Cannabis ETFs May Benefit Under President Biden, Here's 2 To Consider
Investing.com | Jan 22, 2021 09:38
Investors in cannabis stocks and cannabis-focused exchange-traded funds (ETFs) had a roller-coaster 2020. Until the end of October, many of them had lost around half their value or, in some cases, even more. Then, came the results of the US Presidential election.
Since early November, pot stocks, along with a large number of segments of the equity market, have seen significant returns of up to 100% or more. The reason? The election of Joseph Biden.
In the US, marijuana remains a Schedule 1 drug and is illegal. Yet, at the state level, the legal status of cannabis depends on the laws of the individual state. Wall Street, however, has been optimistic that the new administration could facilitate the federal-level legalization of cannabis, both for medicinal and adult recreational use.
In 2018, Canada become the first G7 nation to make marijuana legal. However, the Canadian market is not yet large enough to make it profitable for most pot companies.
Unless, US federal law changes, most of these companies cannot significantly increase revenue, creating headwinds for share prices.
With that information, here are the two ETFs that could pique the interest of readers who believe federal legalization in the US could happen sooner than later.
h2 1. ETFMG Alternative Harvest ETF/h2Current Price: $19.46
52-Week Range: $8.81 – $20.97
Dividend Yield: 3.33%
Expense Ratio: 0.75%
The ETFMG Alternative Harvest ETF (NYSE:MJ) is one of the leading pot-focused funds listed in the US. It provides access to global businesses that benefit from global medicinal and recreational marijuana legalization initiatives. Since its inception in December 2015, net assets under management have reached $1.5 billion.
MJ, which tracks the returns of the Prime Alternative Harvest Index, currently has 33 stocks. The fund does not invest in businesses with operations deemed illegal under any applicable federal or state laws.
In terms of sectors, Pharmaceuticals have the highest weighting (56.0%), followed by Tobacco (23.7%), Home Improvement Retail (6.9%), Agricultural Products (4.0%), Biotechnology (3.0%) and others.
The top 10 holdings make up close to 70% of total net assets. MJ's top companies include Aphria (NASDAQ:APHA), Tilray (NASDAQ:TLRY), Canopy Growth (NASDAQ:CGC), GW Pharmaceuticals (OTC:GWPRF) (NASDAQ:GWPH) and Cronos Group (NASDAQ:CRON).
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Many readers are likely to be familiar with UK-headquartered GW Pharmaceuticals as one of the most important cannabinoid-focused biotech companies. Its Sativex drug is used in treating spasms in multiple sclerosis patients.
The fund also holds shares of Scotts Miracle-Gro (NYSE:SMG), which is known globally for its fertilizer products.
Over the past 52 weeks, MJ has returned around 5%. Yet, in 2021, the fund is already up an eye-popping 34%. The fund concentrates on a high risk/high return industry. Depending on their portfolio objectives, it could be appropriate for some investors, but not all. Potential investors could consider buying the dips, especially if the price goes toward $17.
h2 2. The AdvisorShares Pure Cannabis ETF/h2Current Price: $21.94
52-Week Range: $5.65 – $22.85
Dividend Yield (TTM): 0.68%
Expense Ratio: 0.75%
The AdvisorShares Pure Cannabis ETF (NYSE:YOLO) mainly focuses on mid- and small-cap companies, based primarily in the US and Canada.
YOLO, which has 31 stocks, started trading in April 2019. Net assets are close to $270 million. As far as sector allocations are concerned, Consumer Goods (34.5%) lead the fund followed by Basic Materials (20.1%), Health Care (12.4%), Financials (10.2%) and others.
Approximate weighting of the top 10 stocks is around 85%, and the leading five companies include Village Farms International (NASDAQ:VFF); Innovative Industrial Properties (NYSE:IIPR), GrowGeneration (NASDAQ:GRWG), Aphria and Canopy Growth.
The fund returned more than 72% in the past year and 28% so far in 2021. Potential buy-and-hold investors could regard a decline toward $19 as a better entry point.
On a final note, options are available on both MJ and YOLO. Therefore, experienced investors and traders could devise more sophisticated strategies.
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