Back to top

Follow Constellation Brands, Bet Big on Cannabis ETFs

Read MoreHide Full Article

Taking a few hits off a joint is no more a hush-hush thing as the marijuana industry is getting official approval from many regions for recreational uses, on top of medical usage. In any case, the medical marijuana industry has been growing by leaps and bounds lately and amassing investors’ interest.

But lately there has been a surge in legalization of the recreational usage of marijuana in some U.S. states. States like Washington, Oregon, California, Nevada, Alaska, Colorado, Massachusetts and Maine have legalized recreational uses, while several other approved its medical use. Canada too has legalized marijuana (read: Canada Legalizes Marijuana: Two ETFs to Tap the Boom).

The growth of the industry can be explained by the Constellation Brands Inc.’s (STZ - Free Report) decision to expand its stake in the biggest listed cannabis company Canopy Growth Corporation (CGC - Free Report) to 38% from the initial 9.9% acquired in November 2017.

Additionally, Constellation Brands will receive 139.7 million new warrants of Canopy, which can be exercised in the next three years. These warrants, if exercised, will expand Constellation Brands’ ownership interest in Canopy to more than 50%. Shares of CGC jumped 11.3% on Aug 20 and has risen 46.4% in the past month (as of Aug 20, 20.18).

Legal marijuana sales probably surged 33% to $10 billion in 2017, after a 34% jump in 2016, according to cannabis research firm ArcView. The firm expects sales from legal cannabis market to touch $24.5 billion by 2021.

Investment firm Cowen & Co. is also bullish on the space and expects legal marijuana sales to hit $75 billion by 2030. So, clearly it is a high-growth industry and intriguing for money making (read: Rush for Marijuana ETFs Getting Stronger).

According to U.S. cannabis research firms, Arcview Market Research and BDS Analytics, “consumer spending globally will increase to $32 billion, or triple current levels,” as quoted on ETF Trends.

Constellation Brands’ news acted as a cornerstone for the entire cannabis industry and stocks. Cronos Group (CRON) shot up 12.2% on Aug 20, Aurora Cannabis gained about 17.9%, and Aphria jumped 8.1%. Against this backdrop, investors can definitely take a loot at the below-mentioned marijuana ETFs.

ETFs to Tap

ETFMG Alternative Harvest ETF (MJ - Free Report)

This is the first and only ETF targeting the 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 37 securities in its basket, with each holding less than 10% share. Canadian firms make up 61% of the portfolio, while American firms comprise just 21%.

The ETF has amassed $344.3 million in its asset base so far and trades in a heavy volume of more than 1.5 million shares. It charges 75 bps in annual fees and climbed 5.9% on Aug 20.

AdvisorShares VICE ETF (ACT - Free Report)

Another way to play the upcoming boom in the marijuana industry is with ACT. It not only targets the cannabis industry but also offers concentrated exposure to “vices” including alcohol and tobacco. The fund invests in companies that derive at least 50% of their net revenues from the marijuana and hemp industry or have at least 50% of their company assets dedicated to lawful research and development of cannabis or cannabinoid-related products (read: 8 New ETFs of 2017 to Explode in 2018).

Specifically, the fund has 18% exposure to cannabis-related companies. It is an actively managed fund and has attracted $13 million in AUM since its debut in mid-December. The ETF has 0.75% in expense ratio. It was up 0.5% on Aug 20.

Want key ETF info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>



More from Zacks ETF News And Commentary

You May Like