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5 Best Stocks of the Top ETF of August

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The cannabis-related ETFMG Alternative Harvest ETF MJ topped the list of the best performing ETFs of August, with impressive returns of about 22.5%. It also attracted $22 million in capital, putting it on track for the largest monthly inflow since February.

The surge was primarily driven by the legalization of nationwide recreational use of cannabis in Canada effective Oct 17 that has paved the way for a merger mania, attracting a large number of deal activities (read: Canada Legalizes Marijuana: Two ETFs to Tap the Boom).

The real craze came this month as a number of alcoholic beverage companies are showing interest in partnering with the cannabis producers. This is especially true as beer and spirits giant Diageo (DEO - Free Report) is in talks with three Canadian pot producers for buying a stake or forming a partnership to produce cannabis-infused beverages. An international producer and beer marketer Constellation Brands STZ invested $3.8 billion on Aug 15 to increase its stake in Canopy Growth (CGC), the biggest marijuana industry deal so far.

Molson Coors TAP is also starting a joint venture with Hydropothecary to develop marijuana drinks in Canada while Heineken (HEINY)-owned Lagunitas launched a THC-infused sparkling water in California dispensaries on July 30.

Given the surge in deal-making by marijuana stocks, worldwide spending on legal cannabis is expected to hit $57 billion by 2027 led by growth in North America and Europe, per the new report by Arcview Market Research and BDS Analytics. North America will continue to see maximum spending, rising from $9.2 billion in 2017 to $47.3 billion in 2027.

Let’s take a closer look at the fundamentals of MJ.

MJ in Focus

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 40 securities in its basket with higher concentration on the top firms. Canadian firms make up 61% of the portfolio, while American firms comprise just 21%.

The ETF has AUM of $468.1 million and trades in a good volume of around 264,000 shares. It charges 75 bps in annual fees (read: Follow Constellation Brands, Bet Big on Cannabis ETFs).

Though most of the stocks in the fund’s portfolio delivered strong returns, a few were the real stars, having gained more than 50%. Below we have highlighted those five best-performing stocks in the ETF with their respective positions in the fund’s basket:

Best Performing Stocks of MJ

Tilray Inc. TLRY: This pharmaceutical company develops cannabis-based medicines, drugs, drops and oil products. The stock has surged about 167.3% this month. It currently carries a Zacks Rank #3 (Hold) and has a VGM Score of D. TLRY occupies the eleventh spot in the fund’s basket with 2.9% of the total assets.

Canopy Growth CGC: This cannabis company offers dry cannabis and oil products primarily under the Tweed and Bedrocan brands. Canopy Growth takes the top position in the fund’s basket with 10.6% allocation. It has also delivered incredible returns of 68.9% in August. The stock has a Zacks Rank #4 (Sell) and VGM Score of F (read: Pot Stocks Are on a High: Play These Cannabis ETFs).

Insys Therapeutics Inc. INSY: This commercial-stage specialty pharmaceutical company is engaged in the development and commercialization of pharmaceutical products that target the unmet needs of cancer patients. The stock takes the #14 spot in the fund’s basket with 2.2% of the assets. It has gained 60.2% in August and has a Zacks Rank #4. Insys Therapeutics has a VGM Score of F.

CannTrust Holdings Inc. CNTTF: This company produces and distributes pharmaceutical grade medical cannabis products in Canada. The stock has surged 51.2% this month.

Cronos Group Inc. CRON: This company is engaged in the investment in firms that are licensed to produce and sell medical marijuana. It has gained about 50.8% this month. Cronos Group currently has a Zacks Rank #3 (Hold) and a VGM Score of F. The stock occupies the third position in the fund’s portfolio, making up for 8.4% share.

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