Since the elections in early November, marijuana stocks and marijuana ETFs have been moving higher at a healthy clip. Now may be a perfect time for investors who have been waiting to get into this industry but didn’t want to be too early.
The moves come after four States passed the legalization of recreational marijuana use, which now brings the total number of US States to 15 that allow citizens to consume marijuana in essentially the same manner that someone’s consumers alcohol.
Furthermore, 2 more States passed laws allowing marijuana to be used for medical purposes. Now the US has 35 States that allow medical marijuana usage.
Another catalyst is that with Vice President Joe Biden winning the White House, many believe the push for national level decriminalization of marijuana is more likely to occur. This is even though the Republicans still control the Senate.
Finally, as I have mentioned before, with the pandemic and massive budget deficits occurring all around the country, State and local governments, and even perhaps the Federal government may start looking at alternative ways to increase tax revenue. One easy avenue is to allow marijuana use and place a hefty tax on it, as the government already does with alcohol and tobacco sales. As things currently sit in most States, those that have not passed the legalization of recreational use would argue that marijuana is being sold; it’s just not being taxed. Most politicians would probably agree with that to some extent, and some would undoubtedly love to get some more tax money, especially during times like these.
But despite all this good news for the marijuana industry, the biggest issue is that we are way too early in the game to even start to accurately guess who or which companies will come out of this as the industry leaders. This is why instead of cherry-picking stocks like Tilray (TLRY) or Canopy Growth (CGC), investors should stick to the ETFs and know they likely own some winners and some losers but regardless, they will profit from this new industry.
So which marijuana ETFs should you be looking at? Well, my two favorites are the Amplify Seymour Cannabis ETF (CNBS) and the AdvisorShares Pure Cannabis ETF (YOLO). CNBS is up more than 34% over the last month and 38% over the last month, and 27% year-to-date. YOLO is up more than 28% over the last month and 33% year-to-date. Both funds have a concentrated number of holdings, 24 and 34, respectively. Both also have 85% or more of their assets in the top 10 holdings, which can be a good and bad thing. But since these funds are actively managed, investors should be able to have faith that the managers are watching their investments and would make changes if market sentiment shifted negatively.
Other ETFs investors could look at are the Cannabis ETF (THCX), the ETFMG Alternative Harvest ETF (MJ), and the Cambria Cannabis ETF (TOKE). These funds are up 26%, 24%, and 21%, respectively, over the last month. But, year to date are not performing well at all. THCX is up just 3%, while MJ is down 12%, and TOKE is off 1.5% since the start of 2020, and yes, those performance figures are even after the 20 plus percent returns these funds have experienced over the last month. These funds certainly could perform better in the long run, but up to this point, it would appear the fund managers of CNBS and YOLO have just done a better job at picking which marijuana stocks would perform better.
YOLO and CNBS, and TOKE are all actively managed, while MJ and THCX are funds that track a market cap selected and weighted index of cannabis companies, which means the fund managers don’t have as much room to make changes and find the diamonds in the rough.
Regardless though, all five of the funds mentioned are good reliable options for investors looking to jump in on the marijuana industry before it gets any larger. But, we all need to remember that we are still a long way from the finish line, and therefore, any investment made in this industry needs to be considered a very long term buy and hold.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions shares CNBS, YOLO, THCX, MJ, and TOKE 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.
