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ETFs and Stocks to Tap the Marijuana Boom

Sweta Killa
Dick's Sporting Goods (DKS) experienced a roller coaster of emotions Wednesday.

First it was bitcoin that made investors go on a mad rush, and today, it’s marijuana. Now that legalization is steadily gaining traction across the U.S., more investors than ever before are looking for ways to cash in.

In the United States, 10 states and Washington, D.C., have currently legalized recreational marijuana, while 33 states have legalized marijuana for medical purposes. Last October saw Canada become the second country in the world to legalize the drug for both medical and recreational use—Uruguay was the first—and the first country among G-7 nations; Canadians can now buy and consume cannabis legally (read Canada Legalizes Marijuana: Two ETFs to Tap the Boom).

Increasing legalization of recreational or medical marijuana has paved the way for a merger mania, spurring a large number of deal activities in the industry. International beer and beverage maker Constellation Brands STZ invested almost $4 billion to increase its stake in Canadian cannabis company Canopy Growth CGC last year. Additionally, beer and spirits giant Diageo DEO has reportedly been in active discussions with three unnamed marijuana companies, though no deal has been reached; however, there’s been speculation that Diageo could change its course this year.

Molson Coors’ TAP Canada division started a joint venture with cannabis producer Hydropothecary Corp. last year to develop marijuana drinks while Heineken’s HENIY Lagunitas division launched a THC-infused sparkling water in California dispensaries last summer (read: Pot Stocks are on a High: Play These Marijuana ETFs).

According to the Arcview Market Research, the U.S. legal cannabis market is projected to reach more than $23 billion by 2022. Per an analyst at Cowen, the U.S. legal cannabis industry is expected to bit $75 billion in sales by 2030, surpassing the carbonated soft drink market in 2017.

How to Play?

Given this, investors seeking to ride the ongoing green rush may want to tap the space. For them, we have highlighted a few stocks and ETFs that could be compelling picks.

ETFMG Alternative Harvest ETF MJ

This is the first and only pure ETF targeting the cannabis/marijuana industry. It tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. The fund holds 35 securities in its basket with double-digit concentration on the top two firms. Canadian firms make up 61% of the portfolio, while American firms comprise just 21%.

The ETF has AUM of $1.03 billion and trades in a good volume of around 935,000 shares. It charges 75 bps in annual fees and has surged almost 44% year-to-date.

GW Pharmaceuticals GWPH

This is a biopharmaceutical company focused on discovering, developing and commercializing therapeutics from its proprietary cannabinoid product platform in a broad range of disease areas. Its drug, Epidiolex, was the first cannabis-based treatment to be approved by the FDA.

The company has an estimated earnings growth rate of 42% for the next fiscal (ending on September 2020). It has a market cap of $4.4 billion and has gained 51.5% so far this year. GW Pharmaceuticals currently has a Zacks Rank #2 (Buy).

Cronos Group CRON

Cronos invests in firms that are licensed to produce and sell medical marijuana. With a market cap of nearly $4 billion billion, the stock has an estimated earnings growth of over 360% for the next year. It has surged almost 120% so far this year and carries a Zacks Rank #3 (Hold).

AdvisorShares VICE ETF ACT

Another way to play the upcoming boom in the marijuana industry is with ACT. It not only targets the cannabis industry but also offers concentrated exposure to “vices” including alcohol and tobacco. The fund invests in companies that derive at least 50% of their net revenues from the marijuana and hemp industry or have at least 50% of their company assets dedicated to lawful research and development of cannabis or cannabinoid-related products.

Specifically, the fund has 19% exposure to cannabis-related companies. It is an actively managed fund and has attracted $13.55 million in AUM since its debut in December 2017. ACT changes 75 bps in annual fees and trades in lower average daily volume of around 5,000 shares. It is up 17% in the year-to-date timeframe.

Innovative Industrial Properties IIPR

This REIT focuses on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.

With more states in the United States giving cannabis the green light, Innovative Industrial Properties has incentive to acquire additional properties. Earnings are expected to grow 64.2% for the current year, and IIPR is up over 48% since January. IIPR is currently a #2 (Buy) on the Zacks Rank. 

Zacks 2019 Marijuana Investors’ Summit: In addition to the companies you learned about above, we invite you to learn more about investing in pot stocks. On Tuesday, February 26, our team of experts will reveal what we believe is the single best way to make money from legal marijuana. Register Now for Free >>


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Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
Diageo plc (DEO) : Free Stock Analysis Report
 
Molson Coors Brewing Company (TAP) : Free Stock Analysis Report
 
GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report
 
Innovative Industrial Properties, Inc. (IIPR) : Free Stock Analysis Report
 
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
 
AdvisorShares Vice ETF (ACT): ETF Research Reports
 
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