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Pot Stocks are on a High: Play These Marijuana ETFs

Sanghamitra Saha
Sector ETF report for PBE

2018 was a crazy year for marijuana stocks. While many underperformed, the industry as a whole slowly began to gain legitimacy. After the mid-term elections, nearly two-thirds of the U.S. are now in favor of legal medical marijuana in some form, and Canada passed the landmark Cannabis Act, with full legal sales in the country beginning last October.

Many Canadian pot stocks began the process of listing on the NYSE or the Nasdaq, while Tilray TLRY became the first marijuana stock to IPO on a major U.S. exchange. Along with big purchases and investments by players like Constellation Brands STZ and Aurora Cannabis ACB, the U.S. passed the Farm Bill, which legalized industrial hemp production. And, GW Pharmaceuticals’ GWPH cannabis derived Epidiolex was approved by the FDA.

Looking at January’s performance, it was like 2018’s rough go-of-it never happened. Cronos Group CRON and Canopy Growth CGC have been on a tear, up 89.4% and 82.3%, respectively.

There’s Profit Potential in Your Favorite Drink

The marijuana and alcohol industries are gradually becoming a one-stop destination for recreation. Since some alcoholic beverage companies think of marijuana as a potential business threat, launching a cannabis-infused drink or partnering with or investing in a marijuana company is likely seen as a way to offset any lost sales to core products.

Beverage companies like Molson Coors TAP, Constellation Brands, and Heineken HEINY have made big steps, whether through partnerships or investments, to grow their presence in the marijuana industry. For instance, Molson’s Canadian unit teamed up with HEXO HEXO, currently the fourth largest Canadian marijuana producer in terms of capacity. Mark Hunter, president and CEO of the brewing giant, expects the cannabis market in Canada to be pretty big. On the company’s Q3 2018 earnings call, he estimated it could hit somewhere “between $7 billion and $10 billion in market value, with beverages somewhere between 20% and 30%.”

ETFs to Tap

ETFMG Alternative Harvest ETF MJ

MJ is an ETF that targets the cannabis and marijuana industry, but it’s not a true pure-play fund; this is why you’ll find tobacco stocks in its holding list, for instance. MJ popped over 35% last month.

It tracks the Prime Alternative Harvest Index, which is designed to measure the performance of companies within the cannabis ecosystem, benefitting from global medicinal and recreational legalization initiatives.

The fund holds a sprawling selection of securities in its basket. Cronos Group is its biggest holding, sitting at over 19% of its total net assets.Canadian firms make up 61% of the portfolio, while American firms comprise just 21%. MJ recently touched the $1 billion AUM mark, and charges 75 bps in annual fees.

Horizons Marijuana Life Sciences ETF (HMMJ)

HMMJ is the industry’s first ETF from Horizons ETFs Management Inc., but is based in Canada. It debuted on the Toronto Stock Exchange in April 2017, and is the first cannabis-focused fund to break the billion-dollar mark. In January, HMMJ gained nearly 50%.

The fund provides exposure to stocks that are involved with medical marijuana bioengineering and production, and it seeks to replicate the returns of the North American Medical Marijuana Index; this index typically includes companies located in Canada (74% of the fund), the U.S. (16%), and Great Britain (10%). Its top three holdings are Canopy Growth at 12.68%, Cronos Group at 12.09%, and Aurora Cannabis at 11.53%.

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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Molson Coors Brewing Company (TAP) : Free Stock Analysis Report
 
Heineken NV (HEINY) : Free Stock Analysis Report
 
GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
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