After a rough year in 2019 (to put it mildly), cannabis stocks and the related exchange-traded funds are incurring significant punishment again this year. The ETFMG Alternative Harvest ETF MJ — the bellwether fund in the group by virtue of its age — is off by nearly 33% this year and some once-beloved marijuana equities are flirting with or are deep into penny stock territory.
That's not the way marijuana investors want to celebrate 4/20, which is today and the “holiday” of sorts for cannabis connoisseurs.
This year, there has been a little bit of everything when it comes to bad news for weed stocks. Dilutive capital raises, furloughed workers and reverse stock splits, just to name a few ominous scenarios. However, there are indications that some adventurous investors remain dedicated to the marijuana growth thesis.
With them in mind and in the spirit of 4/20, here are a few cannabis ETFs that may eventually rise from near-death experiences.
AdvisorShares Pure Cannabis ETF (YOLO)
The AdvisorShares Pure Cannabis ETF YOLO is the second-oldest weed ETF after the aforementioned MJ and the oldest among the actively managed products in the group. Active management could eventually have some advantages in this category, but YOLO is lower by 33.67% year-to-date.
Manager Dan Ahrens sees some opportunities in the space because good marijuana companies — yes, there is such a thing and a few reside in YOLO — followed lower quality fare lower in the March meltdown.
“There are companies that are growing sales and growing almost continuously,” said Ahrens in a recent note. “The good companies’ stock performance will separate at some point from those cannabis companies that deserve to underperform, which usually means certain companies (usually Canadian) that continue to be unprofitable quarter after quarter and are becoming cash-starved.”
Global X Cannabis ETF (POTX)
The Global X Cannabis ETF POTX is passively managed and as such, it devotes a significant portion of its weight to Canadian cannabis, which are big-time offenders again this year. Still, the medicinal exposure offered by POTX could be compelling in today's environment.
Data suggest the COVID-19 pandemic is prompting users to hoard medicinal cannabis and let's keep it real, the stay at home orders in place all over North America are probably helping weed sales.
“Medical users are stockpiling cannabis to limit time out of the house and perhaps even increasing consumption as they seek to treat symptoms that may arise from isolation like anxiety,” according to Global X. “And for recreational users this means more time to use cannabis products. Consumption patterns are indicative of these trends: On March 16, California saw a 159% increase in cannabis sales compared to the same day last year. Sales increased by 100% in Washington and 46% in Colorado.”
Cambria Cannabis ETF (TOKE)
The Cambria Cannabis ETF TOKE is the other actively managed fund in the weed ETF category. Active or not, TOKE is performing less poorly this year than its rivals, though that's not saying much.
What's interesting about TOKE's outperformance this year is that the fund holds primarily micro-, mid- and small-cap cannabis names.
TOKE invests “in approximately 20 to 50 of the top companies with exposure to the broad cannabis industry based on Cambria’s determination as to their exposure to the industry,” according to the issuer.
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