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Why Marijuana Stocks & ETF Are Soaring

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Pot stocks are hot! Canadian cannabis producer Tilray (TLRY - Free Report) surged more than 25% today after announcing that the US Drug Enforcement Administration (DEA) has granted approval to import a cannabinoid study drug into the US.

The drug will be used for a clinical trial at the University of California San Diego Center for Medicinal Cannabis Research for tssential tremor (ET). Last week, Tilray had entered into a supply deal to ship its medical marijuana to Germany.

The stock, which IPOed on the Nasdaq in July at $17, is up about 780% since then. It is the first cannabis company to go public on a major US exchange.

Yesterday, it was reported by WSJ that Coca-Cola (KO - Free Report) is in talks with Canada’s Aurora Cannabis to develop cannabidiol infused beverages.Cannabidiol is a non-psychoactive substance in marijuana that is known to have some health benefits.

Aurora Cannabis surged 17% yesterday and is still rising today even though the company said there is no formal agreement at this time. “No decisions have been made at this time," per Coke while adding that “we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world.”

A number of alcohol companies are also investing in marijuana. Recently Constellation Brands (STZ - Free Report) , invested $4 billion in Canopy Growth (CGC - Free Report) , raising its stake to 38%. They plan to produce cannabis-infused drinks.

Canopy Growth started trading on the NYSE under ticker CGC in May and is up about 73% since then.

Alcohol and beverage companies are interested in marijuana since consumption of alcohol and sugary drinks is going down while cannabis use is on the rise. A Pew Research Center survey conducted in October showed that 61% of Americans said marijuana should be legalized, compared to 31% in 2000.

Recreational use of marijuana will be legal in Canada in mid-October while its medical use has been legal since 2001. Per research firm Euromonitor, the American market for legal marijuana products will reach $20 billion by 2020, up from $5.4 billion in 2015. As the market is growing and increasingly gaining legitimacy, investors are pouring money into these stocks.

The first and only US listed ETF focused on marijuana--ETFMG Alternative Harvest ETF (MJ - Free Report) has surged about 46% over the past month though it is up about 23% this year. It holds 36 companies that are involved in legal cultivation, production, marketing or distribution of cannabis or related products.

Investors should remember that marijuana stocks are extremely volatile. These are younger, and risker companies in an industry that continues to evolve. Further, while 30 states in the US and the District of Columbia having legalized the use of the drug for medicinal or recreational use, it remains illegal at the federal level.

Marijuana Stocks and ETF: What Investors Need to Know

 

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