What's Ahead For Marijuana ETFs After A Dismal Show In 2019?
Zacks Investment Research | Dec 24, 2019 01:00AM ET
After a solid rally in 2018 attributable to legalization of recreational marijuana in Canada, the industry performed dismally in 2019 with the biggest marijuana fund ETFMG Alternative Harvest ETF (CSE:MJ) losing 35.3% (as of Dec 20, 2019). Earnings weakness,“Can Bill Hopes Relieve Earnings-Induced Pain in Pot ETFs? ).
What Lies in 2020?
We have a moderate outlook on the space for the next year. While a downbeat 2019 corrects the industry’s valuation to some extent, there’s still uncertainty around the space. Regulatory backdrop holds the wild card for the industry’s well-being.
Most Democrats have recommended marijuana legalization in their campaign. However, Republicans are yet to give a green signal. Donald Trump has not given any clue about his preference on the legalization of marijuana but senior Republican leaders are not quite supportive of marijuana legalization per Market Realist .
The total number of U.S. states greenlighting medical pot is now 33. There are Illinois is expected to join the recreational group next year.
On a positive note, a U.S. congressional committee passed a legislation in late November to end the federal embargo on weed. But an approval by the full House and Senate should take time and will likely see many revisions in the process.
The latest bill proposes to enact a Is REX Shares' Leveraged Cannabis ETN Launch Untimely? ).
With the pressure mounting on the space, dropped to three from 36 a year ago.
All is not gloomy in the space. Improving retail scenario in Canada or the 1.5 million new customers are likely to join the market thanks to the advent of cannabis-infused edibles, extracts and topicals as part of Cannabis 2.0.
ETFs in Focus
Against this backdrop, investors can keep a close tab on marijuana ETFs like AdvisorShares Pure Cannabis ETF (LON:YOLO) , Cambria Cannabis ETF THCX and Global X Cannabis ETF (BO:POTX) . It is too early to comment on the momentum of the industry. Regulatory backdrop, accessibility to funding and the extent of acceptance of Cannabis 2.0 will decide the course of the stocks next year though things are unlikely to be as grave as 2019.
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