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Cannabis ETFs Spike on Jazz-GW Pharma Deal

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Cannabis stocks have been the biggest winners to start 2021 buoyed by hopes of wider legalization and near-term decriminalization as well as the growing adoption of marijuana in more states. The recent comments from several prominent politicians regarding cannabis reform legislation added to the strength (read: 5 Best ETF Investing Ideas for 2021).

In fact, several Democratic senators released a joint statement early this week signaling plans of pursuing new legislation to reform regulations in the United States. The latest deal activity in the space has strengthened the bullish case for these stocks. This is especially true as Jazz Pharmaceuticals (JAZZ - Free Report) agreed to buy cannabinoid drug company GW Pharmaceuticals for $7.2 billion in cash and stock.

Deal in Focus

Per the terms of the deal, Jazz will pay $220 per American depositary share of GW Pharmaceuticals, including $200 in cash and $20 in Jazz ordinary shares. This represents a premium of about 50% over GWPH's closing price on Feb 2, and 60% over its 30-day volume weighted average price. The deal is valued at $6.7 billion net of GW cash.
The combined company will be a leader in neuroscience with a global commercial and operational footprint. The deal will bolster GWPH’s efforts in developing, manufacturing and commercializing regulatory approved therapeutics that address a range of diseases, including epilepsy-related seizures associated with Lennox-Gastaut Syndrome, Dravet Syndrome and Tuberous Sclerosis Complex. Jazz’s lead product, Epidiolex, is the first plant-derived cannabinoid medicine approved by the U.S. Food and Drug Administration to treat epilepsy-related seizures.

The transaction will also enhance product diversification through the addition of a third high-growth commercial franchise for critical unmet patient needs within sleep disorders, oncology, and epilepsies (read: ETFs to Watch as Biden Heads to White House).

The deal has been approved by the board of directors of both companies and is expected to close in the second quarter of 2021. However, it is subject to approval by GW Pharma shareholders, sanction by the High Court of Justice of England and Wales, and other customary closing conditions. The combination is expected to accelerate double-digit, top-line revenue growth and will be accretive in the first full year of combined operations and substantially accretive thereafter. Jazz's strong cash flow profile provides the capability to rapidly deleverage to a target net leverage of less than 3.5X by the end of 2022.

Market Impact

Following the news, shares of GW Pharmaceuticals soared to record high and crushed its average volume as nearly 14.6 million shares moved hands compared with 421,000, on average. Meanwhile, shares of JAZZ slumped 3.9% to close on the day.

Other cannabis stocks also jumped on the news with Tilray (TLRY - Free Report) and Aphria gaining more than 12% each while Aurora Cannabis (ACB - Free Report) , Canopy Growth (CGC - Free Report) and Cronos Group (CRON - Free Report) advancing about 8% each.

The solid trading in these stocks has pushed cannabis ETFs higher on the day. Investors seeking to ride the bullish trend could consider these funds:

Amplify Seymour Cannabis ETF CNBS - Up 10.1%

With AUM of $52.8 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 25 securities and charges 75 bps in annual fees. It trades in an average daily volume of 115,000 shares.

Global X Cannabis ETF (POTX - Free Report) – Up 10%

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 79% of assets while the United States takes 10.5% share. The product has accumulated $88.2 million in its asset base and trades in an average daily volume of 275,000 shares. Expense ratio comes in at 0.50% (read: Cannabis ETF Tops in January: 5 Stocks That Led the Way).

ETFMG Alternative Harvest ETF (MJ - Free Report) – Up 9.8%

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 Canadian firms making up 49.2% of the portfolio. The ETF has AUM of $1.5 billion and trades in a solid volume of around 2.4 million shares. It charges 75 bps in annual fees.

The Cannabis ETF (THCX - Free Report) – Up 9.4%

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 29 stocks in the basket, Canadian firms make up for 57.5% share while the United States takes around 37.2% of assets. The fund has amassed about $95.3 million in AUM and trades in a good volume of about 206,000 shares per day, on average. It charges 70 bps in annual fees.

Cambria Cannabis ETF (TOKE - Free Report) – Up 8.9%

This is also an actively managed ETF that seeks to invest 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. It holds 35 stocks in its basket with American firms making up for half of the portfolio and Canada taking 31.6% share. The fund has $27.4 million in AUM and an average trading volume of 27,000 shares. It charges 42 bps in annual fees (read: Top ETF Stories of January Worthy of Attention in February).

AdvisorShares Pure Cannabis ETF (YOLO - Free Report) – Up 8.4%

YOLO is an actively managed ETF with a dedicated cannabis investment mandate domiciled in the United States. It seeks long-term capital appreciation by investing in both domestic and foreign cannabis equity securities. The fund holds a basket of 39 stocks with American firms making up for half 61.5% of the portfolio, followed by 28.7% share in Canada. It has gathered $275.2 million in its asset base and charges 75 bps in annual fees. The product trades in an average daily volume of 462,000 shares.

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