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Pot Stocks Are on a High: Play These Cannabis ETFs

Sanghamitra Saha
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Pot Stocks Are on a High: Play These Cannabis ETFs

Beverage companies are eyeing the cannabis market aggressively for making pot-infused drinks. Play the binge with these ETFs.

After Constellation Brands STZ, it’s Diageo plc DEO, which is taking keen interest in the Canadian cannabis industry. In mid-August, U.S.-based Constellation Brands — a leading producer and marketer of beverage alcohol brands — announced its decision to expand its stake in the biggest listed cannabis company Canopy Growth Corporation CGC to 38% from the initial 9.9% acquired in November 2017 (read: Follow Constellation Brands, Bet Big on Cannabis ETFs).

A few days later, on Aug 24, there was news that the U.K.-based liquor maker Diageo Plc will indulge in discussion with at least three Canadian cannabis companies to buy a stake or form a partnership with one of them.

Investors should also note that earlier this month, the Canadian arm of Molson Coors Brewing Co. and Quebec-based pot producer Hydropothecary Corp. announced their plan to make non-alcoholic, cannabis-infused beverages, as beer sales slowed down in North America.

Canada’s pending legalization of recreational marijuana from Oct 17, 2018 has fetched a great deal of interest from the alcoholic drinks’ industry. The move made Canada the second country in the world to legalize the drug for both medical and recreational use, trailing Uruguay, and the first country among G-7 nations. However, edible pot products will remain illegal till 2019 at the earliest (read: Canada Legalizes Marijuana: Two ETFs to Tap the Boom).

Such a binge in interests sent pot stocks on cloud nine of late. Canopy Growth added about 8.4% on Aug 24 and skyrocketed about 75% in the past month (as of Aug 24, 2018). Other companies in the industry like Aurora Cannabis Inc. ACBFF added 7.5% on Aug 24 and gained about 23.9% in a month. Aphria Inc. APHQF advanced about 23% on Aug 24 and shot up more than 34% in a month. Cronos Group Inc. CRON jumped 16.3% on Aug 24 and tacked on 58% gains in the past month.

Inside the Growing Potential of the Cannabis-Infused Beverage Industry

Cannabis is getting official approval from many U.S. states for recreational uses, on top of medical usage. Legal marijuana sales have probably surged 33% to $10 billion in 2017, after a 34% jump in 2016, according to cannabis research firm ArcView.

Per an article published on Bloomberg, marijuana and alcohol industries are gradually becoming a one-stop destination for recreation. Dan O’Neill, the former CEO of Molson Coors for nearly a decade, told Marijuana Business Daily last year that all alcohol companies will have to join in the cannabis industry one day. O’Neill who is in the board of CannaRoyalty, a North American cannabis consumer product company, believes that cannabis companies (once legalized fully in the United States) can see as huge growth as “alcohol after prohibition ended”, per the source.

The growth of cannabis is apparently gaining attention worldwide. For example, Canopy’s cannabis sales in Germany made up 14% of product revenues in the first quarter of fiscal 2019 against 2% in the year-ago quarter. Per BDS Analytics and Arcview Market Research, total U.S. economic output from legal cannabis will surge 150% from $16 billion in 2017 to $40 billion by 2021. Six of the U.S. states – California, Colorado, Massachusetts, Nevada, Oregon and Washington – will reap the maximum benefit (more than 60% in 2021) from the first-mover advantage of the legal adult-use enactment, per the market researchers.

ETFs to Tap

ETFMG Alternative Harvest ETF MJ

This is the first and only 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 38 securities in its basket, with each holding less than 10.94% share. Canopy Growth is the top stock of the fund, followed by Cronos Group and Aurora Cannabis. Canadian firms make up 61% of the portfolio, while American firms comprise just 21%. The ETF has amassed $425 million in its asset base so far and trades in a heavy volume of more than 1.5 million shares. It charges 75 bps in annual fees.

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 (read: 8 New ETFs of 2017 to Explode in 2018).

Specifically, the fund has 18% exposure to cannabis-related companies. It is an actively managed fund and has attracted $13 million in AUM since its debut in mid-December. The ETF has 0.75% in expense ratio.

 

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Constellation Brands Inc (STZ) : Free Stock Analysis Report
 
Diageo plc (DEO) : Free Stock Analysis Report
 
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
ADVSR-VICE ETF (ACT): ETF Research Reports
 
ETFMG-ALT HRVST (MJ): ETF Research Reports
 
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