CONTRIBUTOR
Sweta Jaiswal, FRM Zacks
PUBLISHED OCT 9, 2020
The cannabis industry has come under the spotlight since Democratic vice-presidential nominee Kamala Harris’ favorable comment during a debate with her Republican counterpart Mike Pence. She said that a Biden administration would decriminalize cannabis at a federal level in the United States. Commenting on the cannabis space she stated, "We will decriminalize marijuana and we will expunge the records of those who have been convicted of marijuana," per a Bloomberg article.
Notably, Harris always supported cannabis decriminalization. She is also the lead sponsor of the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act of 2019, which sought to end federal prohibition of cannabis, per a Reuters article. According to a Bloomberg article, Harris’ stand on the issue also appears to be the strongest that any major-party candidate running for the important posts of president or vice president has taken on cannabis to date. Notably, Democratic presidential candidate Joe Biden also spoke about the marijuana industry previously. In this regard, he said that no person will go to jail for "smoking marijuana”, per a Bloomberg article.
Driven by the news, shares of cannabis companies witnessed a significant rally on Oct 8. The U.S.-listed shares of Aurora Cannabis Inc. (ACB) rose 10.6%, Aphria Inc. (APHA) shot up 10.30% and Canopy Growth Corporation (CGC) jumped 13.5% along with an 18.3% spike in Tilray, Inc. (TLRY). Moving on, The Cannabis ETF (THCX) closed at a three-week high of $9.32 after climbing 7.4% on the same day.
It is also worth noting that following the first of the three presidential debates in Cleveland, things seem to be in favor of Mr. Joe Biden. According to a fresh poll of registered voters brought out on Oct 4 by The Wall Street Journal/NBC News, Biden leads the presidential race by 53% to 39%, as quoted on Yahoo Finance.
In a separate development, Vermont’s Governor Phil Scott (R) announced on Oct 7 that he’ll allow a marijuana sales legalization bill, passed by the legislature, to take effect, per a Vox article. Going by the same report, the latest bill will build a commercialized, tax-and-regulate system, similar to other legalization states. Notably, Vermont stood as the 11th state in the United States to legalize marijuana sales for recreational purposes.
Importance of the Pledge for Marijuana Space
Per sources, the decriminalization of cannabis at the federal level will help the cannabis companies get an improved access to banks and other traditional financial institutions. Notably, the players in the marijuana space were denied financial assistance by the service providers in spite of many U.S. states having legalized the marijuana use, per a Reuters article.
In this regard, Keith Cich, co-founder of cannabis-related products manufacturer Sunderstorm Inc said that “access to safe banking will transform the industry, freeing up capital markets for investment and reducing the risk of operating a cannabis business,” according to a Reuters article.
Moreover, it is found that these companies faced cash crunch due to regulatory issues while having to deal with the lack of profitability due to high costs, according to a Reuters article. Commenting on the same, Sam Armenia, vice president at producer C21 Investments Inc, said as quoted by the same article that "from a business perspective, (decriminalization) will level the playing field by allowing companies to expense normal operational costs instead of being taxed on gross profit".
Cannabis ETFs That Gained on the News
According to a report published by Fortune Business Insights, the global cannabis market is projected to reach $97.35 billion by the end of 2026 from $10.6 billion in 2018, seeing a CAGR of 32.92%. Per Statista, the global legal cannabis revenues are set to more than triple from $20.1 billion in 2018 to $63 billion by 2024 end. Against this bullish backdrop, let’s look at the ETFs that are benefiting from the news:
ETFMG Alternative Harvest ETF MJ — up 5.4% on Oct 8
This is the first and the world’s largest ETF focusing on the global cannabis/marijuana industry. It tracks the Prime Alternative Harvest Index, designed to measure the performance of companies within the cannabis ecosystem gaining from global medicinal and recreational cannabis legalization initiatives. The ETF has an AUM of $495.2 million. It charges 75 basis points (bps) in annual fees (read: The Hottest Stock ETFs of 2020).
AdvisorShares Pure Cannabis ETF YOLO — up 5.6%
YOLO is the first actively managed ETF with a dedicated cannabis investment mandate domiciled in the United States. It seeks long-term capital appreciation by investing in both domestic and foreign cannabis equity securities. It has gathered $57 million in its asset base. The ETF charges 74 bps in annual fees (read: Top ETF Stories of Coronavirus-Induced Q2).
The Cannabis ETF THCX — up 7.4%
This ETF offers investors exposure to a basket of stocks that are expected to benefit from growth in the hemp and legal marijuana industries. The fund amassed about $19.4 million in AUM and charges 70 bps in annual fees.
Global X Cannabis ETF POTX — up 8.9%
This ETF seeks to invest in companies across the cannabis industry and tracks the Cannabis Index. The product has accumulated $12.7 million in its asset base. Expense ratio comes in at 0.50% (read: Top & Flop ETF Zones of First Nine Months of 2020).
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ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
AdvisorShares Pure Cannabis ETF (YOLO): ETF Research Reports
The Cannabis ETF (THCX): ETF Research Reports
Global X Cannabis ETF (POTX): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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