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YOLO Hits A Cannabis Themed Home Run In The ETF Space

ZMK Capital profile picture
ZMK Capital


  • The 2019 actively managed cannabis ETF was one of the first to provide investors long risk exposure to the ever-popular marijuana democratization play.
  • The inauguration of a cannabis friendly Democratic administration provided tailwinds for underlying securities to fly.
  • Increasingly, it seems however that cannabis friendly policy has been priced in.
  • Developments in interest rates have forced investors to scrutinize company financials more closely.
  • Additionally, lucrative thematic expense ratios continue to attract competition from other fund houses.

Brief Overview

Cannabis appears to have fallen off the radar. At least, that is perchance what mainstream financial infotainment would have you believe. It has been a while since storied cannabis ventures were showcased like they were during several widely covered public flotations.

Of course, the cannabis space is alive and well – the firms have not gone away but may have taken back seat, at least in the media, to vaccine roll outs, interest rate movements and imminent government policy.

The good news is that both remarkable progress in vaccine roll outs and Biden administration policy are likely to be positive for both retail and industrial cannabis segments. The bad news is that characteristics of the industry have not meaningfully changed - an adverse interest rate environment is evolving along with a potential political bun fight to get legislation passed.

While these factors may not wholeheartedly explain some of the price-action we have seen in the cannabis themed ETF space, undoubtedly, they have made some form of contribution as the category undergoes a degree of obvious consolidation. Numerous marijuana ETFs have pulled off their highs as investors come to grips with an increasingly reflationary environment which adversely impacts both big-narrative growth plays and long bonds.

For the fervent cannabis investor looking to take on exposure, changes in interest rates are something to carefully look out for, particularly for an industry which has gorged itself on cheap debt and lose money on a never-ending quest for growth.

Widespread societal acceptance of cannabis is becoming a growing global phenomenon.

Source: AdvisorShares

The growing popularity of the “cannabis democratization” trade has attracted increasing attention from fund houses. Thematic investment plays dressed up as ETFs remain extremely lucrative for fund managers and popular often for investors wishing to embrace a social theme or set of values

This article was written by

ZMK Capital profile picture
ZMK Capital is a Southeast Asian based prop trading desk focusing on long/ short macro set ups globally. Additionally, the desk publishes equity specific research, ETF overviews, earnings plays and macro-economic analysis. Current focal points include the global energy market, natural resources, macro-economics, interest rates and Fx. Beyond managing money in these markets, interests include data science linked to securities markets, game theory & professional sports.Feel free to direct message ZMK if you are interested in being part of a community of prop traders, investors & money managers.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (11)

Robert NYC profile picture
They are all losers for at least a few quarters as they drop.

1) there will be no federal legalization for years. With a 50-50 split in the Senate and the fact that the filibuster is not going away, along with many other larger issues that rate way above this until they play politics for the mid-term election, it will just not happen.
2) New York and New Jersey will take at least until 2022 until all the buearacracy, taxes, fees, regulations etc... will be formalized and gram 1 of weed sold in those states. These 2 high-tax states will tax legal weed to death. Where are the profits?
3) Every PE in this space is just way the hell too high, even if any company is even profitable now. Very few are. Any PE over 60 is going lower. Once you are in the 40s, maybe cannabis investments are worth the investment.
4) The market is paying for value, not growth.
5) As interest rates increase, the discounting drops the growth more severely to the current stock price.

The entire cannabis space is going lower. You can write all the pretty articles you want about the future but you just missed Weed Bubble 2.0 in February.
The road to widespread legalization and maturing of the cannabis industry is going to be a long and volatile one but I firmly believe its going to be very profitable down the line so im perfectly happy dollar cost averaging into YOLO and MSOS on a weekly basis regardless of the hype or trends.
Capitalism Is Freedom profile picture
It's not "Democratic administration"...it's "Democrat Administration". You don't call a member of the Democrat Party a "Democratic"...they are called Democrats, hence the correct name "Democrat Party". Like everything else they do, the use of "Democratic Party" is a lie, designed to fool people into believing they are the party of democracy, instead of the party of slavery, segregation, racism, and fascism.
I_LUV_MY_DIVS profile picture
if you run a comparative graph on seeking Alpha between YOLO, MJ and TOKE. They are identical and go up and down by the same amount on the same days. The only questions as to winning or losing would have been your purchase date.
Pull gwph MSOS is big winner
Yolo return as shown by you would be only for people that got the stock 12 mo ago precisely, because I bought in 2019 when it was at $ 13.20 and had to patiently wait to see YOLO diving to almost $6 before going up to $ 31-32 and now down to 22.50. So the name should be YOYO as it propiciates strong roller coaster emotions....!!!! Anyway still believing in YOLO and MSOS, that by the way if I am not wrong started in Sept, 20, consequently the 74% was for the first 6 months (it also went up to $ 55 before retrieving to today`s $42.40).
So as I understand your informative article, YOLO gets a neutral because the investing sentiments in fad-like investments (e.g., cannabis), driven along by hype and infotainment, can rapidly ebb and flow. Cannabis can fall out of favor like last year's fashion. Meanwhile, boring old juggernaut companies chug along making slow but steady progress.
Yes, I see your point. I have a smallish position in YOLO. It's back from the dead and doing fair now, granted due to hopes in policy changes.
Capitalism Is Freedom profile picture
@scizen Canabis isn't a fad. Your comparison is totally wrong. Niche maybe, but not a fad.
Yolo is still trading below its first day price. No money to be made here. I got the opportunity to average down and get out with a profit.
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