Cannabis stocks jumped following the Democratic victories in Georgia’s two runoff elections that have spurred hopes for near-term decriminalization. Democratic candidates — Jon Ossoff and the Rev. Raphael Warnock — defeated the Republican candidates GOP Senator David Perdue and incumbent Senator Kelly Loeffler, respectively, increasing expectations that Democrats will take control of the Senate.
It has set the stage for a “Blue Wave,” wherein Democrats will control both Houses of Congress and the White House for the first time in a decade. The government has the friendliest political environment for the cannabis industries in U.S. history. This is especially true as Biden government will expedite the legalization of marijuana at the federal level, thereby providing a boost to the U.S. industry (read: Cannabis ETFs Set to Soar in 2021 on More U.S. Legalization).
Now with the Blue Wave, the markets are anticipating that the Marijuana Opportunity Reinvestment and Expungement (MORE) Act passed by the House in December will soon be approved by the Senate, which otherwise has lesser chance to pass. The bill aims to decriminalize cannabis at the national level for the first time, and remove cannabis from the list of federally controlled substances and erase certain federal convictions.
This has resulted in a spike in cannabis ETFs. In particular, The Cannabis ETF THCX, Global X Cannabis ETF POTX, ETFMG Alternative Harvest ETF MJ and Amplify Seymour Cannabis ETF CNBS have been the biggest winners, gaining nearly 8% each. Below we profile these ETFs in detail:
This ETF offers investors exposure to a basket of stocks that are expected to benefit from the growth of hemp and legal marijuana industries. Holding 28 stocks in the basket, Canadian firms make up for 65.5% share while the United States takes around 28.6% of assets. The fund has amassed about $50.3 million in AUM and trades in a good volume of about 125,000 shares per day, on average. It charges 70 bps in annual fees.
This ETF seeks to invest in companies across the cannabis industry and tracks the Cannabis Index. It holds 18 stocks in its basket with Canadian firms accounting for 76% of assets while the United States takes 12.3% share. The product has accumulated $39.1 million in its asset base and trades in an average daily volume of 146,000 shares. Expense ratio comes in at 0.50% (read: 5 ETFs Under $20 Up for Gains in 2021).
This is the first and world’s largest ETF focusing on the global cannabis/marijuana industry. It tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem, benefiting from global medicinal and recreational cannabis legalization initiatives. The fund holds 33 securities in its basket with American firms making up 82.1% of the portfolio. The ETF has AUM of $976.6 million and trades in a solid volume of around 2.1 million shares. It charges 75 basis points in annual fees.
With AUM of $27 million, CNBS is actively managed and invests 80% of its assets in securities of companies with 50% or more of their revenues from the cannabis and hemp ecosystem. The fund holds 23 securities and charges 75 bps in annual fees. It trades in an average daily volume of 69,000 shares.
What Lies Ahead?
With the latest rally, the outlook for marijuana ETFs look bright buoyed by the wave of legalization in more U.S. states.
The successful ballot initiatives in five states — New Jersey, Arizona, South Dakota, Montana and Mississippi — in November broadened the potential market for legal cannabis sales, indicating wider acceptance of marijuana throughout the United States. Voters in New Jersey, Arizona, Montana and South Dakota approved legalizing sales of marijuana for adults. South Dakota also approved sales for its medical use, as did Mississippi (read: ETFs to Buy as Tilray-Aphria Merger Creates Cannabis Giant).
According to industry tracker BDSA, the expansion of sales to adults alone represents a nearly 20% increase in the potential U.S. market for legal cannabis. As of now, 36 states have legalized medical cannabis use while 15 states and the District of Columbia have legalized cannabis for adult recreational use.
With increasing adoption and legalization optimism, most analysts upgraded their growth outlook for the industry. Cowen projects the legal marijuana market to grow to $34 billion by 2025, up from an earlier forecast of $31 billion. Morningstar estimates that annual U.S. cannabis sales will reach $70 billion for the adult-use segment and $15 billion for medical.
Given the prospect of loosening regulations and increased legalization, cannabis stocks are set to soar in 2021.
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ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
The Cannabis ETF (THCX): ETF Research Reports
Global X Cannabis ETF (POTX): ETF Research Reports
Amplify Seymour Cannabis ETF (CNBS): ETF Research Reports
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