This year, marijuana stocks have seen a meteoric rise… and a disheartening pullback.
We continue to receive a ton of questions regarding marijuana and marijuana investments. I decided to answer a few more today.
Feel free to comment online with any more questions you have regarding marijuana – or other commodities, energy or the resource markets!
Question: Are there any ETFs for legal marijuana companies that would track this sector that you would recommend rather than individual stocks?
Answer: I often tend to favor individual stocks over exchange-traded funds (ETFs). But in an instance or industry where a broad range of companies is performing well, ETFs become an attractive option.
Take marijuana for example.
Because this market is very new, there are very limited options here… just a total of three.
In the U.S., there are two traded marijuana ETFs: AdvisorShares Vice ETF (Nasdaq: ACT) and ETFMG Alternative Harvest ETF (NYSE: MJX).
Vice ETF’s largest holding is Constellation Brands (NYSE: STZ). Constellation is the giant in the beverage industry, known for a turnaround sparked by acquiring the rights to sell Corona in the U.S. It also got a lot of attention when it took a 9.9% stake in Canada’s Canopy Growth Corp. (OTC: TWMJF) recently to sell cannabis-infused beverages in Canada and internationally.
The beverages will not be sold in the U.S. because Canopy does business only where marijuana is legal on the federal level.
Vice ETF’s second-largest holding is the biotech AbbVie (NYSE: ABB), followed by MGP Ingredients (Nasdaq: MGPI) and Scotts Miracle-Gro (NYSE: SMG), a distillery and a fertilizer company, respectively.
As you can see, Vice ETF’s holdings are not strictly marijuana companies.
Then there’s the Alternative Harvest ETF, which was set up as a Latin American real estate fund until December 26, 2017.
It currently holds 31 positions, the largest being Cronos Group (OTC: PRMCF), which is a Canadian marijuana development group. Nine of the top 11 companies in the Alternative Harvest ETF are Canadian marijuana companies. The other two are the standard marijuana biotechs, GW Pharmaceuticals (Nasdaq: GWPH) and Insys Therapeutics (Nasdaq: INSY).
The ETF also holds Scotts Miracle-Gro, as well as a bunch of tobacco companies.
Year to date, Vice ETF is up 3.5%, while the Alternative Harvest ETF has a gain of 15.4%. They’re not really tracking the marijuana industry, as the North American Marijuana Index is up more than 13%…
The third option is the Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ).
This is a Canadian ETF comprising 20 marijuana companies, as well as some biotech stocks most marijuana investors are familiar with – the aforementioned GW Pharma, Insys, 22nd Century Group (NYSE: XXII) and Zynerba Pharmaceuticals (Nasdaq: ZYNE).
Year to date, Horizons Marijuana Life Sciences is up more than 19.6%.
Q: What about marijuana’s cousin, industrial hemp? I understand that legislation is in the works to take industrial hemp off the list of illegal drugs since it does not have the THC content that marijuana has.
A: This has been an interesting and, for many, frustrating area of the market to watch.
Industrial hemp has less than 0.3% of THC, the chemical compound responsible for the “high.” Hemp has been grown for thousands of years, even by our Founding Fathers.
But, like all other forms of cannabis, it’s still restricted at the federal level.
Now, some see signs of positive momentum.
In July 2017, Reps. James Comer, Bob Goodlatte, Jared Polis and Thomas Massie introduced H.R. 3530, the Industrial Hemp Farming Act of 2017.
This legislation would remove industrial hemp from the Controlled Substances Act and federally legalize cultivation.
According to the National Hemp Association, there are just five states that have no laws – current or pending – governing hemp…
And you can also see, many states allow for commercial hemp production. The Industrial Hemp Farming Act of 2017 would allow those industries to not only continue but expand nationally.
Prior to H.R. 3530, there have been six industrial hemp bills introduced in the House and three in the Senate since 2005.
All have died in committee without ever making it to the floor for a vote.
Once again, Canada has the inside track here. Industrial hemp has been legal since 1998. At the moment, Canada grows 100,000 acres of hemp. The U.S. currently grows roughly 23,000 acres of hemp.
Canada is also the top exporter of hemp foods and hemp seed products to the U.S. Hemp foods alone bring in roughly $150 million annually.
There are some industrial hemp companies that are publicly traded. Most are very small.
Industrial hemp legislation could pass this time around… but trends seem to say otherwise.
We’re going to continue covering the marijuana legalization story here at Energy & Resources Digest as well as in my subscription newsletter, Oxford Resource Explorer. Feel free to ask a question or share your thoughts in the comments section below.
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