April 20 has become a day of celebration for people who support the full legalization of marijuana, even for recreational use.
But there is no denying the volatility of the cannabis sector for investors. The following is a six-month chart showing the total returns of three publicly traded funds actively managed in space as of April 19:
(Data set)
Read: House has approved the anti-cannabis bank bill
These are attractive numbers for any investment in a six month period. But they also point to wild volatility. All three hit all-time highs on February 10. Since then, the Amplify Seymour Cannabis CNBS ETF,
has dropped 35%, while the ADF AdvisorShares Pure Cannabis ETF YOLO,
has fallen 34% and the MSOS AdvisorShares Pure US Cannabis ETF ETF,
has given up 29%.
A new bank bill goes through House
One last piece of supporting news came Monday night, as the House passed a bill that would give cannabis companies access to the U.S. banking system.
Before, a lot of good news had been set for the industry. For example, the actual legalization of marijuana in New York State on March 30: recreational use is now allowed and legislation is not hidden behind a flaccid language of “decriminalization” – it had not reversed the wear and tear of cannabis stocks.
A key distinction investors need to understand is that the five largest Canadian marijuana companies are publicly traded on U.S. stock exchanges, but U.S. producers are only publicly traded on Canadian stock exchanges. Shares of U.S. multinational operators, known as MSOs, are available without a prescription or on Canadian stock exchanges because marijuana for recreational use is still illegal at the U.S. federal level.
This means that several of the best-known marijuana companies, the Canadian ones, cannot sell products in the U.S., while MSOs only have free reign in the 16 states where recreational use has been legalized.
YOLO and MSOS have been able to solve this problem by maintaining full return swaps for MSOs. And on April 20, yes, on 4/20, International Marijuana Smoking Day, Amplify ETFs announced that CNBS will now be able to buy MSO full return swaps as well.
The “big four” MSOs are Curaleaf Holdings Inc. CURLF,
Green Thumb Industries Inc. GTBIF,
Cresco Labs Inc. CRLBF,
and Trulieve Cannabis Corp. TCNNF,
Below you can see the opinion of Wall Street analysts for MSOs, while the group has few ratings of “buying” from the “big five” Canadian producers: Canopy Growth Corp. CGC,
Aphria Inc. APHA,
Tilray Inc. TLRY,
Cronos Group Inc. CRON,
and Aurora Cannabis Inc. ACB,
Click here for a detailed description of the three ETFs and how they invest in US and Canadian marijuana producers.
Analysts’ opinions
While staying out of the US stock markets, MSOs have a lot of coverage among analysts working for brokerage firms. To look beyond the big four MSOs, Dan Ahrens, the portfolio manager at YOLO and MSOS, has provided a list of six of the “most significant current ones”.
One of them, TPCO Holding Corp. GRAMF,
it is only covered by two analysts, so it is not included in the list below, in which all companies are covered by at least five analysts.
Here is a summary of opinion among Wall Street analysts on new MSOS:
(Data set)
The first screen includes only “buy” percentages or equivalent ratings, because none of the analysts have “sell” or equivalent ratings on any of the MSOs listed. It can be seen that the feeling is strong for American producers.
The summary of the ratings is very different for the five major Canadian producers:
(Data set)
Price-to-sales-to-profit ratios are shown, rather than price-to-profit, as firms at such an early stage of growth do not focus on reserving profits. In comparison, the price-sales ratio to the advance of the Nasdaq COMP composite index,
is 4.2.
Click here for an update on the proposed merger of Aphria Inc. and Tilray Inc.
Read: Why this cannabis giant is betting on Europe to build a war box before the US legalization boom