The broad market is still wobbly, with inflation showing no signs of cooling.
Not helping, consumer prices soared 9.1% in June, year over year – its fastest pace since 1981, and well above expectations for 8.8%.
According to CNBC, “Excluding volatile food and energy prices, so-called core CPI increased 5.9%, compared to the 5.7% estimate. On a monthly basis, headline CPI rose 1.3% and core CPI was up 0.7%, compared to respective estimates of 1.1% and 0.5%.”
“The breadth of the price gains shows how rising costs have seeped into nearly every corner of the economy. Grocery prices have jumped 12.2% compared with a year ago, the steepest such climb since 1979. Rents have risen 5.8%, the most since 1986. New car prices have increased 11.4% from a year earlier. And average airline fares, one of the few items to post a price decline in June, are nevertheless up 34% from a year earlier,” added the Associated Press.
Hopefully, inflation is starting to peak, but it’s a tough call at this point.
The latest numbers could force the Federal Reserve to hike rates another 75 basis points, which then runs the risk of the central bank overshooting, potentially pushing the U.S. economy closer to a recession.
Thankfully, there are some bright spots in the market.
The cannabis sector happens to be one of them.
In fact, the sector, as measured by the Advisor Shares Pure US Cannabis ETF moved slightly higher from a low of $10.08 to a recent high of $10.87 over the last week.
That’s happening for a few reasons.
- For one, cannabis is finding more U.S. support. Rhode Island, for example, recently legalized recreational use, with the market expected to launch by December. Mississippi legalized its medical use, and is on track for sales to start later this year, or by early 2023. In addition, according to The Baltimore Sun, “Legalization of recreational cannabis in Maryland is a done deal. The referendum scheduled on the issue this November will pass.”
- Two, Democrats are pushing President Biden to use “existing authority” to legalize cannabis. Senators Elizabeth Warren, Bernie Sanders, Cory Booker, and others sent a letter to the Administration to “use its existing authority to (i) deschedule cannabis and (ii) issue pardons to all individuals convicted of nonviolent cannabis-related offenses.”
- Three, according to StreetInsider.com, “The marijuana industry could receive a boost from the Senate in August. Earlier this year, Chuck Schumer declared that his federal marijuana legalization bill will be submitted in August. The cannabis industry backed previous attempts to enact federal cannabis legislation, and in the coming months, there may be some advancement.”
- Four, according to a Pew Research poll, nearly 91% of Americans want to see legalization.
- Five, analysts at Markets and Markets say the industry could be worth $90.4 billion by 2026 from $20.5 billion in 2020.
In short, there are multiple catalysts for growth in store.
To potentially profit from the story, you can always invest in individual cannabis stocks, like Canopy Growth, OrganiGram Holdings, Cresco Labs Curaleaf Holdings, and Green Thumb Industries. But why not own them all – at less cost?
In fact, you can do that with inexpensive cannabis ETFs. Not only do such ETFs offer greater diversification among dozens of cannabis stocks, they do so at less cost.
ETFMG Alternative Harvest ETF (MJ)
Since peaking around $34, the MJ ETF has been crushed.
But don’t count it out just yet.
With an expense ratio of 0.75%, the ETFMG Alternative Harvest ETF (MJ) offers investors access to the Canadian and global marijuana sector. The fund tracks an index of stocks across the globe that are engaged in the legal cultivation, production, marketing or distribution of cannabis products for either medical or nonmedical purposes.
Some of its top holdings include Cronos Group Inc., Tilray Brands, Sundial Growers, OrganiGram Holdings, Aurora Cannabis, and dozens more. If you were to buy each of the ETF's holdings, it would cost thousands of dollars. But for just $5.68 a share, the ETF offers exposure to all.
The Cannabis ETF (THCX)
Since peaking around $32, the THCX ETF is oversold at $3.70 a share.
“Supported by favorable regulatory trends, increasing use cases and growing public acceptance, cannabis is one of the fastest growing current investment themes. To put the opportunity into perspective, the global cannabis market is estimated to reach $630 billion by 2040 up from $12 billion today. THCX was constructed to make investing in cannabis easier by helping investors get exposure to a basket of stocks that are expected to benefit from growth of the hemp and legal marijuana industries,” according to The Cannabis ETF.
With an expense ratio of 0.75%, the ETF also offers exposure to Cronos Group, OrganiGram Holdings, Tilray, Fire & Flower Holdings Corp., Canopy Growth, High Tide Inc., and dozens more.
With THCX, we can gain exposure to all for less than $4 a share.
Global X Cannabis ETF (POTX)
Since peaking around $170 a share, the POTX ETF plummeted to less than $17.
“The Global X Cannabis ETF seeks to invest in companies across the cannabis industry. This includes companies involved in the legal production, growth and distribution of cannabis and industrial hemp, as well as those involved in providing financial services to the cannabis industry, pharmaceutical applications of cannabis, cannabidiol (i.e., CBD), or other related uses including but not limited to extracts, derivatives or synthetic versions,” as noted by Global X.
With an expense ratio of 0.50%, the POTX ETF offers exposure to Cronos Group, MYMD Pharmaceuticals, Tilray Brands Inc., Aurora Cannabis, Canopy Growth and dozens more.
AdvisorShares Pure US Cannabis ETF (MSOS)
Or, take a look at the AdvisorShares Pure US Cannabis ETF (MSOS) – one of the leading cannabis ETFs around.
After testing $54, the MSOS ETF plummeted to $11.05, where it’s now oversold. From $11.05, I’d like to see the MSOS ETF run back to at least $21 a share, near-term. With an expense ratio of 0.73%, the ETF offers exposure to U.S. companies that are engaged in the cannabis industry. Some of its top holdings including Green Thumb Industries, Trulieve Cannabis, Curaleaf Holdings, Innovative Industrial Properties, and Terrascend to name a few.
Roundhill Cannabis ETF (WEED)
There’s also the Roundhill Cannabis ETF (WEED), which now trades at $9.33 a share.
With an expense ratio of 0.75%, the ETF invests in cannabis producers and distributors, cannabis tech companies, and cannabis-related ancillary businesses. Some of its top holdings include Curaleaf Holdings, Green Thumb Industries, Cronos Group, Cresco Labs, and Columbia Care Inc. to name a few.
All of the above-mentioned cannabis ETFs have the potential to see higher highs. Oversold, with solid exposure to cannabis industry giants, I’d like to see them double, if not triple with patience. With U.S. states legalizing its use, more Americans approving its use, and eventual federal legalization, it’s only a matter of time before these stocks and ETFs soar.
Key Risks
As with any industry, there are risks, especially in today’s volatile environment. For one, the the cannabis industry is highly regulated, with fragmented state by state structures, and hiccups with federal legalization. That makes the industry far more volatile, even with more states legalizing the use of cannabis, and even with 91% of Americans saying it should be legal for recreational and medicinal use.
Two, fears of recession and inflation, which could lead to a potential increase in raw materials, supplies, and other equipment. However, don’t let these risks chase you from the cannabis sector. Once more states legalize its use and the federal government gets around to legalization, ETFs may never be this inexpensive again.
Key Takeaways
Again, there are plenty of reasons to get bullish on cannabis-related stocks and ETFs.
Remember, cannabis is finding more U.S. support. Rhode Island, for example, recently legalized recreational use, with the market expected to launch by December. According to The Baltimore Sun, “Legalization of recreational cannabis in Maryland is a done deal. The referendum scheduled on the issue this November will pass.”
Democrats are pushing President Biden to use “existing authority” to legalize cannabis.
According to StreetInsider.com, “The marijuana industry could receive a boost from the Senate in August. Earlier this year, Chuck Schumer declared that his federal marijuana legalization bill will be submitted in August. The cannabis industry backed previous attempts to enact federal cannabis legislation, and in the coming months, there may be some advancement.”
Nearly 91% of Americans want to see legalization. In addition, analysts at Markets and Markets say the industry could be worth $90.4 billion by 2026 from $20.5 billion in 2020.
The best part – related cannabis stocks and ETFs are cheap.
With patience, and eventual legalization of cannabis at the federal level, I wouldn’t be shocked to see stocks double, if not triple, long-term.
Ian Cooper
INO.com Contributor
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
