Market Overview

The Marijuana ETF Continues To Impress; Could Institutional Interest Be Next?

The Marijuana ETF Continues To Impress; Could Institutional Interest Be Next?

Up 40 percent this year, the ETFMG Alternative Harvest ETF (NYSE: MJ) remains one of 2019's most impressive non-leveraged exchange traded funds.

Adding to the ebullience surrounding the only dedicated cannabis ETF trading in the U.S., MJ has been a prolific gatherer of new assets this year.

What Happened

MJ recently topped $1 billion in assets under management, though it has slightly pulled back from those levels.

“The fund has staged an impressive run from it's Christmas Eve 2018 lows,” said Paul Weisbruch, head of ETF sales and trading at Dallas-based Esposito Securities, in a recent note. “In spite of steep sell-off that hit the cannabis stock group from October into last Christmas Eve, MJ itself has continued to add new assets in what seems to be new investors establishing their first positions in the fund as well as others potentially adding to existing positions on the weakness and volatility.”

Why It's Important

From a technical perspective, significant upside could still be had with MJ as the cannabis ETF resides 23 percent below its 52-week high. MJ tracks the Prime Alternative Harvest Index and holds 40 stocks.

“MJ has 28.3 million shares outstanding and an asset base of $947 million at the moment and it actually briefly eclipsed $1 billion in early February before the group sold off from recent highs,” said Weisbruch. “Year-to-date MJ has reeled in an additional $169 million in new assets, and in the year of 2018 the fund added more than $780 million.”

Over 86 percent of MJ's holdings are Canadian or U.S. companies such as Aurora Cannabis Inc (NYSE: ACB) and Canopy Growth Corp (NYSE: CGC). Late last year, Canada legalized marijuana for adult recreational use. In addition to Canada, about 10 U.S. states have legalized cannabis for recreational use while almost half the states approved cannabis for medicinal but not recreational uses.

What's Next

What's next for MJ could be increased institutional interest.

“Judging from the average holding size in the fund across all shareholders which is 'retail' in size and comparing to the reported institutional holders of the product, it is fair to say that institutional interest in the product still has plenty of room to heat up,” said Weisbruch.

At the end of last year, the largest non-retail hold of MJ owned just over 369,000 shares of the cannabis and ownership of the fund among wire house brokers remains small, notes Weisbruch.

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