As legalization occurs in Canada and more states approve the sale of recreational cannabis, the green gold rush is truly on. As a small investor, you want a piece of that market, and you now have plenty of opportunities. Of course, not all opportunities are created equal, and that’s especially true with a product that’s not federally legal in the U.S. There’s a lot of hype in this burgeoning industry and some outright scams, so it’s imperative to perform your due diligence before parting with your investment dollars.
While cannabis stocks are generally traded OTC, larger companies are heading to major exchanges. Aurora Cannabis (ACBFF) announced in early October that it intends to trade on the NYSE under the ACB ticker. Should the NYSE accept the stock, Aurora Cannabis will delist from U.S. OTC trading. The company hopes to trade on the NYSE by the end of the month. The Alberta-based company currently employs 1,500. Rival Canopy Growth Corp (CGC) is already on the NYSE, and announced exportation of medical marijuana into the U.S., an import approved by the U.S. Drug Enforcement Administration. A company backed by Canopy Growth, TerrGrowth announced October 9 it would enter the U.S. marijuana market, providing product in states where cannabis is legal. One the same day, Aleafia (ALF) announced it will trade its shares on the NASDAQ. The company debuted on the Toronto Stock Exchange in March after merging with Canabo Medical. It recently partnered with Cronos Group for an insomnia study. Tilray (TLRY), the largest and most volatile of cannabis stocks and the first listed on the NASDAQ, continues its ascent, but traders are shorting more than one third of its shares. While shares of the company have risen more than 500 percent since its July IPO, they peaked at $300 in mid-September and have since halved.
Peripheral Cannabis Stocks
Cannabis legalization also means consumers will find cannabis in various products, including those involving nutraceuticals, cosmetics and over-the-counter sleep and pain medications. Coca Cola (KO) is reportedly in talks with Aurora Cannabis to develop cannabis-infused beverages. The company, with operations on five continents, has a production capacity of 500,000 kilograms of marijuana annually. Investing in well-known brands, such as Coca Cola, that have some relationship to the cannabis industry is a way to diversify your portfolio while lessening the risk of buying marijuana stocks per se. Other related brands include Scotts Miracle Gro (SMG), which through its subsidiary, Hawthorne Gardening, is a big player in hydroponics. The beer, wine and liquor conglomerate Constellation Brands (STZ) now has $4 billion invested in Canopy Brands, and the two companies ideally complement each other. Constellation Brands wants to expand its inroads into the cannabis industry, while Canopy Brands can depend on the alcohol company’s tremendous marketing and distribution infrastructure.
The first U.S. cannabis ETF, Alternative Harvest (MJ) changed its direction from its former position as a REIT, as well as its name. It’s the fund formerly known as Tierra XP Latin America Real Estate ETF. Its largest current holdings include Aurora Cannabis, Canopy Growth and Tilray, but it also has substantial assets in Cronos Group, Inc., (CRON) GW Pharmaceuticals PLC ADS (GWPH) and Canntrust Holdings, Inc. (CNTTF) As of September 30, 2018, its year to date market value has increased by 23.42 percent.
Horizons Marijuana Life Sciences Index (HMMJ) has returned 157 percent since its April, 2017 inception. The ETF notes its index is “designed to provide exposure to the performance of a basket of North American publicly listed life sciences companies with significant business activities in the marijuana industry.” Along with other major cannabis company holdings, Scott’s Miracle Gro currently accounts for 7.15 percent of its weighted value. Horizons Emerging Marijuana Growers Index (HMJR) began trading this past February, and focuses on small cap cannabis cultivation, production and distribution companies. Performance figures aren’t yet available, since it has not yet reached it first anniversary, but this ETF is not in the same league as HMMJ. Current holdings include Terrascend Corp., Supreme Cannabis Co. and Liberty Health Sciences, Inc.