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Marijuana ETF Down 9% in Past Month: Time to Enter the Space?

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Marijuana ETF picked up this year on growing acceptance.The pure-play fund ETFMG Alternative Harvest ETF (MJ - Free Report) rose about 35.9% year to date (as of Apr 15) but started skidding from late March. The fund, in fact, has lost about 9% in the past month. Particularly, the fund lost about 3.4% on Apr 15, reflecting Aphria’s (APHA) disappointing earnings report (read: Top ETF Stories of Q1).

Is it Time to Cash in on the Beaten-Down Price?

The legalization in Canada seems to be largely priced-in at the current level. But investors’ interest has been veering toward the United States where the industry is still in its nascent stage.

Be it medical, food and beverage or cosmetics, marijuana is making its presence felt. Mergers and acquisitions have been rampant in the space, both across Canada and the United States.

Though pot remains entirely illegal at the federal level, the total number of U.S. states greenlighting medical pot is now 33. And there are 10 states that approved the recreational use of marijuana.

Per an analyst, “based on the kilograms sold to market cap ratio, Aphria and Aurora are the cheapest of the top producers.” The figures, however, exclude the latest earnings figure of Aphria. Below we highlight the table used by the analyst.

However, three other key companies have also been growing inorganically and signing a number of deals. Tilray has been into inorganic expansion and research and development of late. In February, the company announced a deal to acquire the world’s largest hemp food maker Manitoba Harvest for up to C$419 million ($318 million) (read: Tilray's Deal to Buy Hemp Food Maker Bolsters Marijuana ETF).

In mid-December 2018, Tilray announced that it would partner with AB InBev (BUD - Free Report) to research nonalcoholic cannabis-infused beverages. In the same month, Tilray formed a pact with Sandoz, a segment of Novartis (NVS - Free Report) . The deal will increase the global availability of medical cannabis products (read: Tilray Earnings Impressive: More Reasons to Buy Marijuana ETFs).

Last year,Constellation Brands Inc. (STZ - Free Report) decided to expand its stake in the biggest listed cannabis company Canopy Growth Corporation (CGC - Free Report) (read: Follow Constellation Brands, Bet Big on Cannabis ETFs).

In late-2018, Marlboro cigarette maker Altria Group (MO - Free Report) purchased a 45% stake in Canadian cannabis firm Cronos Group (CRON - Free Report) (read: Cronos-Altria Deal Boost Marijuana ETF: Will This Continue?).

Signing deals with such big namesdoes its share of job in boosting investors’ confidence. Against this backdrop, investors can consider entering the marijuana space. Having said that, we would like to note that marijuana investing is pretty volatile in nature.

MJ in Focus

ETFMG Alternative Harvest ETF or MJ is a pureplay fund in the space. The fund is seeing high momentum now. The underlying Prime Alternative Harvest Index enables investors to take advantage of both event-driven news and long-term trends in the cannabis industry. Aurora (9.73%), GW Pharmaceuticals (9.0%) and Canopy Growth (6.7%) hold the top three spots in the fund. The fund charges 75 bps in fees.

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