Marijuana stocks and the related ETF have caught enough investors’ attention this year, courtesy of its mysterious rally in mid-2018 on Canada’s pending legalization of recreational marijuana from Oct 17. The pure-play marijuana ETF ETFMG Alternative Harvest ETF (MJ - Free Report) added about 68.8% from mid-August to mid-October.
Though it saw a volatile phase in November on bubble fears and some downbeat earnings releases, the fund is gathering steam to close out 2018 and start the New Year. So far this year, the fund is down 20.2% (read: What Went Wrong With the Marijuana ETF on Wednesday?).
In view of this, let’s take a look at whether the space will be able to maintain its rally in 2019.
Legalization Taking Place Globally
Cannabis is getting official approval from many U.S. states for recreational uses, apart from medical usage. Though pot remains entirely illegal at the federal level, Michigan approved a ballot measure in early November for recreational use of marijuana to become the 10th such U.S. State while Missouri and Utah saw legalization of medical marijuana, taking the total number of U.S. states greenlighting medical pot to 32 (read: Why Marijuana Stocks & ETF Soared Today).
The U.S. Food and Drug Administration is showing greater acceptance as several pot stocks advanced from over-the-counter exchange to more reputed exchanges in the United States, per a source.
Meanwhile, Canada became the first major world economy and the second country after Uruguay to legalize recreational marijuana. Also, the opening-up of several medical marijuana markets on the international level is pending. Meanwhile, things are looking up in Germany, United Kingdom and Mexico.
Growing Potential of Cannabis-Infused Beverage Industry
Per an article published on Bloomberg, marijuana and alcohol industries are gradually becoming a one-stop destination for recreation. Dan O’Neill, the former CEO of Molson Coors Brewing Co., believes that cannabis companies (once legalized fully in the United States) can see as huge growth as alcohol after the ban ended per a source.
The growing acceptance has led many brewers to come up with cannabis-induced beverages and ink deals with pot companies. In mid-August, U.S.-based Constellation Brands (STZ - Free Report) — a leading producer of beverage alcohol brands — announced expansion of its stake in the biggest listed cannabis company Canopy Growth Corporation (CGC - Free Report) (read: Follow Constellation Brands, Bet Big on Cannabis ETFs).
A few days later, on Aug 24, there was news that the U.K.-based liquor maker Diageo Plc (DEO - Free Report) will indulge in discussions with at least three Canadian cannabis companies to buy a stake or form a partnership with one of them. The Canadian arm of Molson Coors and Quebec-based pot producer Hydropothecary Corp. announced their plan to make non-alcoholic, cannabis-infused beverages, as beer sales slowed down in North America.
Soft drink behemoth Coca-Cola Company (KO - Free Report) is also reportedly "closely watching" the market for drinks infused with cannabidiol and is in talks with Canada's Aurora Cannabis.
2018 Loaded With Deals
Apart from the Constellation Brands deal in August, other major deals include marlboro cigarette maker Altria Group’s (MO - Free Report) December announcement of an $1.8-billion investment in Canadian cannabis producer Cronos Group (CRON - Free Report) and Aurora Cannabis’ expansion in Mexico with the acquisition of Farmacias Magistrales S.A. so that it can have an access to the newly legal Mexico medical marijuana market.
Notably, Aurora made some other big acquisitions this year, including the purchase of Saskatchewan-based CanniMed Therapeutics in May and Ontario-based MedReleaf in July (read: Cronos-Altria Deal Boost Marijuana ETF: Will This Continue?).
Moreover, there were deals like Aphria’s purchase of Nuuvera in March and Canopy Growth’s acquisition announcement of U.S.-based Ebbu Hemp. MedMen Enterprises lately agreed to buy medical cannabis company PharmaCann.
Bullish Analyst Take
Barclays is betting big on Cannabis and revealed a position in Tilray (TLRY - Free Report) , the Canadian marijuana company, in the third quarter as well as boosted its bet on another Canadian marijuana producer, Cronos Group (CRON - Free Report) . The bank has also eyed Canopy Growth stock through investments in Constellation Brands.
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