.48 (+8.05%). Year-to-date, MJ has gained 38.40%, versus a 1.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…
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