As strong as the cannabis industry is today, the better opportunity for investors may very well be in the U.S. markets. With 10 states having legalized marijuana and more on likely on the way, it has proven to be a very hot industry.
While a stock like Aurora Cannabis (TSX:ACB)(NYSE:ACB) has done very well for itself, rising more than 75% since the start of the year, it and its Canadian peers may be running into a bit of a ceiling. And it’s evident from what we’ve seen in the market that cannabis companies are aware of this too, as there is more interest in the U.S. hemp market with the passing of the farm bill.
However, that’s a small fraction of the market, and that’s why rival Canopy Growth recently announced it was going to acquire a U.S. company once cannabis is legalized. The problem is that might be a long wait. Aurora, meanwhile, is looking at its own acquisition options; it has been adding some high-profile executives to the mix in the hopes of uncovering some great opportunities. It’s likely that the company is exploring beverage partners, as many cannabis companies have linked up with companies in other industries in anticipation of the legalization of edibles. An acquisition in the U.S. market, unless it’s for hemp, is a lot less likely.
That’s where a new ETF might give cannabis investors a more appealing option. Horizons recently announced it was launching the Horizons US Marijuana Index ETF, which has begun trading on the NEO exchange. Due to the illegality of cannabis federally, the TSX is not an option for a stock or ETF that has interests in the U.S. cannabis industry, which is why Horizons has had to use another exchange instead.
The ETF holds some of the biggest, most promising names in the industry. Curaleaf Holdings, Cresco Labs, and MedMen Enterprises are among some of the companies that are in the ETF. With more than 30 stocks in the fund, it gives investors a lot of diversification and minimizes the risk of seeing big swings as a result of company-specific events. The fund charges a fee of just 0.85%, which is likely to be very minimal given how strong the returns might be as the industry continues to grow.
Curaleaf has soared 115% since the start of the year, while Cresco Labs has jumped 75%. Medmen’s results have been a bit more modest, but it too is up around 5%. For investors looking to get in on the hot U.S. cannabis market, this might be one of the best ways to do so without overexposing yourself on one stock or even a handful of them.
Horizons is also going to make sure that for a stock to be included in the index, it will require a market cap of more than $75 million and also meet liquidity requirements. Investors won’t have to worry about some tiny marijuana companies getting included in the fund and jeopardizing its overall returns.
Fool contributor David Jagielski has no position in any of the stocks mentioned.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019